TABLE OF CONTENTS
Total global refining-sector transaction values in 2010 increased 30 percent above 2009 figures to $36 billion in 2010, according to results in the IHS Herold 2011 Global Downstream M&A Review, which was just released by information and insight provider IHS.
According to the report, which tracks worldwide energy mergers and acquisitions (M&A) transaction values involving refining and other downstream assets, including petrochemical facilities, terminals/storage, propane distribution and diversified downstream interests (refining/terminals/service stations), the 2010 spending increase offers encouraging signs of recovery to the sector after transaction values declined in 2009 to $28 billion, following a posting of $45 billion in transaction values in 2008.
While total transaction value for refinery deals was flat in 2010 compared to 2009 and 2008, total deal value was up strongly in fourth-quarter 2010 compared to the first nine months of the year, as refining margins began to improve and buyers took advantage of favorable prices in a depressed market and an oversupply of properties to acquire refining assets.
"An improving economy, particularly in the U.S. and North American markets, is driving a slow, but steady, increase in gasoline consumption, along with the demand for oil and refined products," said Cynthia Pross, senior analyst for M&A research at IHS. "With continued high global-construction costs, M&A was a relatively inexpensive way for refiners to quickly add capacity to meet demand and take advantage of higher margins. However, what I think is most important here is the level of cautious, but growing, confidence these companies have in the expansion of the overall global economy."
While total deal count dropped in 2010 to 59, following deal counts of 67 in 2009 and 66 in 2008, actual transaction values were up. As far as deal-count distribution, transactions involving terminals/storage facilities led the downstream deal count with 18 deals in 2010, followed by 11 deals involving natural gas distribution. The sector recorded eight deals for refining and another eight deals for petrochemical assets. Eleven of the 18 terminal/storage deals were sales from operating companies to master- limited partnerships in the U.S.
Natural-gas distribution transactions continued to be a major contributor to total sector transaction value, with activity in the U.S., Europe, South America and Asia. The largest transaction was the $4.4 billion merger of two U.S. natural-gas distribution companies, AGL Resources and Nicor Inc., which created a larger, stronger and more geographically diverse regulated company. In the second-largest natural gas distribution transaction in 2010, Spanish-company Iberdrola S.A. sold three regulated natural gas-distribution companies in Connecticut and Massachusetts to Connecticut-based UIL Holdings Corp. for $1.3 billion, allowing it to substantially grow its customer base and to expand geographically.
The largest refining transaction was Rosneft's acquisition of a 50 percent interest in four German refining/petrochemical complexes from Petroleos de Venezuela (PDVSA) for $1.6 billion, giving the Russian firm a strong foothold in the European refining market.
Petrobras was a major player in the refining M&A market in 2010, responding to the Brazilian government's mandate to reduce the country's dependence on fuel imports. It acquired a 30 percent interest in the Alberto Pasqualini refinery in Brazil from Repsol. At an implied value of about $14,900 per acquired barrel-per-day of crude-refining capacity, this was the most expensive refining transaction in 2010, and the most expensive transaction on a global basis in the last three years (2008 through 2010).
Private-equity firm PBF Holdings Co. went on a spending spree, acquiring three U.S. refineries at favorable prices, for a total investment of $960 million. Two of the acquisitions were Valero refineries located on the U.S. East Coast, and the third was the purchase of Sunoco's Toledo, Ohio, refinery, giving PBF Holdings a foothold in the U.S. Midwest market.
The number of transactions also reflected the desire by companies to acquire refining assets at bargain prices, since, during the economic downturn, a number of facilities were either shut-in, or were operating below capacity.
"On the sales side," said Pross, "we continued to see major, integrated oil companies pare their downstream operations and sell less strategic assets, a trend that we have seen during the past several years."
In 2010, she noted, Marathon agreed to sell most of its downstream assets in Minnesota to an investment group. The assets included the St. Paul Park refinery, a storage terminal, service stations/convenience stores, and pipeline assets. The St. Paul Park refinery was a relatively older, less-complex refinery than Marathon's other six refineries.
Shell is undergoing a major downstream-asset divestiture program that includes the targeted reduction of net-refining capacity by 15 percent and the reduction of its retail assets by more than 35 percent during the next few years. In 2010, according to the IHS report, Shell agreed to sell downstream assets in Finland and Sweden to Finnish company Keele Oy for $640 million. The company sold several refineries in Europe, including its Gothenburg refinery in Sweden, and the Heide refinery in Germany, which was another smaller, specialized refinery that serves a niche market. In addition, Shell also sold all its downstream operations in New Zealand, but retained its upstream assets in the market.
In a market impacted by high inventory levels and reduced demand, Valero's refineries have suffered from declining throughput margins during the past several years, which drove the refiner to divest of some of its higher-cost, lower-margin assets on the U.S. East Coast. The move allows Valero to focus on its more lucrative Gulf Coast market, where it has larger, more-complex plants that can process multiple crudes, including heavy oil from Canada, as well as secondary products that have higher margins.
"For many of these refiners, 2010 was about becoming leaner and focusing on shedding more-costly, less-productive assets in favor of more strategic assets that could process higher-value products. A number of refining assets are available for sale in Europe that currently serve the over-supplied global market," Pross added. "This is a situation that we don't see improving significantly in the near-term. While demand is up slightly, it is still weak, and there continues to be over-capacity and high inventory levels."
In addition to analysis of downstream M&A activity, IHS covers financial performance of companies and transactions across the energy spectrum. Analysts from its M&A research team will present a comprehensive analysis of 2010 transactions and forward-looking insight into 2011 and beyond in its IHS Herold 2011 Global Upstream M&A Review, which would be released in late March.
Alaska Senator Lisa Murkowski warned state legislators that declining oil production presents a grave threat to the state's economy.
"Alaska's oil production has declined 36 percent since 2003, even as production in many parts of the Lower 48 has increased," Murkowski said in her annual address to the Legislature February 24.
The state and federal governments should do everything possible to stimulate new oil development on the North Slope, including approval by legislators of Gov. Sean Parnell's proposed changes to the state petroleum production tax, the senator said.
New oil production could come from offshore or places now off-limits like the Arctic National Wildlife Refuge, but the state must also increase production from its own state-owned lands on the North Slope.
"These decisions are in Alaska's hands, and only Alaska can do what's necessary," Murkowski said. "I strongly urge you to act on Governor Parnell's proposed oil tax revisions. I know that not everyone agrees with the governor's proposal but I share his concern that Alaska's tax rates are hurting our competitiveness for oil investment."
Murkowski also said it may be time to discuss other options for using North Slope gas than for a pipeline to the Lower 48. A gas-to-liquids project may be worth considering.
"The things I'm saying may be hard for some to hear. I'm just asking you to think about this," the senator said. "Right now we're showing patience for AGIA," the state's agreement to support TransCanada Corp. with a subsidy.
"A big pipeline is still Alaska's top choice and I'm doing everything possible at the federal level to make it happen," she said. "A number of dominos must fall to make this happen. Building a gas-to-liquids plant would not foreclose our ability to build a gas line. There's more than enough gas waiting to be developed."
A gas-to-liquids plant either on the North Slope or Fairbanks could make high-quality liquid fuels that could be shipped through the trans-Alaska oil pipeline.
High-quality jet fuel made available from a GTL plant in Fairbanks also could encourage the U.S. Air Force to keep nearby Eielson Air Force Base open and active as a center for aerial refueling over North America and the Arctic, Murkowski said.
"I'm not endorsing one project over another. The markets have to decide which is deliverable in a timeframe acceptable to Alaska. But we have to take these options seriously. These deserve full vetting right now, in case we need to pivot to them," Murkowski said.
As for the seriousness of the oil decline, the senator said the state can't depend on gas production to secure its fiscal future.
"Gas simply will not fill our treasury in the way oil has. Not even close. If we expect to maintain our quality of life we must retain and enhance the revenue stream that comes from oil production," the senator said.
A House subcommittee approved a bill March 10 to strip the U.S. Environmental Protection Agency of its authority to address climate change by regulating greenhouse gases. Oklahoma has several key players on the contentious legislation.
Republican U.S. Rep. John Sullivan serves on the House panel that is taking the first legislative action on the bill, Republican Sen. Jim Inhofe is the measure's sponsor in the Senate and Rep. Dan Boren is one of the few Democrats so far to support it.
Sullivan hailed the March 10 action by the House Energy and Power Subcommittee, which passed the bill by a voice vote with no amendments.
"With fuel costs already on the rise, the last thing our country needs is for the EPA to implement regulations that will drive energy costs up and severely hamper small business' ability to grow and expand and create jobs," Sullivan said.
His reference to fuel prices is part of a recent effort by the bill's supporters to link fuel prices to EPA's action, which clearly is an attempt to improve the bill's chances later in the legislative process.
Sullivan also warned EPA's pending regulation on greenhouse gases would destroy jobs and represent a backdoor energy tax on Americans.
"This markup is our opening salvo to show the American people we mean business when it comes to growing our economy, removing job-destroying regulations and protecting American consumers at the pump," he said.
Although House leaders are expected to have the votes to push the bill through their chamber, even on a party-line vote if necessary, the legislation continues to face an uphill battle if and when it arrives on the Senate floor.
That chamber can require a 60-vote supermajority to pass measures, especially those considered significant.
Rep. Henry Waxman, D-Calif., the ranking member of the full House committee, warned the bill would codify science denial.
Not only does the legislation block EPA's ability to regulate dangerous carbon emissions, Waxman said, but it overturns the agency's scientific findings that carbon pollution endangers the public's health.
"In short, it is anti-science, a know-nothing, do-nothing approach to the most challenging environmental problem of our time," he said.
Environmental groups have filed a lawsuit attempting to tighten greenhouse gas emission regulation of Washington state oil refineries, but Northwest Clean Air Agency Director Mark Asmundson said the court action may not have much impact on those emissions.
The Sierra Club and Washington Environmental Council were plaintiffs in the lawsuit, filed Thursday, March 10, in U.S. District Court in Seattle. Whatcom County is home to two of the state's refineries -- BP Cherry Point and ConocoPhillips near Ferndale.
Asmundson, who was named a defendant in the suit, said he too wants to reduce refineries' greenhouse gas emissions, but he questioned the remedies that the lawsuit proposes.
Sierra Club and Washington Environmental Council are correct in noting that his agency and the Washington Department of Ecology have not taken steps to require the refineries to meet a pollution control standard known as "reasonably available control technology" to control their greenhouse gas emissions, even though state law does require it.
Asmundson said that's because Ecology determined that doing so would be expensive for the agency and would result in only marginal cuts in emissions. That's because "reasonably available control technology" is a relatively low standard of performance.
Asmundson said regulators believe the refineries already are at or near that level of environmental standards thanks to the money-saving steps they already have taken to improve their own fuel efficiency.
BP Cherry Point Refinery spokesman Bill Kidd agreed.
"I believe they would find ... that most refineries have invested a lot in energy efficiency, and would likely meet a 'reasonable' standard," Kidd said in an e-mail message.
Asmundson said his agency already requires the four refineries in Whatcom and Skagit counties to meet a higher "best available control technology" standard on any new equipment installations.
"We will work toward a settlement that will be acceptable to the plaintiffs, will yield benefits to the environment, and will be achievable by the refineries," Asmundson said.
The lawsuit aims to force Ecology, the Northwest Clean Air Agency and Puget Sound Clean Air Agency in Seattle to enforce greenhouse gas regulations for refineries under the Clean Air Act.
"We're asking the clean air agencies to enforce laws already on the books," said Janette Brimmer, a lawyer with Earthjustice who was involved in preparing the case.
In a press release, Sierra Club spokesman Aaron Robins said he thinks the refineries still have room to cut their own fuel costs while reducing greenhouse gas pollution.
"These changes will certainly result in refinery operation efficiencies that will actually save money," Robins said. "It's really a win-win. The refineries, by investing in the latest efficiency improvements now, will cut both greenhouse gas emissions and costs in the future. It's a win for Washington residents because these initial steps will protect their health and welfare from harmful pollution."
U.S. oil refiner PBF Energy Company on March 1 said it had closed the purchase of the Ohio-based Toledo Refinery from Sunoco for US$400m (EUR289m), subject to adjustments.
The acquisition, carried out through PBF's unit Toledo Refining Company LLC, allows the refiner to grow in the Midwest market, it said in a release.
In addition to the US$200m cash and a note of US$200m, the buyer had agreed to pay further up to US$125m, based on the refinery’s future profits and sale of the crude and refined oil inventory at closing.
PBF also said it had completed its accord with Morgan Stanley Capital Group Inc (MSCG), which will provide crude oil and feedstocks to the refinery, as well as purchase its clean product production starting in the second quarter of 2011.
The refinery employs 433 people, who will join PBF.
Private equity firms Blackstone and First Reserve Corporation are PBF's main investors.
Tesoro plans to expand the crude oil throughput capacity at its Mandan, North Dakota refinery from 58,000 barrels per day (bpd) to 68,000 bpd by the second quarter of 2012, subject to permitting requirements. During the past three years, the average throughput at the refinery was approximately 52,000 bpd.
Tesoro expects to supply the plant with additional crude oil from the burgeoning crude oil production in the nearby Bakken Shale/Williston Basin area via the Tesoro High Plains Pipeline system. The current expected capital investment for the expansion will be approximately $35 million.
"Coupled with the 2010 acquisition of the Shell branded wholesale supply contracts which provide fuel for approximately 300 stations in the region, this expansion reflects Tesoro's commitment to grow our refining and marketing business in the Northern Great Plains," said Tesoro President and CEO Greg Goff. "This allows for further integration opportunities in our operations and capitalizes on the steadily increasing domestic crude supply from the Bakken area."
Venezuela's national oil company, Petroleos de Venezuela SA (PdVSA), still needs to get a loan approved before its participation in a refinery joint venture with Brazil's Petroleo Brasileiro (Petrobras), can move forward, Petrobras downstream director Paulo Roberto Costa said March 2.
PdVSA, needs to reach a deal with the Brazilian National Development Bank, or BNDES, on a US$2.17 billion loan (3.6 billion Brazilian reais). The loan is part of PdVSA's participation in the $13 billion Abreu e Lima refinery in northern Brazil's Pernambuco state.
"We're still waiting on the BNDES," Costa said on the sidelines of an event at Petrobras headquarters.
It's also unclear whether PdVSA has yet anted up an additional BRL4 billion in cash, representing the oil company's 40% stake in the BRL10 billion that Petrobras has already invested in the project.
The refinery joint venture has been fraught with difficulties from the start. In 2009, PdVSA and Petrobras finally reached a shareholders agreement after years of rancorous talks. Petrobras will have 60% of the project, with PdVSA holding 40%. The refinery has also been saddled with cost overruns, allegations of overcharges and difficult negotiations between Petrobras and PdVSA on crude oil supplies.
In December, Costa reiterated that Petrobras was willing to build the refinery alone. Should PdVSA pull out of the project, construction costs could decrease because the refinery will not need specialized equipment designed to process heavy crude from PdVSA's Carabobo field.
The Abreu e Lima refinery will have installed processing capacity of 230,000 barrels per day, with PdVSA and Petrobras each providing half of the crude oil to be processed. The refinery features two individual production trains, one for heavy oil from Petrobras' Marlim field and one for heavy oil from PdVSA's Carabobo field.
Petrobras plans to invest $224 million over the next five years to double crude oil output to 3.9 million barrels a day by 2014. Also included in the budget is construction of five new refineries that will process the crude into higher-value products, netting the company more cash on the export market.
Petrobras plans to boost refining capacity to 3.6 million barrels a day by 2015, up from current capacity of 1.9 million barrels a day, to meet expectations for growing fuels demand in Brazil.
Venezuelan state oil company Petroleos de Venezuela will invest $4 billion into heavy-crude oil conversion project at its Puerto La Cruz refinery, state news agency AVN said March 30.
The process is used to convert Venezuela's tar-like heavy crude oil into a lighter, usable commodity, AVN said, citing comments from Oil Minister Rafael Ramirez.
The Puerto La Cruz refinery is located in the northern state of Anzoategui.
Construction work on three major refining projects in the southern Chinese province of Guangdong will start this year, the provincial government said in a report March 5.
The plan indicates there will be a substantial increase in the province's refining capacity by 2015, which could boost China's already robust appetite for crude imports as coastal Guangdong is located far away from the country's large oilfields.
Demand for oil product imports from the energy-thirsty manufacturing hub could also ease further over the next five years as it becomes more self-sufficient in fuel production.
The three projects include two joint venture plants, one between China Petroleum & Chemical Corp. (SNP), or Sinopec, and Kuwait Petroleum Corp., and another between PetroChina Co. (PTR) and Petroleos de Venezuela SA, the report said.
The other project is the expansion of an existing refinery operated by China National Offshore Oil Corp., the parent of Cnooc Ltd., it added.
Negotiations on the 300,000-barrel-a-day Sinopec-KPC project, which will cost around $9 billion, have been underway for more than five years and the project has passed an environmental assessment by the Ministry of Environmental Protection. Kuwait plans to supply all the crude oil feedstock for the refinery.
The ministry has also given environmental approval to the $8.7 billion PetroChina-PDVSA refinery, which has a crude processing capacity of 401,644 barrels a day and which will specialize in processing high-sulfur Venezuelan crude.
Cnooc plans to almost double the crude processing capacity of its sole large refinery, located in Guangdong's Huizhou city, to 442,000 barrels a day by 2015.
China will raise its crude oil processing capacity by 20% over the next five years to an average of 12 million barrels a day in 2015 to meet robust domestic demand, the state-controlled Xinhua news agency reported earlier this year.
China has given final approval to Kuwait to build an oil refinery in the south of the country, in a joint venture with China Petroleum & Chemical Corp. (SNP), a person with first-hand knowledge of the decision said March 8.
This is the latest in a series of agreements oil import-dependent China has made with major producers, hoping to move up the value chain by processing crude domestically.
The $9 billion project between Kuwait Petroleum Corp. and Asia's largest refiner by capacity, also known as Sinopec, has been under negotiation for more than five years.
It includes a 300,000-barrel-a-day refinery in the city of Zhanjiang in Guangdong province as well as a 1 million-ton-a-year ethylene plant along with related utilities, jetties and oil pipelines, according to previous comments from government and company officials involved in the talks.
"The National Development and Reform Commission has given its approval. It is the final approval needed," the person said, without elaborating. "We will do the front-end engineering and design and then move ahead with the construction."
This is the second such refinery project signed by China with a major crude oil producer in the past six months--in September 2010 Russian oil company OAO Rosneft agreed to build a 260,000-barrel-a-day refinery in Northern China in a joint venture with China National Petroleum Corp.
Meanwhile, a plan by CNPC and Venezuela's state-run Petroleos de Venezuela SA to build a refinery in Guangdong to process Venezuelan oil is awaiting a formal go-ahead.
A year ago, Saudi Basic Industries Corp., or Sabic, started commercial production at a joint-venture petrochemical complex in Tianjin, China with Sinopec.
Kuwait is due to supply the crude oil for the Zhanjiang facility, in which Kuwait Petroleum Corp. and Sinopec will each hold a 50% stake.
Given the importance of the project, the decision was referred to China's State Council, the country's cabinet, about two weeks ago, the person said.
It isn't clear whether Kuwait has succeeded in obtaining approval to sell some of the refinery's output in the domestic Chinese market through a network of Q8-branded filling stations it has said it wants to open in China.
It is also unclear whether other foreign companies will join the project. KPC has previously said it planned to sell some of its 50% stake to international partners.
Officials from Sinopec and the NDRC weren't immediately available for comment.
The project, which Kuwaiti officials have said could be operational in 2013, will push Kuwait higher up the league table of oil suppliers to China.
In 2010 it was ranked 9th, providing an average of 197,000 barrels a day of crude out of total Chinese imports of 4.8 million barrels a day. China relies on imports for around 55% of its oil needs.
Aramco Overseas Company B.V., a subsidiary of Saudi Aramco, and PetroChina Company Limited, a subsidiary of CNPC on March 17, 2011 signed a Memorandum of Understanding related to the planned development of a 10 million metric tons per annum (200,000 barrels per day) grassroots full conversion refinery in Yunnan Province in the People's Republic of China.
The proposed refinery will be designed to process 200,000 bpd of Arabian crude oil and will produce high-quality refined products, such as ultra low-sulfur gasoline and diesel that meet current and future China products specifications.
The project represents an opportunity for Saudi Aramco to partner with CNPC, a leading Chinese petroleum company, to support growing demand for high quality refined products and capture an investment opportunity in China's promising refining industry. Additionally, it enhances a strategic partnership of close cooperation between a major producer and a major consumer of hydrocarbons while also presenting an opportunity for additional energy security and increased industrialization in the inner part of China.
"This agreement is a significant step forward in our expanding relationship with CNPC and in our global downstream strategy," said Khalid A. Al-Falih, Saudi Aramco's President and Chief Executive Officer. "We don't consider ourselves simply sellers of oil to China, but rather strategic partners whose many relationships in that important country are founded on mutual respect, interdependence and mutual benefit. We are proud to contribute to China's steady economic growth and continued social development through our strategic long term investment and reliable supply of energy."
"As the national oil company of the world's largest developing country, CNPC joins hands with Saudi Aramco to establish a long term, stable and reliable partnership between the two companies," Jiang Jiemin, President of CNPC said.
Saudi Aramco will supply the project company with up to 200,000 barrels per day of Arabian crude oil via a long-term contract while PetroChina will contribute its refined products retail network assets in the targeted market to the project company.
Six Japanese refineries capable of processing almost 1.4 million barrels a day of crude oil have been shut because of the March 11 magnitude-9.0 earthquake, according to a Japanese refining company document reviewed by Dow Jones Newswires.
The six refining complexes, all of them in the northeastern Japan earthquake zone area, account for more than a quarter of the country's total processing capacity, the document said.
JX Holdings Inc.'s (5020.TO) 145,000-a-barrel-a-day Sendai refinery and Cosmo Oil Co.'s (5007.TO) 220,000-barrel-a-day Chiba refinery were damaged by fire after the earthquake, the document indicated.
JX Holdings officials weren't immediately available to confirm the extent of any damage at Sendai. On March 11, the company reported there had been a fire at a liquefied petroleum gas tank at the Sendai complex.
A seventh refinery, owned by Idemitsu Kosan Co. (5019.TO) is still in partial operation, the document said, without elaborating on its capacity.
An Idemitsu official said March 11 the company's 220,000-barrel-a-day Chiba refinery was running normally.
It isn't clear if all the refineries taken offline listed in the document are damaged, or if some closures are the result only of precautionary shutdowns.
Kyokuto Co.'s (2330.OK) 175,000-a-day Chiba refinery wasn't damaged by the earthquake, but a company official declined March 11 to say if the refinery was operating. JX Holdings's 252,500-barrel-a-day Kashima refinery also wasn't operating after the earthquake, because of a power outage.
Japan Refinery Outages fAfter The Earthquake
Company City Capacity
JX Nippon Sendai 145,000
JX Nippon Kashima 252,500
Cosmo Chiba 220,000
Kyokuto Chiba 175,000
TonenGeneral Kawasaki 335,000
JX Nippon Negishi 270,000
Japan's refining sector is gradually restoring operations following the March 11 earthquake, but even by the end of the month refinery throughput is expected to remain well below pre-quake levels.
The gradual improvement in domestic operations is being complemented by increased output and help from other countries, particularly neighbor South Korea, which normally is a big supplier of fuel to Japan.
Japanese company and government officials are also scouting out additional supplies of oil and gas to help the country's damaged power-supply infrastructure get on top of serious power shortages.
Three refineries in Japan will need more time before they restart, but other quake-hit units are now online and cranking up output, the Petroleum Association of Japan, which represents refiners and oil distributors across the country, said March 17.
The three still not operating are JX Holdings Inc.'s 145,000-barrel-a-day Sendai refinery, its 252,000-barrel-a-day Kashima refinery and Cosmo Oil Co.'s 220,000-barrel-a-day Chiba refinery.
Prior to the quake, Japan's overall refinery runs were around 4.0 million barrels a day, but this immediately fell to 2.7 million barrels a day when the disaster struck, PAJ chairman Akihiko Tembo told a news conference.
Processing will likely recover to 3.4 million barrels a day by the end of the month, said Tembo, who is also chairman of Idemitsu Kosan Co.
Japanese refiners have cancelled refined-product export orders totaling 650,000 kiloliters, or 4 million barrels that were due by the end of the month, Tembo said.
Refineries that weren't affected by the crisis are now operating at increased rates, and by the end of the month will have produced an extra 300,000 kiloliters of fuel, he said.
Japan's Minister of Economy, Trade and Industry, Banri Kaieda, said he has asked roughly a dozen oil refineries in western Japan to boost operating rates to 95% or higher, from the usual average of around 80%.
Around 20,000 kiloliters of oil products from western areas--including Shikoku and Kyushu--are to be transported to the quake-hit Tohoku area, along with a further 18,000 kiloliters from Hokkaido in the north, Kaieda said. More fuel, from refiners' reserve stocks, will be moved to the Tokyo area to ease supply shortages.
Japan has several weeks of refined product stocks available, he said. Gasoline and kerosene stocks could meet 29 days of demand while gasoil stocks are sufficient for 26 days.
For some products, the picture looks healthy. Tembo said that for some light oil products, output may be higher than domestic demand.
On March 16, Idemitsu Kosan said that it would resume operations within 24 hours at a Miyagi Prefecture oil-storage facility that has been shut down since the quake, Nikkei reported.
Currently, it takes five to six hours for trucks to transport oil products from Akita and Niigata prefectures to Sendai, the largest city in Miyagi Prefecture, at the heart of the earthquake zone. The shipment time will be cut to about two hours when the Shiogama facility restarts, it said.
PAJ has stopped providing national fuel-stock data since the earthquake. Previously it said that as of March 5, Japan's commercial stocks of gasoline stood at 2.17 million kiloliters, or 13.6 million barrels, while gasoil stocks totaled 1.69 million kiloliters.
Tembo forecast that Japan's heavy fuel oil demand for power generation would rise.
South Korea's S-Oil Corp. (010950.SE) said that it plans to supply 2.4 million barrels of oil products to the country's quake-stricken refining industry.
S-Oil will supply 300,000 barrels of gasoline and 2.1 million barrels of other products such as diesel, kerosene and low-sulfur fuel oil to Japanese refiners and local marketers, the Korean company said in a statement.
GS Caltex Corp. and Hyundai Oilbank Ltd. said March 16 they had received requests for oil products.
China National Petroleum Corp. and China Petrochemical Corp. will donate 10,000 metric tons of gasoline and 10,000 tons of diesel, the country's Ministry of Commerce said. Separately, PetroChina--the listed unit of China National Petroleum Corp.--said it will offer 220,000 tons of refined products as aid.
Taiwan CPC Corp. said it's willing to increase exports of oil products to Japan, though it hasn't received any request so far. Formosa Petrochemical, another Taiwan refiner, is not able to ramp up exports as it already entered legally-required maintenance, some company officials said.
Makiko Kukita, Japan's Parliamentary Vice Minister for Foreign Affairs, said in Jakarta that Japan has officially asked Indonesia to ship more crude oil and liquefied natural gas to Japan, and that "Indonesia is seriously considering our request."
PAJ's Tembo said that "it would be helpful if Japan can receive useful crude oil (from Indonesia) for direct burning" at power stations.
Shell Malaysia marked the start of construction of a new diesel processing unit at its refinery in Port Dickson with a ground breaking ceremony March 28. Shell Refining Company (Federation of Malaya) Berhad owns and operates the refinery.
The refinery expansion is one of 19 Entry Point Projects (EPP) announced by Malaysia's Prime Minister under the Economic Transformation Programme in January.
The diesel processing unit will enable the refinery to vary its feedstock options, increase diesel production and improve its margin. It was one of the three Shell Malaysia projects announced by the Prime Minister, worth a combined capital investment of RM5.1 billion for 2011.
In a speech at the ground breaking ceremony the refinery's expansion was highlighted as a demonstration of the multinational's ongoing confidence in the country where its history spans almost 120 years: "Malaysia is one of Shell's heartlands. We are one of the early investors in the country's oil and gas industry; the diesel processing unit is a demonstration of our continued investment."
Shell Malaysia's 2011 EPP investment announcements cover two other projects: - the expansion of the Shell MDS Wax Plant in Bintulu and the Gumusut Kakap deepwater development offshore Sabah. During the construction phase, these three projects will create approximately 1,600 jobs for local contractors.
Cals Refineries Ltd. and the Hardt Group on March 16 announced a definitive agreement for Cals to acquire the Cenco and Atas refinery assets owned by affiliates of Hardt and currently located in the United States and the Turkish Republic of Northern Cyprus.
Under the terms of the transaction, which was unanimously approved by the Board of Directors of both Cals and Hardt, Cals will pay Hardt US$417 million in total consideration, with US$317 million paid in the form of Global Depository Receipts ("GDR"s) in Cals and the balance in cash. Hardt has also agreed to subscribe for certain equity shares of Cals on a preferential allotment basis, subject to Shareholder and customary approvals, in an amount of up to US$7 million (in Indian rupee equivalent) in one or more tranches and to nominate two Directors to the Board of Cals. The purchase of this equipment will increase the aggregate refining capacity of Cals' planned refinery project in Haldia, West Bengal, India to 200,000 barrels per day.
Commenting on the occasion, Mr. D. Sundararajan, Managing Director of Cals Refineries Ltd. said, "Signing this agreement with Hardt Group gives a new fillip to our refinery project. With the help of Hardt Group we hope to achieve financial closure for the project at the earliest."
"We strongly believe that investment opportunities like this have tremendous potential for creating value and generating returns for all parties involved," said Dr. Alexander Schweickhardt, CEO and Founding Partner of Hardt Group. "India is a fast growing market and has a strong demand for energy. We are excited to be a part of this refinery project and look forward to long term relationships in India."
The transaction is subject to the approval of Cals Shareholders and the satisfaction of customary closing conditions, including the receipt of various statutory approvals. Cals and Hardt expect the transaction to close in the second or third quarter of 2011.
Cals Refineries Ltd. has plans to set up a total of 400,000 barrels per day (20 MMTPA) of oil refining capacity on India's east coast in the State of West Bengal, in phases, thereby emerging as the third-largest private-sector oil refining and petrochemical company in India.
Hardt Group is an investment company with a strong focus on the energy sector. Headquartered in Vienna, Austria, the firm also has offices in London and New York.
Petroplus Holdings AG on March 31 announced the conclusion of the formal information and consultation process with the Reichstett Refinery Works Council to propose terms to cease refining operations and convert the site to a terminal.
Following the end of this process, the Company has decided to discontinue refining operations and convert the site to a terminal. Petroplus has agreed with the Works Council to put a job protection plan in place to mitigate the effects of this decision through measures such as offering alternative job opportunities within the Company, assistance in finding new employment, early retirements, and severance packages.
Jean-Paul Vettier, Petroplus' Chief Executive Officer, said, "The process leading up to the decision to convert the Reichstett refinery has been a difficult one, as I am conscious that it impacts our employees, their families, and the local communities. We have worked hard to find another solution for the site but were unfortunately unable to find a feasible alternative."
Petroplus expects to stop processing crude oil at the refinery in April and will sell product inventories to satisfy contractual commitments to customers or in the spot markets. A safe and orderly shutdown of the refinery will commence when the crude oil inventories have been liquidated. Petroplus will seek to sell the terminal after the shutdown. The Company will provide further details regarding the process and updated financial and operational guidance at the time of the Q1 2011 earnings release.
Chevron has reached an agreement with Valero Energy Corp. to sell Chevron Limited, the entity that holds the 220,000 barrel per day Pembroke Refinery and other downstream assets in the United Kingdom and Ireland. The sale price is $730 million, plus an additional payment estimated to be $1 billion for Chevron Limited's inventory and other items. The agreement is subject to customary regulatory approvals and is expected to be completed during the second half of 2011.
"We are pleased with the value generated from this transaction," said Mike Wirth, executive vice president, Chevron Downstream & Chemicals. "This sale is consistent with our global strategy to focus our business on markets where we are well-positioned to deliver strong returns for our shareholders."
Aside from the Pembroke facility, Chevron Limited also holds approximately 1,000 Texaco-branded retail service stations in the UK and Ireland, a commercial and industrial fuels business, seven equity-owned terminals, shareholdings in four pipelines, eight aviation facilities and related support and trading operations.
Chevron will retain its upstream, lubricants and Oronite additives businesses in Europe, as well as its aviation business in Sweden, Greece and the Benelux.
"We're concentrating our downstream portfolio primarily in North America and the Asia-Pacific region," said Wirth, "markets where we enjoy our greatest competitive strength and opportunities for growth."
Chevron recently reached a sales agreement for most of its downstream assets in Spain. Since 2010, the company has agreed to sell downstream assets in more than 20 other countries, mostly fuels marketing businesses in the Caribbean and southern Africa. These transactions are expected to be concluded during 2011 as necessary regulatory approvals are received.
Chevron is soliciting bids for certain operations in the Caribbean and select Central America markets. Chevron will continue current downstream operations in Colombia, El Salvador, Guatemala, Honduras, Panama, Mexico and Brazil.
Shell announced on March 29 it has signed a sales and purchase agreement for its 270,000 barrel-per-day Stanlow refinery in the United Kingdom and certain associated local marketing businesses with Essar Oil (UK) Limited (Essar) for a total expected consideration of some $1.3 billion. The March 29 announcement follows a formal offer Essar made for Stanlow in mid-February.
The proposed sale covers Oil Products, Chemicals Manufacturing and access rights to certain distribution terminal assets, plus the Commercial Fuels Bulk Fuels and local Marine fuels businesses associated with the refinery. It does not include any of Shell's UK Retail sites, the Shell higher olefins plant and alcohols units, the lubricant oils blending plant, lubricants marketing business, Shell aviation operations at airports, non-local marine business, marine lubricants, commercial road transport marketing businesses, bitumen marketing business or the Shell technology centre at Thornton.
It is expected that the transaction, which is subject to certain conditions precedent, will be completed during the second half of 2011.
Shell's Downstream Director, Mark Williams, said: "The decision to sell Stanlow is part of our drive to concentrate our global manufacturing portfolio on larger assets and, on completion, means we will have reduced our global refining exposure through a combination of asset sales and closures by a total of 1.6 million barrels since 2002."
"This deal serves Stanlow's future well given Essar's commitment to investment and intent to increase site throughputs," said Frank Willsdon, Stanlow General Manager. "It can only benefit staff, business partners and the local community and region. After our many years with Shell, we now look forward to a smooth transition and moving forward with Essar."
In addition to the sale of the assets, the two companies will enter into an exclusive five year crude supply contract by Shell to Essar and into long-term agreements for the supply of products in the UK by Essar to Shell.
Stanlow, which is near Ellesmere Port, Cheshire, employs 960 people and is the UK's second-largest oil refinery, producing around one-sixth of the UK's petrol.
The Stanlow refinery accounts for around 15% of production from UK refineries overall. It produces approximately 3.5 billion liters of petrol a year. Its other main products are diesel and kerosene, used for aircraft fuel.
In the UK, Shell has a network of more than 900 branded retail sites, and supplies and distributes oil products to a range of airport, Lubricants, Marine and Bitumen customers. The company also has upstream operations in the UK sector of the North Sea and three onshore gas plants.
Even if a number of new African refinery projects and upgrades materialize, they will fail to halt the rapidly growing gap between refinery output and demand for clean products, according to international oil industry consultancy CITAC Africa LLP, which specializes in the African market.
Under CITAC's "best case" scenario, which assumes the addition of 810,000 b/d (40mn mt per year) of new refining capacity by 2020, Africa would still be short of over 1.5mn b/d (69mn mt per year). The continent's current clean products shortfall is 900,000 b/d (41mn mt per year).
There will be a shortage of as much as 1.9mn b/d (87mn mt per year) of clean products by 2020 if refinery output remains at current levels.
Under both scenarios, Sub-Saharan Africa will account for the majority of the shortfall. This is partly because Sub-Saharan African demand growth will significantly exceed average global demand growth over the next decade and average 4.2% per year. There are a number of unknowns associated with North African demand growth over this and next year, but even with political turmoil in some of the North African states, CITAC forecasts average annual growth of about 1.6% per year.
The above scenarios are derived from CITAC Africa LLP's latest supply/demand review, which emphasizes the urgent need for investment in infrastructure to mitigate the enormous increase in consumption and import volumes.
"In order for this logistical challenge to be met, governments and regulators need to work with the oil industry to devise a common strategy for implementing the required infrastructure development," said CITAC Partner and Executive Director David Bleasdale.
At all stages of developing the necessary infrastructure to meet the projected demand increase, supply chain efficiency is of paramount importance. Investment in new offshore discharge facilities (SBMs etc.), port dredging to increase acceptable vessel sizes, more powerful equipment and pumps to increase product pumping times, coastal storage to ease transit, as well as pipelines, road and rail system improvements to reduce the number of trucks on the roads, are every bit as crucial as the planned refinery investments.
CITAC has established detailed oil products demand, refinery output and imports/exports forecasts for each African country, by product, to 2020. Demand forecasts are available through subscription to the ADD+ database.
Oil facilities in eastern Libya came under heavy air attack March 9, while the country’s leader Moammar Gadhafi taunted Western powers over their reported plans to establish a no-fly zone over the North African country.
“If they take such a decision it will be useful for Libya, because the Libyan people will see the truth, that what they want is to take control of Libya and to steal their oil,” said Gadhafi in an interview by Turkish television channel TRT news.
“Then the Libyan people will take up arms against them,” said Gaddafi, who added that the rebels wanted to pave the way for a new colonial era that would allow the U.S., UK, and France to divide up the country and control its oil wealth.
Gadhafi’s defiance toward the Western powers coincided with reports that forces loyal to his rule struck an oil pipeline and oil storage facility as they pounded rebels with artillery and gunfire in at least two major cities.
A huge explosion rose from the area of the Sidr oil facility, 580 km east of Tripoli, while a rebel spokesman said government air strikes and artillery fire hit an oil storage depot and a pipeline supplying Sidr from oil fields in the desert.
Government forces and rebels were been battling around several key oil ports east—Brega, Ras Lanouf, and Sidr—which together handle 715,000 b/d. A fourth eastern port, Marsa al-Harigah, handled another 220,000 b/d.
Oil analyst Samuel Cizsuk of London-based IHS Global Insight said, "It was only a question of time before the escalating violence would damage oil facilities." According to Cizuk, "Libya has been discounted from the global markets.”
In spite of the turmoil in Libya and the evacuation of many expatriate workers, Eni SPA continued to work with Libya’s National Oil Co. to produce oil and gas, although at considerably reduced levels, according to the company’s Chief Executive Officer Paolo Scaroni.
Eni was producing about 100,000 boe/d compared with more than 270,000 b/d before the fighting erupted last month, with natural gas from the Wafa field representing more than 50% of the output.
“It is for the Libyan people. My view is that if we can produce gas for the domestic electricity market, this is positive for everyone,” Scaroni told the Financial Times. “If the international community tells us not to produce in Libya, then we won’t produce.”
Scaroni also told the paper that he was aware of at least one shipment of oil by the state-owned NOC that had been produced by Eni. “We have a contractual obligation to NOC,” he said. Asked whether the fields were under government or rebel control, he said they were deep in the desert and “under nobody’s control.”
President Barack Obama's most senior advisers planned to meet March 9 to outline what steps were realistic and possible to pressure the Libyan leader into ending the violence and surrendering power.
While Britain and France were pushing for the United Nations to create a no-fly zone over Libya, such a move was considered unlikely to win the backing of veto-wielding Security Council members Russia and China.
U.S. Sec. of State Hillary Clinton underlined Washington’s belief that any decision to impose a no-fly zone over Libya is a matter for the UN and should not be a US-led initiative.
“We want to see the international community support it (a no-fly zone),” she told the UK’s Sky News. “I think it’s very important that this not be a U.S.-led effort,” she said.
Still, other efforts do seem to be taking hold against the Libyan regime, with the country’s central bank governor Farhat Bengdara trying to intercede with international financial institutions to soften the effect of any freeze of Libyan assets.
Behgdara said he traveled to Istanbul to contact the European Union, IMF, World Bank, and U.S. Treasury and do his best to stop the sanctions that would freeze the central bank's money, adding that the Libya’s revenues have fallen dramatically because of the country's inability to export oil.
Beghdara’s actions confirmed reports earlier this week that said Libya’s oil trade has been paralyzed as banks decline to clear payments in dollars due to U.S. sanctions.
"Banks don't want to finance the system in Libya, so for the moment no one is getting money for oil. There are big problems for payments," said a senior trader with a European oil company.
Sources at or close to major European buyers of Libyan crude, including Eni and Saras, told Reuters news agency that the decision by banks to stop export financing of Libyan crude had virtually brought all transactions to a halt.
"It's not a matter of choice, there is an embargo on U.S. dollars coming in and out of Libya," said a trader with one of the firms, referring to banks' resistance to clear payments in the U.S. currency.
"All U.S. dollar transactions are being blocked," the trader said, adding it was not clear at this stage if payments were possible in other currencies.
BP PLC said March 24 it has declared “force majeure” on supplies to Libya-owned refiner Tamoil Group and that the latter is challenging the move in a German court.
The decision by the UK oil company underscores how legal uncertainty over U.S. and European sanctions against Libya is starting to bite deeper into the global oil business.
Turmoil in Libya has shut down virtually all oil exports, leaving foreign oil assets and investments there in limbo.
The European Union on March 24 unveiled a list of Libya-owned oil companies under sanctions, following similar March 22 designations by the U.S. Treasury. Neither listed Tamoil, which owns refineries and pump stations in Europe, as an entity under sanctions.
A spokesman for BP, which has key assets in the U.S., said "what we need is absolute clarity on the legislation as it applies in the jurisdictions where we operate."
BP said the Tamoil force majeure had been challenged in court in Germany, where the Libyan group owns refining interests.
Foster Wheeler has won a contract from JSC Novo-Ufimsky Refinery, a subsidiary of Russian oil company Bashneft, for the engineering and material supply of a new Terrace Wall steam reformer heater and air preheating system for the Ufa refinery in the Republic of Bashkortostan, Russia.
The steam reformer will be part of the 420 tonnes per day hydrogen production unit, based on Foster Wheeler's hydrogen technology and process design package.
The hydrogen production unit is being built by JSC Novo-Ufimsky Refinery while Foster Wheeler's scope of work is scheduled to be completed in mid-2012.
Foster Wheeler's Terrace Wall reformer is characterized by a firing arrangement and sloped-wall radiant section design that, together, enable long catalyst tube life (often in excess of 100,000 hours) and deliver the flexibility to extend a reformer's operating envelope.
Foster Wheeler said that its reformers can operate with ultra-low-NOx burners to meet tightening environmental emission standards worldwide.
Oil and gas production at Bapco has not been affected by political turmoil in Bahrain, a senior official said March 17.
Reports had suggested there were problems with production, but the Sitra refinery was already undergoing a maintenance shutdown when protests started and was not due to return to full production until the end of April.
"All oil and gas supplies are normal and we have no emergency situation," a senior official told the GDN.
"The only issue is that we are unable to deliver petrol to certain areas in Bahrain due to the situation on the roads, because it then becomes a safety issue."
He said he expected the refinery to return to full production once the maintenance shutdown had been completed.
"This (reduced production) will continue till the end of April when we will again start to run to full capacity," he added. The official also said supplies of LPG to homes had not been affected and all Bapco exports were continuing as usual.
Murphy Oil Corp, a U.S. oil and gas company in the process of shedding its refining assets, said it is adding to its position in Iraq's Kurdistan, where it recently began operations.
"We have a second block that we are about to sign," David Wood, the company's chief executive officer, told the Howard Weil Energy Conference.
In November, Murphy finalized an agreement with the Kurdistan Regional Government-Iraq for 50 percent of the Central Dohuk block, an area covering 619 square kilometers (240 sq miles).
In July, Murphy announced plans to sell its three refineries to focus on oil and gas exploration and its retail business. Wood told investors that the company has seen "a fair amount of interest" in the plants and a deal may come in the second quarter.
CB&I announced March 2 that it has been awarded a contract valued in excess of $40 million by the Oman Refineries and Petrochemical Company for the front end engineering and design (FEED) and project management services for the Sohar Refinery Expansion Project in the Sultanate of Oman.
The project will increase the capacity of the existing Sohar Refinery from 116,000 to 187,000 barrels per stream day by installing various clean fuels units, as well as increasing capacity and debottlenecking existing units in the refinery.
Foster Wheeler AG announced March 7 that a subsidiary of its Global Engineering and Construction Group together with the subsidiary's consortium partners comprising A. Al-Saihati, A. Fattani & O. Al-Othman Consulting Engineering Co., (SOFCON) and Saudi Consolidated Engineering Company - Khatib & Alami (SCEC K&A) have signed a contract with Saudi Aramco for the provision of services associated with Saudi Aramco's General Engineering Services Plus (GES+) initiative for a duration of five years with options available for extensions. The terms of the contract were not disclosed.
Under the terms of the contract, Foster Wheeler and its consortium partners will perform engineering and project management services including pre-front-end engineering design (pre-FEED), front-end engineering design (FEED), detailed design and procurement services for onshore/offshore oil and gas, refining, petrochemicals, and associated infrastructure projects in Saudi Arabia. The work will be executed from the offices of the consortium located in the city of Al-Khobar in the Kingdom of Saudi Arabia.
"The signing of this contract with Saudi Aramco will give Foster Wheeler and our partners the firm basis upon which to deliver world-class technical expertise and project execution locally, in line with Saudi Aramco's stated objective for work to be executed in country. We have a long and very successful track record in Saudi Arabia and an excellent relationship with Saudi Aramco. This latest award demonstrates our commitment to Saudi Arabia and our ability to deliver world-class services and expertise locally," said Umberto della Sala, interim chief executive officer, Foster Wheeler AG.
KBR announced on March 7 that it has been awarded a contract by Saudi Aramco Lubricating Oil Refining Co. (Luberef) to implement KBR's proprietary Solvent Deasphalting (SDA) Technology, ROSE, for Luberef's Yanbu Refinery Expansion Project in Saudi Arabia.
Under the contract, KBR will provide technology licensing and basic engineering services to revamp and almost double the capacity of Luberef's existing Propane Deasphalting (PDA) Unit. The existing PDA unit, which is currently based on conventional SDA technology, will be converted to KBR's ROSE technology. In addition to increasing production volumes, the PDA revamp will allow Luberef to increase the production of brightstock and by-products.
"KBR is proud that Luberef has selected ROSE for this strategic project, and I am confident that the project will benefit from KBR's experience of designing over 50 ROSE units, including many for lube oil production," said Tim Challand, President, KBR Technology. "This award underscores our strong commitment and reputation of providing process technology solutions that address our clients' individual needs in the most cost effective and practical manner."
Sweden-based Alfa Laval has secured an order worth approximately $11.87m (SEK75m) to supply its Packinox heat exchangers to a refinery in Saudi Arabia.
The heat exchangers, which will be used in a catalytic reforming unit for production of gasoline, are expected to be delivered in 2012.
Alfa Laval said that half of its big orders in 2010 came from refineries and the vast majority of these included its Packinox heat exchangers.
Foster Wheeler's Global Engineering and Construction Group has received a contract from Zakum Development Company (ZADCO), to perform an availability and reliability study in connection with the expansion of the Zirku oil processing facilities in Abu Dhabi, UAE.
The Foster Wheeler contract value for this project was not disclosed and was included in the company’s fourth-quarter 2010 bookings.
The Upper Zakum facilities at Zirku Island comprise three oil processing trains and one train on stand-by. ZADCO plans to increase the capacity of this facility to cater for an increased production profile over the next twenty years. Foster Wheeler will conduct site surveys, identify a range of potential expansion options and debottlenecking initiatives, and perform availability and reliability studies to derive a master plan for the facilities. From the various options presented, one option will be selected for which Foster Wheeler will prepare the basis of design and the scope of work for the next phase of the project.
"Foster Wheeler will combine its extensive technical and project execution expertise in upstream and in plant assessment, reliability, availability and maintenance to develop and evaluate a range of cost-effective solutions to help ZADCO realize its production capacity requirements over the next twenty years," said Umberto della Sala, interim chief executive officer, Foster Wheeler AG.
Northfield, IL 60093-2743
Tel: 847-784-0012; Fax: 847-784-0061;