Refineries UPDATE

 

March 2011

 

McIlvaine Company

www.mcilvainecompany.com

 

TABLE OF CONTENTS

INDUSTRY ANALYSIS

AMERICAS

U.S.

BP Delays Startup of Indiana’s $3.8 Bln Whiting Refinery Expansion

HOVENSA Settlement Is Part of EPA Crackdown on Refining Industry Emissions

Western Refining Temporarily Suspends Ops at El Paso Refinery

Enbridge Expansion of LA Condensate Processing Facility to Cost $150 Mln

Wide Range of Potential Buyers Could Be Looking at Two BP Refineries

Baker & O'Brien Indicates U.S. Refining Margins Improve but Some Refineries Still at Risk

KBR Marks DWC Tower Design Milestone at Three Valero Refineries

Western Begins Start-up at El Paso Refinery

U.S. House Votes to Block EPA from Regulating GHG Emissions

Diverse Coalition Seeks to Bar EPA Funding for E15

Holly Corp, Frontier Oil to Merge Seeking Bigger Share of Niche Fuel Markets

PBF Unit Completes $400 Mln Toledo Refinery Purchase

Unplanned and Planned Production Outages at U.S. Refineries

CANADA

Alberta Unveils New Refinery with First Major Carbon Capture and Storage Project

Canadian Natural, North West Advance Alberta Bitumen Refinery Project

VIRGIN ISLANDS

EPA Launches Three-month Probe of Virgin Islands St. Croix Hovensa  Refinery

ASIA

AUSTRALIA

Shell Invests in Major Australian Bitumen Projects

CHINA

Shell, Wison Engineering to Develop 'Hybrid' Gasification Tech

INDONESIA

Shell to Build $100 Mln Lubricant Oil Plant in Indonesia

EUROPE / AFRICA / MIDDLE EAST

UNITED KINGDOM

Essar Offers $1.3 Bln for Stanlow Refinery

AFRICA

Shell to Divest Majority of African Downstream Units to Vitol and Helios for $1 Bln

EQUATORIAL GUINEA

KBR to Perform Study for Equatorial Guinea Refinery

KENYA

Kenya’s Mombasa Refinery Upgrade Cost Could Double to $1Bln

NIGERIA

Daewoo E&C to Build $250 Mln Gas Plant in Nigeria

IRAQ

Development of Iraq Nassiriyah Oil Field to Include Grassroots Refinery

Iraq Baiji Refinery Says Restarts Partial Operation

SAUDI ARABIA

Saudi Aramco Awards KBR with 400,000 bpd Jazan Refinery Contract

 

 

INDUSTRY ANALYSIS

AMERICAS

   U.S.

BP Delays Startup of Indiana’s $3.8 Bln Whiting Refinery Expansion

BP has delayed the startup of part of its $3.8 billion Whiting oil refinery expansion until mid-2013, citing the northwestern Indiana project’s “many variables.”

 

The upgrade of the refinery along Lake Michigan will equip the complex to become a top processor of high-sulfur crude taken from Canadian tar sands. The project, designed to deal with the higher level of impurities found in that crude, was expected to be completed and operating by late 2012.

 

BP spokesman Brad Etlin said some components of the modernization at the complex about 20 miles southeast of Chicago will begin operating on the earlier schedule. But he said the startup of the project’s new gas oil hydrotreater and petroleum coker will be delayed until mid-2013.

 

The hydrotreater will remove more sulfur and nitrogen from gas oil, while the petroleum coker is expected to increase production of coke and naphtha, a highly flammable chemical used to make finished petroleum products.

HOVENSA Settlement Is Part of EPA Crackdown on Refining Industry Emissions

The HOVENSA consent decree filed in U.S. District Court is one of 28 global refinery settlements entered into in the past decade by the U.S. Environmental Protection Agency in the first nationwide initiative to crack down on the oil refining industry's emissions, said the EPA's lead attorney.

With more than $5 million in civil penalties, $4.8 million set aside for environmental projects and an estimated $700 million in emissions control technology to reduce harmful emissions by about 20 million pounds per year, it also was one of the largest settlements, said John Fogarty, the EPA's lead attorney on the decree.

"The cost for controls at this refinery are estimated at $700 million," Fogarty said. "That was one of the largest we settled."

Since December 2000, the EPA has reached 28 global refinery settlements covering 105 refineries across the nation -- about 95 percent of the U.S. domestic refining capacity of more than 16 million barrels per day.

Those decrees all were similar -- based on four marquee issues intended to result in drastic emissions decreases of sulfur dioxide and nitrogen oxide and reduce the amount of benzene and volatile organic compounds released, according to the EPA.

The most common problems the EPA found in refineries industry-wide involved four main components: fluid catalytic cracker units, heaters and boilers, flaring incidents and sulfur recovery units, Fogarty said.

In the HOVENSA settlement, the delayed coker unit, which had been expanded without proper permitting, also was a problem, according to the EPA.

The resulting document detailed a comprehensive list of requirements and mitigation efforts that HOVENSA is supposed to comply with by 2020.

While other settlements began in 2000, negotiations with HOVENSA began in 2004, officials said.

Given HOVENSA's production capacity at the time of the settlement -- 525,000 barrels per day -- it is one of the largest settlements negotiated. The refinery was, at the time, the second-largest oil refinery in the United States, according to EPA.

But with that stature, some local politicians have wondered why the settlement took so long and questioned the EPA's priorities, saying they doubted the agency was giving the territory equal oversight.

Few explanations have been given, but the sheer size of the investment -- $700 million -- and the refinery's isolation from natural gas have been two explanations offered by people involved.

"It's not as though we put HOVENSA off to the end. It's that this is how long it took us once we started," Fogarty said. "There are some unique aspects to the refinery -- as it's on an island."

The costliness of importing and running on natural gas made the point moot, even though it was a major component in other settlements, Fogarty said.

The complaint against HOVENSA claims that the refining process "resulted in emissions of significant quantities of criteria air pollutants," including nitrogen oxide, carbon monoxide, and sulfur dioxide. "The primary sources for these emissions were the fluid catalytic cracker unit, the process heaters and boilers and the delayed coker unit."

Of the string of at least six releases beginning in September, three were sulfur dioxide emissions or reported from a sulfur unit; one derived from the catalytic cracker; and two occurred from the coker unit, according to reports from the V.I. Department of Planning and Natural Resources and the National Response Center. One of the incidents, on Sept. 30 when the refinery burned off a large volume of oil, involved flaring.

The catalytic cracker was completed in 1993 and had a capacity of 110,000 barrels per day. It was modified three years later to a capacity of 135,000 barrels per day, according to HOVENSA. The coker unit was completed in 2002.

The EPA says that HOVENSA made modifications to the catalytic cracker and coker units that resulted in "significant net emissions increase" without applying for proper permits and undergoing review.

"They did some type of modification for the coker unit that they really should have had pre-approved and they didn't," said EPA spokesman Elias Rodriguez, referring to a New Source Review.

"You must get a formal review to see what the formal impacts would be," he said. "They claimed that it wasn't a major modification, and then they said that, actually, it was."

The complaint also claims HOVENSA emitted unpermitted quantities of sulfur dioxide and carbon monoxide from the catalytic coker unit, flaring devices and heaters and boilers, while exceeding benzene quantity limits from refinery waste.

The refinery also failed to report and repair the valves and other components that were leaking "in a timely manner," the complaint said.

Given the nature of the consent decrees -- that they are not based on refinery-specific data -- it is easy for refineries to dismiss the decrees' claims, saying they are unsubstantiated, as HOVENSA has.

The findings in the decree "do not reflect any investigation or other determination that HOVENSA actually violated a particular law or regulation," said HOVENSA spokesman Alex Moorhead. "By signing the consent decree, HOVENSA does not admit any allegation in the complaint. It is the company's position that it repaired valves and other components in a timely manner and that it has accurately reported its emissions."

Part of the catalytic cracker unit was down for most of December for repairs.

The HOVENSA decree outlines a number of steps the refinery can take to control its emissions, from installing pollution control technology to maintaining refinerywide data on preventative maintenance, leaks and repairs.

The goal is to reduce annual nitrogen oxide emissions by 10 million pounds per year and sulfur dioxide emissions by 7 million pounds per year within 10 years.

HOVENSA also could shut down some units at the refinery to reduce emissions, the decree said.

On the same day the decree was filed in District Court, HOVENSA announced it would shut down nine of its older units -- many built in the late 1960s when the refinery opened -- to improve its financial performance, reducing its production capacity by almost 30 percent.

Moorhead said the move was based solely on improving HOVENSA's revenues but said that the closures also would help the refinery meet the consent decree and future emissions standards.

"Consolidating and simplifying our operations by eliminating older and mostly smaller process units will help us meet the requirements in our PRI agreement, as well as preparing us to meet future regulatory standards," Moorhead said, referring to HOVENSA's Petroleum Refinery Initiative.

The future regulatory standards established by the EPA are the National Ambient Air Quality Standards -- NAAQS. Those standards have been reviewed and established by the EPA and have lowered the emission levels significantly for many of the pollutants included in the decree and released by the refinery, Rodriguez said.

Those pollutants include sulfur dioxide and nitrogen oxide, he said.

The new standards go into effect in 2012 -- nitrogen oxide in February and sulfur dioxide in July, Rodriguez said.

"Basically, in 2012, we'll have the new designations, and we'll see if the Virgin Islands is still in attainment," he said.

The EPA first began what would become the first industrywide oil refinery compliance initiative in the late 1990s, Fogarty said.

"We noticed there are some similarities between refineries," Fogarty said. "We realized that the largest sources of refinery emissions came from four main processes."

The common emotive problems and the data collected by the EPA to prove it, became the foundation of the EPA's Petroleum Refinery National Initiative.

The issues often came under four sections of the Clean Air Act.

"We saw that the capacity of refineries was increasing over time, but the number of refineries was decreasing," Fogarty said. "So that meant that the refineries were under construction and expanding."

"If you do construction without a permit, that's a violation of the Clean Air Act," he said, adding that many refineries had done just that.

"We said to these guys, 'Look, we know if we investigate you, we're going to find violations, so you might as well sit with us,'" Fogarty said. "A lot of refineries came in and took advantage of that," indicating that BP and Chevron negotiated multi-facility settlements early in the initiative.

So far, the settlements cover 105 refineries in 32 states and territories, according to the EPA's website. Those refineries have agreed to invest more than $6 billion in control technologies that are expected to annually reduce sulfur dioxide emissions by more than 500 million pounds and nitrogen oxide by about 180 million pounds.

In addition, the refineries have been fined civil penalties of more than $80 million and have set aside more than $75 million for environmental projects, according to the EPA.

The EPA still is in negotiations with six entities.

-- Civil penalties: $5.125 million to the United States; $250,000 to the Virgin Islands.

- $4.875 million into an escrow account to support territorial supplemental environmental projects.

- An estimated $700 million in capital investments and process upgrades to include:

- Fluid catalytic cracking unit: HOVENSA will utilize combustion controls and use a wet-gas scrubber and will include lower sulfur dioxide and nitrogen oxide limits in the permits, which will be monitored with a continuous emission-monitoring system.

- Heaters and boilers: HOVENSA has options from a number of nitrogen oxide emmissions-reducing equipment, along with wet-injection for turbines. It also will reduce sulfur dioxide emissions by reducing the sulfur content of the fuel oil combusted.

- Sulfur recovery units: HOVENSA will reroute all sulfur pit emissions so they are eliminated or controlled by no later than Dec. 31, 2014, and will put together a preventative maintenance operation plan focused on the refinerywide reduction in sulfur emissions.

- Flaring devices: HOVENSA will install six new flare-gas recovery systems within 10 years to control flaring incidents.

- Leak detection and repair: HOVENSA will develop a refinerywide lead detection and repair program to keep track of equipment and identify sites that need maintenance or repair.

Western Refining Temporarily Suspends Ops at El Paso Refinery

Western Refining, Inc. announced February 7 that on February 2, 2011, it temporarily suspended refining operations at its El Paso refinery due to inclement weather in El Paso and related curtailment of electricity by the local utility.

 

The El Paso refinery experienced some freeze-related damage and the Company has begun the necessary repairs to resume operations. Management anticipated beginning startup of certain processing units in approximately three to five days and were working with its customers and suppliers to address any interruptions that may arise from this event.

Enbridge Expansion of LA Condensate Processing Facility to Cost $150 Mln

Enbridge Inc. announced February 1 that it plans to expand the condensate processing capacity of its Venice, Louisiana facility. The estimated cost of the expansion is approximately $150 million and is expected to be in service in late 2013.

 

The expanded condensate processing capacity will be required to accommodate additional natural gas production from the recently sanctioned Olympus offshore oil and gas development. Natural gas production from Olympus will move to Enbridge's onshore facility at Venice via Enbridge's Mississippi Canyon offshore pipeline where it will be processed to separate and stabilize the condensate. The expansion will more than double the capacity of the facility to approximately 12,000 barrels of condensate per day.

 

"As one of the largest natural gas pipeline operators in the U.S. Gulf Coast offshore waters, we are well positioned to continue to capture attractive opportunities from expected growth in oil and gas production from this area," said Al Monaco, President, Gas Pipelines, Green Energy and International, Enbridge Inc. "The Venice facility expansion carries similar favorable financial terms to those negotiated for our other recently announced investments in the Gulf Coast, and our existing Mississippi Canyon Pipeline will also benefit from new gas production from the Olympus development. Most important, we will continue to bring a high standard of safety, reliability and environmental responsibility to the operation of our Gulf Coast facilities and the service provided to our customers."

 

As a transporter of energy, Enbridge operates, in Canada and the U.S., the world's longest crude oil and liquids transportation system. The Company also has a growing involvement in the natural gas transmission and midstream businesses, and is expanding its interests in renewable and green energy technologies including wind and solar energy, hybrid fuel cells and carbon dioxide sequestration. As a distributor of energy, Enbridge owns and operates Canada's largest natural gas distribution company, and provides distribution services in Ontario, Quebec, New Brunswick and New York State.

Wide Range of Potential Buyers Could Be Looking at Two BP Refineries

BP's (BP) Texas City and Carson refineries, two of the largest and most sophisticated refineries in the U.S., could attract a wide range of potential buyers--ranging from state-foreign oil producers to large U.S. independents, and private equity firms.

 

BP announced February 1 it is hoping to sell by the end of 2012 its 475,000 barrel-a-day refinery in Texas City, Texas, and 265,000 barrel-a-day Carson plant near Los Angeles, Calif. The energy giant is hoping the sale--which executives said could bring about $4 billion--will help offset the cleanup and litigation costs stemming from the 2010 oil spill in the Gulf of Mexico. The divestiture would also put BP among the energy producers decreasing exposure to the U.S. refining industry, which is challenged by growing use of alternative fuels and lackluster gasoline demand.

 

The announcement comes after two years of restructuring in the U.S. refining sector, which has led companies such as Valero Energy Corp. (VLO) and Sunoco Inc. (SUN) to close or sell some of their facilities. But the sector seems to be undergoing a turnaround, as evidenced by Exxon Mobil Corp.'s (XOM) strong refining profits in the fourth quarter, and by rising private equity interest in acquiring refining assets at a historically low valuation point.

 

Analysts point to entities such as PBF Energy, a private equity-backed firm run by Tom O'Malley, former head of European oil refining giant Petroplus Holdings A.G. and current serial purchaser of U.S. refining assets, as a potential suitor for one or both of BP's facilities. PBF in 2010 bought three refineries in the Northeast and the Midwest.

 

O'Malley, who has said the firm would look for further refinery acquisitions in other parts of the U.S., declined through a spokesman to comment on whether he was interested in the BP refineries.

 

Valero, the largest independent refiner in the U.S., could be another likely buyer. The San Antonio-based company sold two smaller refineries in the northeastern U.S. that it said were unprofitable, but might be interested in a facility as large and complex as the one in Texas City. Chief Executive Bill Kleese has expressed interest in the refinery, which offers access to the Gulf of Mexico for possible export trade. Valero also has the wherewithal to bring the accident-prone Texas City refinery fully into compliance with federal workplace safety rules.

 

Fitch Ratings energy analyst Mark Sadeghian said that the refinery would hold many of the criteria Valero looks for in a possible acquisition.

 

"Valero is clearly in the market for facilities with higher complexity and near water transport," Sadeghian said. "This would appear to fit the category."

 

Valero spokesman Bill Day said the company is "interested in adding assets" to its portfolio, but declined to discuss BP's refineries specifically. Valero would probably face federal regulatory hurdles to buying a refinery in California, where it owns two facilities already, but not in Texas, he said.

 

Selling the Texas City refinery comes with its own set of challenges. The 475,000 barrel-a-day Texas City refinery is among the largest and most complex in the U.S., but it also carries a long history of industrial and environmental accidents, including a 2005 explosion that killed 15 people and injured more than 170 others.

 

BP has spent "billions of dollars" to bring the refinery closer to federal workplace safety codes, but more work still needs to be done, said Gary Beevers, international vice president of the United Steel Workers union.

 

Analysts say either refinery's access to ports would draw the eye of potential foreign energy companies eager to expand their refining capacity; the Carson refinery's West Coast location makes it a potential supplier to rapidly growing Asian markets. Potential buyers could include state-owned energy producers such as Petroleo Brasileiro S.A., which already owns a refinery in the Houston area, or PetroChina Company Ltd. (PTR).

 

Representatives from Petrobras and PetroChina weren't immediately available for comment.

 

"Potential bidders could be some national oil companies from the Middle East or maybe China," Morningstar equities analyst Allen Goode said.

Baker & O'Brien Indicates U.S. Refining Margins Improve but Some Refineries Still at Risk

Baker & O'Brien, Inc.'s fourth quarter 2010 release to PRISM subscribers indicates that overall 2010 margins are higher than in 2009, with U.S. fourth quarter 2010 cash margins improving in every district. When compared against the previous quarter, refinery cash margins have risen on average, $1.20 per barrel. Bucking the trend was PADD 4, which showed a decrease of nearly $3 per barrel, reversing last quarter's improvement relative to other PADDs.

 

Some refineries have experienced very favorable market conditions recently. Refineries running WTI (and similar quality grades that are priced against WTI) have benefited from historically low prices relative to LLS and other waterborne imports of light-sweet grades (prices that are Brent-based). Coking refineries have enjoyed respectable light-heavy spreads. Refineries in a position to export refined products have benefited from an uptick in exports, driven by opportunities to supply Latin America and Europe. However, crack spreads generally remain low, keeping some U.S. refineries at risk.

 

Further darkening some refineries' long-term prospects are the potential costs of consent decree settlements yet to be reached with the U.S. Environmental Protection Agency (EPA). Since 2000, the EPA has entered into settlements with refiners to reduce air emissions under the Clean Air Act. In January, the EPA reached an agreement with HOVENSA resulting in penalties of more than $5 million and requiring significant investments in pollution controls. In addition, this agreement was most likely the cause of the announcement that a portion of the refinery will be shutdown and the refinery's crude oil processing capacity will be reduced. The investment required for the 104 refineries that had settled through 2010 was expected to top $5 billion—an average of more than $50 million per refinery.

 

Refineries representing more than 10% of U.S. crude capacity are not yet under a consent decree with the EPA. The median capacity for these remaining refineries is less than 70 thousand barrels per day (MB/D) and more than half of them process a light crude slate and operate a Fluid Catalytic Cracking (FCC) unit, one of the four key "problem areas" identified by the EPA. Considering Baker & O'Brien's refinery viability factors—which include PRISM cash margin estimates that place 35% of these refineries in the fourth quartile —many of the refineries that have not been included in an agreement may already be at risk.

 

Even if refinery owners reach an agreement with the EPA, the expected costs of repairs, controls, and testing could be very significant. For some refiners, it might not be a question of negotiating the best agreement, but whether they can afford to operate with any agreement at all.

 

Baker & O'Brien is an independent professional consulting firm specializing in technology, economics, and management practice for the international oil, gas, chemical, and related industries. With offices in Dallas, Houston, and London, the firm focuses primarily on the downstream industry and assists clients with strategic studies, mergers and acquisitions, and technology evaluations. The firm also provides expert services to support insurance claims and a wide range of commercial disputes in the energy industry.

 

Baker & O'Brien's PRISM software is used to perform detailed analysis of individual refineries and the refining value chain from crude load port to truck rack. The system combines a large historical database with a robust refinery simulator to provide analytical support to competitive analysis, strategic planning, crude oil valuation, and delivered cost of supply. The PRISM database currently includes operational and economic performance details for all refineries in the U.S. and Canada, most refineries in Europe, and selected refineries in the Asia Pacific region. The PRISM system is available for license and is used in consulting assignments for Baker & O'Brien clients.

KBR Marks DWC Tower Design Milestone at Three Valero Refineries

KBR on February 15 announced that Valero Energy Corporation has successfully started up advanced reformate splitters at three of its United States refineries.

 

The three Mobile Source Air Toxic (MSAT) II Benzene Concentration Units—located at Valero's Port Arthur and Sunray, Texas; and Memphis, Tennessee refineries—utilize KBR's advanced reformate splitter Dividing Wall Column (DWC) tower designs. A fourth unit is located at Valero's St. Charles refinery in Norco, Louisiana and will be commissioned later this year.

 

The startups mark the first successful implementation of the DWC tower designs in the U.S. and Western Hemisphere refining sector. The units were designed to concentrate and remove benzene from gasoline streams in order to meet U.S. regulatory mandates limiting the benzene content of gasoline. Conceptually developed by Valero, the DWC towers were designed and optimized by KBR for each unique project and have allowed Valero to meet their regulatory requirements.

 

"We are excited about this successful, landmark application of the DWC tower designs and are pleased that Valero selected KBR on these important projects," said Tim Challand, President, KBR Technology. "As a leader in refining technologies, KBR prides itself on delivering cost-effective solutions that minimize capital and operating costs for our customers, while helping them to meet or exceed environmental regulations now and in the future."

Western Begins Start-up at El Paso Refinery

Western Refining, Inc. announced February14 that its El Paso refinery began starting various units late in the previous week and anticipated returning to normal operations during the week of February 13. The El Paso refinery experienced damage and interruption to its operations due to record-breaking low temperatures and interruptions to its electrical supply beginning February 2, 2011.

 

Western operates refineries in El Paso, and Gallup, New Mexico. Western's asset portfolio also includes refined products terminals in Albuquerque and Bloomfield, New Mexico and Yorktown, Virginia, asphalt terminals in Phoenix and Tucson, Arizona, Albuquerque, and El Paso, retail service stations and convenience stores in Arizona, Colorado, and New Mexico, a fleet of crude oil and finished product truck transports, and wholesale petroleum products operations in Arizona, California, Colorado, Nevada, New Mexico, Texas, and Utah.

U.S. House Votes to Block EPA from Regulating GHG Emissions

The U.S. House of Representatives has voted to block the Environmental Protection Agency from regulating greenhouse gas emissions from power plants, refineries and other stationary sources.

 

Delivering a blow to the Obama administration, the House voted February 18 to hamstring the EPA from drafting and enforcing greenhouse gas rules until the end of the government's fiscal year in September.

 

Introduced by three Texas Republicans, the measure was proposed as an amendment to a spending bill that will finance government operations through the remainder of the 2011 fiscal year.

 

The vote was 249 to 177, with most Democrats voting against the measure.

Diverse Coalition Seeks to Bar EPA Funding for E15

NPRA, the National Petrochemical & Refiners Association, was one of 15 organizations signing a letter to the leadership of the U.S. House of Representatives February 16 supporting a measure by Rep. John Sullivan (R-Okla.) that would bar the Environmental Protection Agency from using federal funds to cover EPA costs involved with increasing the amount of ethanol in gasoline from the current 10 percent to 15 percent.

 

The letter to House Speaker John Boehner (R-Ohio) and Minority Leader Nancy Pelosi (D-Calif.), with copies to all House members, was signed by a wide-ranging collection of organizations that frequently hold varying viewpoints on energy and environmental issues.

 

The signers are: Alliance of Automobile Manufacturers; American Bakers Association; American Meat Institute; American Petroleum Institute; California Dairies, Inc.; Grocery Manufacturers Association; International Snowmobile Manufacturers Association; National Association of Truck Stop Operators; National Chicken Council; National Marine Manufacturers Association; National Petrochemical & Refiners Association; National Turkey Federation; Outdoor Power Equipment Institute; Small Business & Entrepreneurship Council; and the Specialty Equipment Market Association.

 

The letter states: "The undersigned organizations urge you to support Congressman John Sullivan's amendment to H.R. 1, the FY 2011 Continuing Resolution, to prevent the Environmental Protection Agency from using appropriated funds to increase the amount of allowable ethanol content in gasoline to 15% (E15). The amendment is necessary to protect consumers and the environment and deserves your strong support.

 

"Our organizations rarely agree on any public policy issue, but we are united in opposing the premature introduction of E15. Protection of the environment and the nation's motorists must take precedence over the politics of biofuels. Simply stated, this amendment will call a halt to EPA's headlong rush to introduce E15 at least until unbiased and independent testing on the impact of E15 on vehicle and off-road engines and the environment can be completed. We collectively urge you to support the Sullivan E15 amendment to H.R. 1 when it is offered this week."

 

NPRA members include more than 450 companies, including virtually all U.S. refiners and petrochemical manufacturers.

Holly Corp, Frontier Oil to Merge Seeking Bigger Share of Niche Fuel Markets

Texas oil refiners Holly Corp. and Frontier Oil on February 23 announced plans to merge in a deal that will create a larger, regionally focused fuel provider that sees an opening to boost profits in an industry some larger rivals are leaving.

 

Dallas' Holly Corp. will buy Houston-based Frontier Oil Corp. for nearly $3 billion in stock and assume Frontier debt, then create a company called HollyFrontier Corp., which will be based in Dallas.

 

The companies said the combination will give them a bigger share of niche fuel markets in the middle section of the U.S., the Southwest and Rockies, as well as expand their access to cheaper domestic and Canadian crude supplies. That will make the new entity the most profitable independent refiner in the U.S. on a per-barrel basis, they said.

 

The merger also gives Holly a bigger balance sheet to consider potential acquisitions that neither could have pursued alone, said Mike Jennings, the chairman and CEO of Frontier, who will become CEO of the combined company. Matt Clifton, Holly's chairman and CEO, will become executive chairman.

 

"We think that those opportunities are going to become clear as we go forward," Jennings said. "In particular, I think there's a pretty strong dynamic in place of majors shedding downstream assets in North America."

 

Major companies including BP and Murphy Oil have announced plans to sell U.S. refineries after oil price swings in recent years brought unwanted volatility. Last month, Houston's Marathon Oil Corp. said it would spin off its U.S. refining business and narrow its focus as an upstream oil and gas producer.

 

But Holly and Frontier operate small refineries that are closely tied to regional markets and don't compete as aggressively on costs as bigger plants, like those on the Gulf Coast, said Jeff Dietert, an industry analyst who follows the companies with Houston investment bank Simmons & Company International.

 

Together, they will have roughly 440,000 barrels per day of crude-processing capacity at five refineries. Holly operates refineries in Artesia, N.M., Tulsa, Okla., and Woods Cross, Utah, while Frontier has plants in El Dorado, Kan., and Cheyenne, Wyo.

 

They said they hope to take advantage of a recent discount in domestic and Canadian crudes, arising in part from an uptick in production from North Dakota's Bakken Shale play and new pipeline shipments of Canadian oil into the U.S.

 

The proximity of the company's plants to those U.S. fields and to an oversupplied oil hub in Cushing, Okla., could give it an edge on many coastal refiners forced to buy crude that more closely tracks global prices, Dietert said. On February 22, for instance, West Texas Intermediate, a common U.S. crude used by Midwest refiners, traded at $17 a barrel less than Louisiana light, sweet crude widely used on the Gulf Coast, he said.

 

In addition, the companies said the merger should result in at least $30 million in annual cost savings from operational efficiencies.

 

In 2003, Holly and Frontier had agreed to a $464 million merger agreement, but the deal fell apart over environmental litigation then pending against Frontier.

 

Under the new deal, expected to close in the third quarter, Frontier shareholders will receive 0.4811 Holly shares for each share of Frontier stock. Holly shareholders will then own 51 percent of the company, with Frontier shareholders owning the rest.

 

Once the deal closes, Frontier will shut its Houston office, which employs eight people, Jennings said. He added that some Houston employees will be relocated.

PBF Unit Completes $400 Mln Toledo Refinery Purchase

Toledo Refining Co. LLC, a wholly owned subsidiary of PBF Holding Co. LLC., has completed its purchase of a 170,000-b/d refinery in Toledo, Ohio, from Sunoco Inc.

 

The purchase price was $400 million, half in cash and half in a 2-year note. The deal also included a participation payment of up to $125 million, based on profitability of the refinery, and sale of inventories.

 

The high-conversion refinery processes mainly light, sweet crudes from Midcontinent states and Canada.

Unplanned and Planned Production Outages at U.S. Refineries

The following table lists unplanned and planned production outages at U.S. refineries as reported by Dow Jones Newswires. The information is compiled from both official and unofficial refining sources and doesn't purport to be a comprehensive list.

 

Valero Energy Corp. (VLO) said Feb. 28 that work being done at a desulfirization unit at its Corpus Christi, Texas, refinery over the weekend did not affect production.

 

Magellan Midstream Partners (MMP) could restart a products pipeline Feb. 28 that had been shut in after it leaked an estimated 6,000 barrels of gasoline last week. The 18-inch diameter pipeline carries refined products from Texas City to Pasedena, Texas, 40 miles away.

 

Royal Dutch Shell PLC (RDSB.LN) reported unplanned flaring at its 155,600 barrel-a-day refinery in Martinez, California, according to a government document released late Feb. 24.

 

ExxonMobil Corp. (XOM) had a compressor trip at its 348,500 barrel-a-day refinery Beaumont, Texas, on Feb. 24. Production was not impacted, an Exxon spokesman said.

ConocoPhillips (COP) will take down Unit 27.1 and a regenerator and reactor from service at its refinery in Sweeny, Texas, for inspection and possible repair, the company said in a regulatory filing Feb. 17.

 

BP plc reported an unspecified problem on Feb. 16 with the sulfur recovery unit at its Whiting, Indiana, according to a government filing.

 

WRB Refining LLC (COP, CVE) reported an unspecified unit malfunction at its refinery in Borger, Texas, on Feb. 15, according to a govenrment filing. WRB Refining at the end of February said freezing cold temperatures caused a process upset at its oil refinery in Borger, Texas, which resulted in emissions at several flare stacks at the plant, according to a filing to Texas state environmental regulators.

 

   For more detailed information, search Dow Jones Newswires using the code N/REF.

 

 

Operator   Refinery    Capacity   Description                   Restart

                       (in 000s

                       bbl/day)

UNPLANNED

 

CANADA

 

CARIBBEAN

 

Valero   Aruba         235.0  Water tank collapse on Feb 2

                              caused pipe damage which resulted

                              in a plant wide shutdown. Repairs

                              underway; no restart estimate yet,

                              the Co. said on Feb 9.

 

Hovensa  St. Croix     500.0  Fire erupted at distillate

                              desulfurization unit. Rest

                              of operations running.

 

 

EAST COAST

 

Sunoco   Marcus Hook   178.0  Reformer, Crude Unit, gas plant     1st Q

         PA                   shut Jan. 7 for maintenance, a      2011

                              source said on Jan. 6. Co. said

                              on Feb. 3 work will conclude 1st

                              quarter 2011.

 

Sunoco   Philadelphia  335.0  Crude unit, FCCU to shut Feb.       1st Q

         PA                   1 for 2 weeks, a source said        2011

                              on Jan. 6. Co. said on Feb. 3

                              work will conclude in 1st

                              quarter 2011.

 

GULF COAST

 

Alon     Big Spring     70.0  Refinery seen back at maximum       Feb 8

USA      TX                   levels following cuts due to

                              sulfur recovery unit shutdowns

                              on Feb. 2, the co. said on Feb.

                              8.

 

Citgo    Corpus        163.0  FCCU No. 1 shut Feb. 7 to repair

         Christi, TX          an expansion joint. Restart es-

                              timate not available.

 

Exxon    Baton         504.5  Unspecified unit shut on Feb. 7

Mobil    Rouge, LA            for repairs following a leak of

                              hydrogen sulfide, the co. said

                              on Feb. 8. Restart estimate not

                              available.

 

Flint    Corpus        300.0  Fire at East Plant on Jan. 31

Hills    Christi, TX          results in excess opacity at

                              FCCU II. Fire extinguished with-

                              in 15 minutes. Company would

                              not comment on status of FCCU

                              operations.

 

Holly    Artesia       100.0  Refinery operating at 40,000 b/d

Corp.    NM                   since Jan. 26 following plant-wide

                              power failure; return to normal

                              may take an additional week, the

                              co. said on Feb. 4.

 

 

Motiva   Norco, LA     234.7  Process upset caused emissions,

                              the company said Feb. 13.

 

 

Valero   Sunray,       171.0  Operations returned to normal on

         TX                   Feb 5/6 following cold weather-re-

                              lated power supply issues, the Co.

                              said on Feb 7.

 

Valero   Port Arthur   287.0  The FCCU shut Feb. 7 due to a loss  Feb. 9

         TX                   loss of steam was restarted on Feb.

                              8 and increasing to normal rates,

                              the co. said on Feb.9.

 

 

MIDWEST

 

Tesoro   Mandan, ND     58.0  Refinery continues to operate at

                              90% of capacity following fire

                at alkylation unit furnace on

                              Jan. 19. All customer requirements

                              are being met. Estimate to return

                              to normal not yet available, the co.

                              said on Feb. 3.

 

ROCKIES

 

WEST COAST

 

Conoco   Rodeo, CA     120.2  Leak and fire occurred Jan. 30

Phillips                      at coker unit, the Co. said on

                              Jan. 31, but would not comment

                              on impact on operations.

 

PLANNED

 

CANADA

 

Shell    Montreal      130.0  The refinery will be converted

         Quebec               into a terminal.

 

 

CARIBBEAN

 

Hovensa  St. Croix     500.0  Operations will soon return to

         USVI                 newly established rates as turn-

                              around maintenance at SRU nears

                              completion, the Co. said on Feb.1.

                              The SRU turnaround began in Jan.

 

                              Shutting smaller, older process

                              units on west side of plant, which

                              will reduce crude distillation to

                              350,000-b/d, Co. said Jan. 26.

                              Coker, FCCU will not be affected.

 

Valero   Aruba         235.0  Plant nearing planned rates,

                              the company said on Jan. 28.

                              The plant, shut in July

                              2009 on poor economics, will

                              use LNG to reduce utility costs.

 

 

EAST COAST

 

Sunoco   Westville     145.0  Idling all Eagle Point refin-       n/a

         NJ                   ing operations indefinitely due

                              to poor economics, co. said

                              Oct. 6, 2009.

 

Valero   Delaware      210.0  PBF Energy has closed               Apr

                              deal to buy plant. Petroplus        2011

                              said May 5 the plant would be

                              restarted in 2Q of 2011.

 

Valero   Paulsboro,    185.0  Sale of refinery to PBF Energy      Dec.17

         NJ                   completed on Dec. 17.

 

Western  Yorktown       64.5  The refinery will close in          Sept

         VA                   September 2010 for economic

                              reasons. Terminal operations

                              will continue.

 

GULF COAST

 

BP       Texas City    437.0  A crude unit is going into

         TX                   turnaround maintenance

                              as similar work is being done

                              on FCCU No. 1, which was taken

                              out of service on Jan. 12, a

                              person familiar with ops said

                              Jan. 25.

 

Chevron  Pascagoula    330.0  Pre-commercial heavy oil            2010

         Miss.                conversion project delayed

                              from 2008 to 2010 due to

                              economic factors.

 

                              Expansion project including

                              the replacement of two 30-year-

                              old reformers and construction

                              of a 55,000 b/d continuous

                              catalytic reformer platformer

                              unit to be completed by late

                              summer, Industrial Info

                              Resources said July 6. A

                              premium base-oil facility

                              was also being planned, co.

                              said in late Feb.

 

Citgo    Corpus        163.0  Turnaround activities in process

         Christi, TX          and will continue to Feb. 28, Co.

                              said Jan. 20. Sources said work is

                              being performed at FCCU.

 

                              New 42,500 B/D ULSD new unit has been

                              started, now allowing the company to

                              produce all of this fuel entirely in-

                              house, Co. said Jan. 27.

 

Exxon    Baton         504.5  Several weeks of work got under

Mobil    Rouge, LA            way on Feb 5, the company said

                              on Feb 7. It would not comment on

                              what unit, or units, are involved.

 

Exxon    Baytown, TX   560.6  New ULSD Units commissioned,

Mobil                         Co. said Oct 21. ULSD supply

                              will increase by over 3 million

                              gallons from Baytown & Baton

                              Rouge.

 

Shell    Deer Park     327.0  Maintenance activities are

         TX                   underway, Co. said Jan. 18,

                              but the duration and type

                              of work were not disclosed.

 

Exxon    Chalmette     120.0  Crude throughput will be re-        N/A

         LA                   duced to 90,000-b/d as redun-

                              dant units and about 70 jobs

                              are taken out of service and

                              cut for economic reason. These

                              have begun to take place, the

                              co. said Aug 26.

 

                              FCCU was taken out of service on

                              Jan. 22, but the rest of refinery

                              is operational.

 

Motiva   Port Arthur   285.0  Expansion project to increase       1Q

                              throughput capacity by 325,000      2012

                              b/d, to 610,000-b/d, slowed.

                              Completion now seen 1Q

                              2012, from 2010.

 

Pasadena Pasadena, TX   56.0  FCCU, 56,000-b/d, will be taken out

                              of service Feb. 28 for 44 days for

                              planned work, Co. reported Jan.25.

 

 

 

 

Valero   Houston, TX   145.0  Shut down of 90,000-b/d CDU    Feb. 24

                              got underway on Jan. 31/Feb.

                              1 for 24 days turnaround main-

                              tenance, the Co. said on Feb. 1.

 

Valero   Corpus        340.0  West Plant 50,000-b/d FCCU at

         Christi, TX          reduced rates since mid-Dec for

                              economic reasons.

 

                              Production not affected by work

                              at desulfirization unit over

                              weekend, Co. said Feb. 28.

 

Valero   McKee    TX   170.0  Hydrocracker project to commence   April 2011

                              in April of 2011. Vacuum unit

                              turnaround planned for first

                              half of 2012, company says.

 

Valero   Norco, LA     250.0  Hydrocracker project will pro-      2013

                              ceed and be completed in late

                              2013, the co. said on July 27.

 

                              FCCU, 100,000 b/d, will be          2Q

                              revamped and work will take         2011

                              place at a alky unit, lasting

                              55 days starting in March, Co.

                              said Oct. 26.

 

                              Work planned at 90,000-b/d

                              alky unit in March for 56 days.

 

                              Upgrade project to build            2012

                              a new diesel hydrotreater

                              unit moved from 2010 to

                              4Q 2012.

 

Valero   Port Arthur   325.0  Hydrocracker project will pro-      2012

         TX                   ceed and be completed in late

                              2012, the co. said on July 27.

 

                              Crude and coker work lasting        1H 2011

                              51 days to begin in February.

                              Six coke drums will be re-          2011

                              placed in 2011.

 

                              77,000-b/d FCCU at reduced          n/a

                              rates since mid-Dec for

                              economic reasons.

 

Valero   Sunray, TX    170.0  55,000-b/d FCCU at reduced          n/a

                              rates since mid-Dec for

                              economic reasons.

 

                              Planned hydrocracker turnaround,

                              delayed from March, to take place

                              in April and will last 24 days,

                              Co. said Jan. 26.

 

MIDWEST

 

CVR    Coffeyville     115.7  Periodic turnaround will take place

       KS                     in two phases beginning in Fall 2011

                              and completed in Spring 2012.

 

Valero  Ardmore, OK     90.0  Plantwide turnaround expected to take

                              place in March 2011.

 

 

WEST COAST

 

BP       Carson, CA    264.0  Flaring, not related to equip-

                              ment breakdown, planned between

                              Feb. 15 and Feb. 18.

 

Conoco   Rodeo, CA     120.0  Planned maintenance underway, Co.

                              said Jan. 20, but declined to say

                              what units are involved and how

                              long the work will last.

 

Exxon    Torrance      149.5  Hyrocracker, Sat. Gas Plant and

Mobil    CA                   hydrogen unit shut Feb 1 for several

                              weeks of planned turnaround mainte-

                              nance, the co. said on Feb. 1.

 

Valero  Benicia, CA    170.0  Process unit and FCCU down.

                              FCCU unit to remain down amid

                              maintenance planned for 1Q 2011.

 

                              Plantwide turnaround is taking

                              place and will last about 42 days,

                              Co. reported Jan. 26.

   CANADA

Alberta Unveils New Refinery with First Major Carbon Capture and Storage Project

Canada’s Alberta province has announced contracts for two new heavy oil upgrading projects that will increase supplies of diesel fuel and boost Alberta's standing as a secure supplier of clean energy.  The plans include the North West Upgrading/Canadian Natural Resources Limited partnership to build a bitumen refinery northeast of Edmonton.

 

 In the second, the province and Enhance energy will develop the first major carbon capture and storage project in Alberta.  The Alberta Carbon Trunk Line will capture CO2 from the new refinery to be used for enhanced oil recovery from existing conventional oil fields.  Premier Ed Stelmach says "these projects underline Alberta’s commitment to responsible, cleaner energy production."  The diesel refinery is targeted for completion by mid-2014.  The two projects will create about 10,000 construction jobs.

Canadian Natural, North West Advance Alberta Bitumen Refinery Project

Canadian Natural Resources Limited ("Canadian Natural" or the "Company") has entered into a partnership agreement with North West Upgrading Inc. to move forward with detailed engineering regarding the construction and operation of a bitumen refinery near Redwater, Alberta.

 

In addition, the partnership has entered into an agreement to process bitumen supplied by the Government of Alberta under the BRIK initiative. Provided the project is sanctioned following detailed engineering, Phase 1 will process 50,000 bbl/d of bitumen to finished products and will incorporate an integrated CO2 management solution. The facility can be expanded in two additional identical phases of 50,000 bbl/d of bitumen at a future date. Canadian Natural believes it is important to ensure conversion capacity is available in the mid and long term to support heavy oil demand and facilitate unlocking the value of the Company's vast heavy oil assets in Alberta. As such, Canadian Natural has agreed to provide 12,500 bbl/d of bitumen to Phase 1 of the facility.

 

Canadian Natural's President, Steve Laut commented, "This is a great opportunity for Canadian Natural to be part of a project that not only supports the Alberta Government's efforts to create value by keeping refining in Alberta but also supports our marketing strategy to ensure conversion capacity for our products and create shareholder value. Working together with the North West management team who have extensive experience in building and operating such facilities will help ensure the success of the project and complements our well balanced and vast asset portfolio."

 

Canadian Natural is a senior crude oil and natural gas production company, with continuing operations in its core areas located in Western Canada, the U.K. portion of the North Sea and Offshore West Africa.

VIRGIN ISLANDS

EPA Launches Three-month Probe of Virgin Islands St. Croix Hovensa  Refinery

The U.S. Environmental Protection Agency has opened a three-month study of air pollution emitted from the Hovensa LLC refinery in the Virgin Islands, the agency said February 15.

 

The EPA investigation is the latest run-in the agency has had with the 500,000 barrel-a-day refinery in St. Croix. Hovensa's December release of air pollutants resulted in the company paying a civil penalty of more than $5.3 million and agreeing to install $700 million worth of new pollution controls.

 

The refinery was also found to be leaking oil from processing units and storage facilities that resulted in plumes of crude floating on top of the groundwater underlying the facility.

 

The EPA decided to monitor air pollution at the site "in response to community concerns about the health impacts of releases of chemicals into the air from the Hovensa refinery," the agency said in a statement.

 

Hovensa is a joint project between U.S. refiner Hess Corp. (HES) and Petroleos de Venezuela SA. The refiner announced in late January that it would cut its capacity to 350,000 barrels a day.

ASIA

   AUSTRALIA

Shell Invests in Major Australian Bitumen Projects

Shell Australia has announced two major investments in bitumen facilities to help meet demand across eastern Australia.

 

The investment will help Shell supply additional bitumen for road reconstruction efforts in south east Queensland and northwest Victoria that is expected to last for a number of years.

 

The combined investment of $27 million will create construction jobs in both Brisbane and Geelong, while increased supply will help service civil construction customers into the future.

 

Shell's marketing general manager Craig James announced the construction of a new bitumen facility at Shell's Geelong Refinery, and an upgrade of existing facilities at the company's Pinkenba site on the Brisbane River.

 

He said the $20 million investment in Geelong would include four new hot bitumen tanks and a new road gantry for loading trucks.

 

He added the $7 million investment in Shell's Pinkenba bitumen facility would take advantage of the import capability of Shell's new wharf on the Brisbane River, and would double the plant's capacity.

 

"We view bitumen as a key growth area for Shell's Australian business and these facilities will improve supply to civil contractor customers for many years to come," Mr. James said.

 

"In a country as large as Australia there is a high demand for the bitumen used to construct roads, but we are expecting a spike in local demand caused by flood damage that will last for some years."

 

Mr. James said that as well as expanding Shell's bitumen capacity, the upgrades will support local manufacture of specialty products such as Shell's Multiphalte range - the leading product for Australian airport runway surfacing. This product was recently used on both Adelaide and Melbourne airport upgrades.

 

"Shell is working with civil contractors and road authorities across Australia to bring technologically advanced bitumen products to market," he said.

 

Mr. James added the bitumen investments were part of a much larger capital program to support Shell’s aggressive plans to grow its marketing business in Australia.

   CHINA

Shell, Wison Engineering to Develop 'Hybrid' Gasification Tech

Shell Global Solutions International B.V. (Shell) and Wison Engineering Ltd. (Wison) on February 15 announced their agreement to jointly develop a new, low-cost "hybrid" gasification technology demonstration plant in China, to collaborate in the technology's future design and marketing, and to extend future cooperation to other coal gasification technologies.

 

This co-operation plays on Shell's expertise in gasification and energy technologies, as well as Wison's strong experience in project design and engineering.

 

"Hybrid gasification offers an environmentally sound solution at moderate costs for our customers to efficiently upgrade low-cost feedstock, such as coal, to more valuable products," said Michiel Mak, vice president for gasification at Shell.

 

The hybrid gasifiers promise to further expand the market for syngas—the main product of the gasification process—into the chemicals, hydrogen and fertilizer industries.

 

Liu Haijun, chief operations officer of Wison, said, "As a fast emerging, one-stop engineering service provider, Wison owns both practical experiences and R&D facilities for coal chemical production and operations. The joint R&D and marketing cooperation with Shell is in line with our development strategy. This cooperation will lead to greater success in the future and make further contributions to clean and efficient utilization of China's vast coal resources."

 

Shi Xiaoli, clean coal director of Shell Companies in China, said, "R&D collaborations with Chinese partners to advance technology are key priorities of Shell's strategy in China. This allows us to leverage the strong capabilities of our Chinese partners and grow business together. The new contract with Wison is an important building block towards our strategic goals."

 

The "hybrid" technology, known as "dry-feed, bottom-water quench," integrates various aspects of Shell's novel coal gasification design with state-of-the-art bottom-water quench technology. The technology allows processing for a wider range of coal feedstock, offers a simplified design at lower cost, and could therefore offer more competitive solutions for customers.

   INDONESIA

Shell to Build $100 Mln Lubricant Oil Plant in Indonesia

PT Shell Indonesia plans to build a lubricant oil factory with an investment of US$100 million in Indonesia.

 

PT Shell decided to build a factory in the country to meet growing demand for Shell lubricant oil in the country, its president Darwn Silalahi said.

 

So far Shell lubricant oil for domestic consumption has been supplied through imports, Silalahi said.

 

The factory will have a production capacity of 100,000 tons a year, Silalahi said, adding part of the production will be exported including to China, India and Vietnam.

 

Indonesia's Industry Minister MS Hidayat said Shell wants to make Indonesia as a production base for lubricant oil as the country provides a huge market.

 

Hidayat said he asked Shell to implement its plan this year, adding the plant will be built either in Marunda of Jakarta or Cilegon of Banten.

EUROPE / AFRICA / MIDDLE EAST

   UNITED KINGDOM

Essar Offers $1.3 Bln for Stanlow Refinery

Shell on February 18 confirmed it has received an offer from Essar Energy to buy its 272,000 barrel-per-day Stanlow refinery and associated local marketing businesses in the UK for a total expected consideration of some $1.3 billion.

 

In light of Essar's offer, the two companies on signed an exclusivity agreement until 1st April 2011, under which break fees would be payable if either company fails to sign an asset sales agreement.

 

Pursuing this deal is aligned with Shell's strategy to concentrate its global manufacturing portfolio on larger and more sophisticated assets.

 

In addition to the proposed sale of the assets, which would be expected to close by mid-2011, the two companies would 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.

   AFRICA

Shell to Divest Majority of African Downstream Units to Vitol and Helios for $1 Bln

Shell on February 19 announced that it has agreed to divest the majority of its shareholding in most of its downstream businesses in Africa to Vitol and Helios Investment Partners for a total consideration of some $1 billion. Under the agreements, Shell will retain equity in two new joint venture companies, which will assure continued availability of Shell fuels and lubricants in 14 African countries under the Shell brand.

 

"This is a good deal for our customers as well as for Shell," said Mark Williams, Royal Dutch Shell's Downstream Director. "We will significantly reduce our capital exposure in line with our strategy to concentrate our global downstream footprint, and continue to provide the high quality Shell products that our African customers have come to trust and rely on over many decades."

 

"We are delighted to have concluded this agreement with Shell and Helios," said Ian Taylor, President and CEO of the Vitol Group. "Africa is a continent we know well. These two new ventures allow us to invest in Africa and its fast-growing economies, and grow all the businesses under the umbrella of the world-class Shell brand for the benefit of our customers."

 

"We are pleased to enter into this landmark agreement with our partners, Shell and Vitol," said Tope Lawani, Managing Partner of Helios Investment Partners. "We believe that combining Vitol's world class supply expertise and Helios' deep understanding of the African operating environment with the Shell brand and a highly professional workforce will create significant new growth opportunities for the business, and will ensure the continued supply of high quality products and services for African consumers."

 

One joint venture will own and operate Shell's existing oil products, distribution and retailing businesses in 14 African countries, with the potential to add five more in future. Vitol and Helios will hold 80% of the venture and Shell will hold the remaining 20%. A separate company, which will be 50% owned by Shell and 50% by Vitol and Helios, will own Shell's existing lubricants blending plants in seven countries and will manage macro-distributor relationships in each of the countries where the main venture operates, plus a number of others.

 

Shell, Vitol and Helios will now concentrate on securing necessary regulatory approvals and integration planning, ahead of a phased completion of the proposed deal during 2011 and the first half of 2012.

 

Shell's fuels, lubricants and refining activities in South Africa, the company's lubricants business in Egypt and its exploration and production businesses, liquefied natural gas interests and most international trading activities in Africa are not part the proposed deal.

  EQUATORIAL GUINEA

KBR to Perform Study for Equatorial Guinea Refinery

KBR on February 10 announced that it has been awarded a contract by The Ministry of Mines, Industry and Energy of the Republic of Equatorial Guinea to provide a Conceptual Study and associated Project Management Services for the development of a low complexity, modular 20,000 barrel per day (BPD) refinery at Mbini in the Republic of Equatorial Guinea, West Africa.

 

The aim of the refinery is to meet the local fuel demand of the Republic of Equatorial Guinea and marks the first step away from the country's dependency on imported fuel to meet local demand.

 

"KBR is proud that the Republic of Equatorial Guinea has chosen to work with KBR on this project," said John Quinn, President, KBR Downstream. "KBR will employ its significant experience in developing and nurturing Refining projects on the African continent to assist the Republic of Equatorial Guinea in achieving its objectives of meeting local liquid fuels requirements and establishing a refining industry in the country."

 

"The Mbini refinery project is of strategic importance for the Republic of Equatorial Guinea both politically and economically as it will eliminate the country's dependency on imported oil derivatives. The Ministry of Mines, Industry and Energy is confident in KBR's experience and professionalism. We are also confident KBR will deliver a refinery design that meets the Government objectives and will provide thorough terms of reference to initiate an international tender process for the construction of the refinery," said the Honorable Marcelino Owono Edu.

   KENYA

Kenya’s Mombasa Refinery Upgrade Cost Could Double to $1Bln

The cost of upgrading East Africa's sole petroleum refinery at Mombasa could more than double to $1 billion, a company executive said February 3.

 

An executive with India-based Essar Energy PLC (ESSR.LN), which owns the refinery, said the upgrade cost was earlier estimated at $450 million, but it will require additional modernization to enable it process Ugandan crude once that country starts production.

 

"It could cost $1 billion dollars, a feasibility study is being conducted into the project," the executive, who didn't wish to be named, said on the sidelines of East African Petroleum Conference in Kampala.

 

Bimal K. Mukherju, chief executive of the plant's refinery owner, Kenya Petroleum Refineries Ltd., said separately that Essar is planning to double capacity at Mombasa in the next five-to-six years, to 80,000 barrels a day from the current 40,000 barrels a day.

 

Essar acquired a 50% stake in the refinery in 2009 and announced it would invest $400 million-$450 million to modernize the plant, which supplies refined fuel products to Kenya, Uganda, Burundi and Rwanda.

 

Mukherju further said Essar executives are in Uganda to look at more investment opportunities following the discovery of commercial oil in Uganda's Lake Albertine rift.

 

"Ugandan crude is waxy but is of an excellent quality, we are looking at the opportunity of processing it" he said adding the main challenge will be how it can be delivered by pipeline to the East African coast. Because of its waxy nature it would require a heated pipeline to prevent it from solidifying during transportation.

 

Mukherju further said the current demand in the region, estimated at 200,000 barrels a day, is enough to support a second refinery, which is being planned in Uganda.

 NIGERIA

Daewoo E&C to Build $250 Mln Gas Plant in Nigeria

Daewoo Engineering and Construction Co., South Korea's fourth-largest builder, said February 20 that it has won a US$250 million order from Nigeria to build a gas-processing facility in the African country.

 

The project calls for the construction of the facility in Nigeria's Otumara region over 37 months. It was ordered by Shell Petroleum Development Co., a joint venture between the global oil giant Shell and the Nigerian National Petroleum Corp.

 

Under the deal, Daewoo will engage in the entire process of the project ranging from engineering and procurement to construction.

 

A Daewoo official said his company, which has so far this year chalked in $1.13 billion in overseas orders, hopes it will achieve more than $5.3 billion in clinching overseas orders.

    IRAQ

Development of Iraq Nassiriyah Oil Field to Include Grassroots Refinery

Iraq wants to offer Nassiriyah oil field to international oil companies in a package that would include building a nearby refinery, a senior Iraqi oil official said February 22.

 

This would revive development of the field that has been stalled for several years since a consortium led by a Japanese company reached an accord in principle with the Iraqi government but their further negotiations failed.

 

This would revive development of the field which has been stalled for several years since a consortium led by a Japanese company reached an accord in principle with the Iraqi government.

 

"We have decided that it would be one-package deal, developing the field and building a nearby refinery," Abdul Mahdy al-Ameedi, head of the Iraqi Oil Ministry's Petroleum Contracts and Licensing Directorate, told Dow Jones Newswires.

 

Ameedi also said the ministry may hold a "smaller" bidding round for Nassiriyah, in southern Iraq, which holds some 4.4 billion barrels in reserves.

 

"For the bid round, we could invite companies which carried out studies on the field including a Japan's Nippon [Oil Corp., which has since become JX Nippon Oil & Energy Corp.], Italy's Eni SpA, Spain's Repsol YPF SA and U.S.'s Chevron Corp.," Ameedi said.

 

In August 2009, a Japanese consortium led by JX Nippon Oil & Energy Corp., reached an accord in principle with the Iraqi government for rights to develop the field.

 

But negotiations have effectively been suspended, partly because of the national parliamentary election Iraq held in March 2010. Baghdad then said the talks reached a dead end and the ministry of oil would develop the field using its own resources.

 

Japan relied on the Middle East for around 90% of its crude oil imports in fiscal 2008, according to the fiscal 2009 annual energy report.

 

Nassiriyah is currently producing between 10,000 and 15,000 barrels a day, Ameedi said. The JX Nippon consortium had offered to invest $8 billion in order to take output from the field to between 200,000 and 300,000 barrels a day.

 

The Iraqi oil ministry is planning to build a 300,000 barrels-a-day refinery in Nassiriyah governorate. The refinery is currently being designed by Foster Wheeler AG.

Iraq Baiji Refinery Says Restarts Partial Operation

Iraq restored partial operation at its Baiji oil refinery, the country's largest, on February 28, after a two-day shutdown due to a bomb attack, an official said.

 

"We have restarted production operation at 50 percent of the original capacity on Monday (February 28)," said Abdul-Qader Saab, the refinery's deputy manager.

 

The refinery was shut down on the morning of February 26 after militants killed four workers and carried out a bomb attack, setting the facility on fire.

 

The militants planted explosives at a kerosene and benzene production unit at the northern refinery in the town of Baiji, a former al Qaeda stronghold 180 km (112 miles) north of Baghdad.

 

"We need at least 45 days to fix the production unit," Saab said, adding he expected a shortage in oil products needed for domestic consumption for the next 45 days.

 

"We (at Baiji) are in charge of supplying 11 provinces."

 

The remaining production units, which also produce kerosene, benzene and other oil derivates, at Baiji were not affected by the bombing attack.

 

In the southern town of Samawa, a second refinery was also restarted on February 28 at full capacity of 30,000 barrels per day, after a two-day shutdown due to fire, oil ministry spokesman Asim Jihad told Reuters.

 

Iraq is considering contacting neighboring countries and companies to import more fuel, Jihad said, without giving more details.

 

Iraq does not export any oil products as it uses all of its production for power generation and domestic consumption.

 

The country's capacity to refine fuels like diesel and gasoline has been ravaged by under-investment, and it has been forced since the 2003 U.S.-led invasion to buy imported fuels to meet the growing gap between supply and domestic demand.

 

Baiji, which normally operates at about 70 percent of its 310,000 bpd capacity, produces 11 million liters of gasoline, 7 million liters of benzene and 4.5 million liters of kerosene a day. It was last shut in August for two days due to an electrical fault.

   SAUDI ARABIA

Saudi Aramco Awards KBR with 400,000 bpd Jazan Refinery Contract

KBR on February 9 announced that it has been awarded a contract by the Saudi Arabian Oil Co. (Saudi Aramco) to provide front-end engineering and design (FEED), and Project Management Services (PMS) for its grassroots Jazan refinery, an anticipated 400,000 barrels per day (BPD) facility to be located in Jazan, Saudi Arabia.

 

KBR will provide FEED and PMS services to develop the process design, layout, integration and optimization of the facility, develop equipment and material specifications, prepare EPC bid packages and develop an estimate for the construction of the refinery. KBR will also assist Saudi Aramco in overseeing, managing and directing the work-related activities for all phases of the Jazan Refinery and Marine Terminal Project. KBR has also committed to execute part of the FEED in Saudi Arabia. The Jazan Refinery and Terminal project is designed to provide a primary foundation industry for the Jazan Economic City development and to provide additional refined products to satisfy the growth in domestic demand within Saudi Arabia. Work on the project is expected to begin in February 2011.

 

"KBR is pleased to be selected to take part in such a significant project for Saudi Aramco," said John Quinn, President, KBR Downstream. "KBR is committed to providing Saudi Aramco with quality FEED and Project Management Services. Additionally, this award along with our existing work at Ras Tanura, the Yanbu Refinery and the Shaybah NGL program signifies KBR’s continued commitment to support Saudi Aramco development programs."

 

  

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