Moody's Investors Service cut its outlook on the global refining and marketing sector to negative from stable, saying it believes newly added capacity will outpace demand next year.

The ratings firm expects demand for refined petroleum products such as gasoline and diesel to ease in many developed nations as they continue to struggle with high unemployment and slack economic conditions.

That leaves refiners largely dependent on countries like China and India, where Moody's expects demand to increase alongside economic growth. Still, the firm cautioned that this dependence leaves the sector vulnerable to any slowdown in China, whose rapid growth has recently shown signs of easing.

Gross domestic product in the world's second largest economy jumped 9.1% from a year earlier in the third quarter, pulling back slightly from the 9.5% growth rate set in the second quarter.

Despite its demand concerns, Moody's said it sees some pockets of strength for the sector next year, pointing to refiners heavily weighted towards middle distillate production. It added that its expects U.S. Midcontinent crude sourcing economics will to remain favorable next year, though significantly lower than 2011.

U.S., Europe Refining Outlook Bleak at Year End

For the European and U.S. refining market 2011 is set to end on a sour note as profit margins are squeezed by high oil prices and lackluster demand for products.

European refiners, in particular, are headed for a bleak start in the coming year, as the region's poor economic performance and unseasonably warm weather eat into demand.

For much of the year European refiners have struggled because products like gasoline, traditionally seen as their bread and butter, have remained unprofitable.

"There has been very slow demand all over the place due to weather and the economic situation," a products trader for a major refining company said.

European refiners would "definitely" continue to reduce production going into 2012, as refining margins are looking bleak, the trader added.

According to the International Energy Agency, European refining margins, or profits from processing crude into oil products, turned negative in June and then again in September, leaving many refineries operating at a loss.

Poor refining economics have forced many European refineries to reduce their output this year, while others have extended periods of maintenance.

European refining throughput in September fell by about 360,000 barrels a day, according to the most recent data available from the IEA.

Refiners, including Europe's largest independent refinery Petroplus Holdings AG have trimmed their production of oil products as profit from processing crude into oil products has slipped this year.

Eni's Venice refinery has also cut runs, according to the IEA.

And now, even the profit margins for distillates such as gasoil and diesel--among the few products that European refiners have been able to make money on this year--are falling.

"At this point, it's only the gasoil and diesel crack holding up overall refining margins--gasoline and fuel oil cracks are really weak. So we're relying on distillate cracks to push higher, though with more refineries coming back from maintenance cracks aren't likely to strengthen much," said James Zhang, strategist at Standard Bank.

The crack is how refiners refer to the profit they can make from refining crude into oil products.

The fall in profits on middle distillates come as more and more refineries return to production after the autumn maintenance season, helping to boost the overall levels of distillate supply.

Meanwhile, poor demand for oil products is weighing on refiners' profits, and analysts say that given the way the European economy seems to be going, there is more pain to come for refiners.

"Refineries will be closing if global slowdown continues and product demand in Europe wanes," said Rob Montefusco, senior commodity broker at Sucden Financial.

Refiners in the U.S. are also set to suffer from Europe's malaise.

"The U.S. is turning more and more into an export market, so if we have poor demand in Europe, then that will impact U.S. margins," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.

The U.S. was expected to export 12.2 million barrels per day of crude products--about a third of all its product exports--to Europe in the fourth quarter, according to an estimate by the IEA.

While many refiners in the U.S., particularly in the Midwest, have benefited from relatively cheap oil this year, refineries elsewhere in the country are operating in an altogether different environment.

This year has seen a wave of closures on the east coast, with ConocoPhilips shutting its Trainer refinery in Pennsylvania and Sunoco Inc. bringing forward plans to shut its Marcus Hook refinery.

The company also has plans to idle a second refinery in Philadelphia in the coming year.

Refiners on the Gulf Coast are particularly vulnerable to weakening European demand, Petromatrix's Jakob said, predicting run cuts if the current demand picture persists.

Demand for products in Asia, on the other hand, has been comparatively robust.

Asia is seen as one of the main centers of demand growth in coming years but European refineries in particular have had a hard time competing with new, high tech local refineries built to meet this thirst for oil products.

AMERICAS

U.S.

NuStar Energy San Antonio Refinery Closes Indefinitely after Fire

NuStar Energy LP has closed its San Antonio refinery on South Presa Street after a fire at the plant November 30 that sent a plume of dense black smoke into the air.

"It does not appear that the refinery sustained significant damage," NuStar spokeswoman Mary Rose Brown said. "However, we do not yet know when we will start back up."

Brown said no one was injured in the blaze, but the plant's 60 employees and contractors were evacuated.

The exact cause of the fire hasn't been determined, Brown said, but a preliminary report shows that a fire broke out when a contractor was installing some tubing and dislodged a valve at the plant's crude unit, causing some kerosene to escape.

"The crude unit was immediately shut down, but the kerosene vaporized and ignited," Brown said. "The fire was completely contained within the crude unit. Fortunately, we were able to begin spraying the unit with water immediately, and the San Antonio Fire Department arrived within five minutes and quickly extinguished the fire."

Initial reports that there was an explosion at the plant, which can process 14,500 barrels of oil a day, were incorrect, fire officials said.

San Antonio-based NuStar, which also owns pipelines and storage facilities, purchased the refinery in April for $41 million. The plant had been owned by AGE Refining Inc., which had been operating in Chapter 11 bankruptcy since February 2010.

Company officials said in October that NuStar would spend $30 million to $40 million by year's end to improve the plant.

Under AGE's ownership, the plant had a history of safety infractions.

Deteriorating Market Conditions Prompt Sunoco to Begin Idling Marcus Hook Units

Sunoco, Inc. announced December 1 that it is indefinitely idling the main processing units at its refinery in Marcus Hook, Penn., due to deteriorating refining market conditions. The company now expects to begin idling the Marcus Hook facility immediately while it continues to seek a buyer and also pursues options with third parties for alternate uses of the facility.

The company also intends to increase the capacity utilization rate of its Philadelphia refinery and will continue to operate the refinery as long as market conditions warrant. However, if a suitable sales transaction cannot be implemented, the company intends to permanently idle the main processing units at the Philadelphia refinery no later than July 2012.

"Market conditions have deteriorated significantly and the outlook for both motor fuel demand and refining margins remains weak," said Lynn L. Elsenhans, Sunoco's chairman and chief executive officer. "Our retail and logistics businesses are performing well, but given the negative realities of the Northeast refining marketplace, we need to accelerate the timeline for idling our Marcus Hook processing units."

Sunoco will redeploy salaried Marcus Hook refinery employees to other positions within the company where possible. The company will enter into effects bargaining with union officials regarding idling the facility.

Tesoro’s Mandan Refinery to Expand Diesel Production for $35 Mln

The Mandan Tesoro Refinery will increase diesel production in order to support the growing regional demand for diesel fuel, according to a statement issued by the corporation.

Mandan's refinery will expand its Distillate Desulferization Unit by 5,000 barrels of diesel per day, bringing the total number of barrels per day to 22,000, according to the statement issued December 7.

The corporation, headquartered in San Antonio, expects the project to cost $35 million and to be completed in the last three months of 2013. It has already secured the required permits for the project.

The Mandan facility was built in 1954 and is the only refinery in North Dakota. It is supplied with crude via pipelines from the Williston Basin in Montana and in North Dakota. Tesoro acquired the refinery from BP in 2001.

Ron Ness, president of the North Dakota Petroleum Council, said the announcement is "fantastic news" for consumers and suppliers of diesel fuel.

"It's a win-win. More homemade diesel fuel for all of us," he said.

Ness said there had been a shortage of the fuel in North Dakota and across the region this fall.

"We've seen a jump in diesel consumption from all the activity in North Dakota," he said.

Mike Rud of the North Dakota Petroleum Marketers Association said the past fall's shortage of diesel was due to a booming economy, the oil patch, the state's commerce, agriculture, and the coal and power plant industries.

"A great problem to have is an economy that's this diverse and powerful ... (but) we need to find some way to solve this issue," he said.

Rud said the state saw an increase of 20 million gallons of diesel use from October 2010 to this October. He said the increase was due to an earlier harvest, a larger energy sector and a construction season that went on longer because of good weather.

"Certainly, Tesoro has been one of the beacons, if you will, for us to keep supply in place over the past few months," he said, adding that Tesoro's plan to increase production is "tremendous news for the state of North Dakota."

Sen. John Hoeven, R-N.D., said he sees the corporation's expansion as another indicator of the state's economic growth.

"North Dakota's economy is growing, and we need more diesel to fuel agriculture and commerce, and ensure they to continue to thrive," Hoeven said in a statement. "We're glad that Tesoro has recognized both the need and the opportunity available in our state, and has responded by increasing the amount of diesel fuel produced at the Mandan refinery."

The corporation announced plans to increase crude production by 10,000 per day in March. It remains on schedule to complete that expansion by June 2012, according to the statement.

Tesoro to Invest $180 Mln for Added Capacity at Salt Lake City Refinery

Tesoro Corp. said December 5 it plans to invest $180 million to expand crude oil processing at its Salt Lake City refinery.

The San Antonio, Texas-based refiner said the investment is expected to increase processing capacity at its 58,000 barrel-per-day Utah facility by 7 percent, or an additional 4,000 barrels per day.

The company employs about 250 at its Utah refinery, but a spokeswoman said she could not supply information about how many jobs, if any, would be created by the expansion.

"This project is another example of our ability to invest our capital in high-return, short-payback projects," Tesoro President and CEO Greg Goff said in a conference call with securities analysts and investors.

Tesoro's expansion project will be undertaken in two stages that are scheduled for completion in 2013 and 2014.

Once completed, the Salt Lake City project is expected to produce another $100 million in earnings annually for Tesoro before accounting for income taxes, depreciation and other financial adjustments, Goff said.

The company said it still needs to get regulatory approval for the expansion and must conduct additional engineering work before construction of the Utah project can get under way.

One environmental group said it will be watching Tesoro closely.

"We'll have some real concerns if their plan results in any increase in air pollution," said Brian Moench of Utah Physicians for a Healthy Environment. "As a group, Utah's refineries are the second-largest industrial source of air pollution along the Wasatch Front. So we're going to have to look at their specs pretty closely."

Tesoro's planned Salt Lake City expansion will center on bringing additional capacity online to refine black-wax and yellow-wax crude produced in the Uinta Basin in eastern Utah.

Black-wax crude comes out of the ground at a consistency similar to petroleum jelly. It is thick and viscous, and unlike so-called light, sweet crudes that are popular feedstocks for refining, black-wax crude usually isn't transported by pipeline. It typically needs to be trucked by insulated tankers and must arrive at its destination within four to eight hours or it will solidify. If that happens, the tanker's cargo must be warmed up before it can be pumped out.

Tesoro spokeswoman Tina Barbee said once the expansion is completed, about 32 percent of the gasoline and diesel fuel produced from the Salt Lake refinery will come from black-wax or yellow-wax crude.

Utah's refineries primarily are set up to refine lighter, sweeter crudes, and that has proved problematic for many oil producers in the Uinta Basin, an area that holds a wealth of black-wax reserves.

Tesoro said that in conjunction with its SLC project it has entered into a crude oil supply agreement with Newfield Exploration Co. of The Woodlands, Texas, to provide 18,000 barrels of black-wax and yellow-wax crude oil beginning in 2013 from Newfield's Uinta Basin properties. The contract will run for seven years.

"Our centerpiece oil asset is the Uinta Basin, and today's agreement is a significant step toward securing the necessary oil-refining capacity to support our growth plans," Lee Boothby, Newfield's president and CEO, said in a statement.

Newfield said it expects to increase its exploration and production activities in eastern Utah next year and will run as many as eight drilling rigs, compared with five in years past.

Boothby said Newfield has been active in the Uinta Basin since 2004.

ConocoPhillips Seeking Buyers for Its Louisiana Alliance Refinery

ConocoPhillips said December 6 it is considering the sale of its Alliance refinery in Belle Chasse, La., as part its ongoing optimization of its global refining and marketing segment.

"ConocoPhillips plans to continue operating the refinery as usual throughout the marketing process and no layoffs are planned," company spokesman Rich Johnson said. The Alliance refinery can process up to 247,000 barrels of oil a day.

ConocoPhillips, the third-largest U.S. oil company by market value after Exxon Mobil Corp. and Chevron Corp., expects the marketing process of the refinery to continue over the next several months. "A determination whether or not to go forward with a sale of the refinery will be made some time in 2012," Johnson said.

Houston-based ConocoPhillips could obtain $700 million to $1 billion for the Gulf Coast refinery, excluding the value of the plant's oil-product inventories, said Sam Margolin, an analyst at Global Hunter Securities LLC.

ConocoPhillips is in the midst of a three-year repositioning aimed at shoring up finances and making itself more attractive to investors. The plan includes the sale of $15 billion to $20 billion in assets, large-scale share buybacks and the spinoff of its refining arm, expected to be completed next year. Conoco's standalone refining company, Phillips 66, will become one of the largest independent refiners in the U.S.

The company has retained Deutsche Bank to assist in soliciting potential interest in the refinery.

PBF Plans $1 Bln Project at Delaware City Refinery

PBF Holding Company LLC and Delaware City Refining Company LLC (together "PBF") on December 21 announced the PBF Clean Fuels Project.

PBF's Board of Directors conditionally approved the construction of a $1 billion project consisting of a mild hydrocracker and hydrogen plant which will be built at its Delaware City Refinery. The construction period will last approximately three years and when completed will process streams from both the Delaware City refinery and PBF's Paulsboro, NJ refinery.

The mild hydrocracker will reduce the sulfur content by 99% in approximately 65,000 barrels per day of distillate production from 2,000 parts per million of sulfur to less than 15 parts per million of sulfur, resulting in a reduction of over 6,500 tons per year of sulfur dioxide emissions. In addition, the mild hydrocracker will enable the refinery to process a heavier crude slate while producing a greater volume of clean transportation fuels with an emphasis on increasing distillate production.

This project is contingent upon the issuance of timely and appropriate Federal and State environmental and other permits that will not increase the cost to build or operate the project, as well as acceptable labor agreements that will ensure that the project can be built in an efficient and cost effective manner.

The Delaware City Refinery was purchased in an idled state in June 2010 and celebrated its successful restart in October 2011. The Paulsboro Refinery was purchased in December 2010. It is estimated that the PBF Clean Fuels Project will require over 1,000,000 of local man hours of labor to complete. It will also add approximately 50 jobs to the labor force at the Delaware City Refinery. Upon completion the combination of the Delaware City and Paulsboro refineries will be the premier refining complex on the eastern seaboard and will be well positioned to compete well into the 21st century.

Thomas D. O'Malley, PBF's Chairman, said, "The PBF Clean Fuels Project will ensure the long-term survivability of the Delaware City and Paulsboro Refineries in good markets and bad. It is imperative however that we are able to swiftly move with the governmental agencies to get the appropriate permitting in place. It has always been our intention to make Delaware City and Paulsboro world class refineries which will certainly be the case with this project."

Responding to the announcement, Delaware Governor Jack Markell commented, "When PBF Energy purchased the shuttered Delaware City Refinery, they pledged to run a world-class facility employing hundreds of Delawareans. With the successful restart behind us, PBF is backing that pledge with a one billion dollar investment in the long-term future of the Delaware City refinery," Markell said. "Not only will their investment help ensure the long-term viability of the Delaware City and Paulsboro refineries, but will mean hundreds of thousands of man-hours during construction, as well as additional permanent jobs at Delaware City. We are thrilled with today's announcement."

The Delaware City refinery is a high-conversion heavy crude oil refinery with a processing capacity of 190,000 barrels per day. Major process units include a fluid coking unit, a fluid catalytic cracking unit, a hydrocracking unit with a hydrogen plant, a continuous catalytic reformer, two alkylation units, and several hydrotreating units. The refinery's production is sold in the U.S. Northeast via pipeline, barge, and truck distribution.

Paulsboro is a high-conversion heavy crude oil refinery with a processing capacity of 170,000 barrels per day. Major process units include a delayed coking unit, a fluid catalytic cracking unit, hydrotreating units, a reformer, an alkylation unit, and 12,000 barrels per day of lube oil processing capacity. Paulsboro is located approximately 35 miles from the Delaware City refinery.

MEXICO

Mexico’s Refinery Sector in a State of Decline

A year after Mexico shored up a precipitous decline in crude production, refinery output is lagging further behind demand, which is racing ahead.

Decades-old plants and a stalled investment plan have put Mexico’s declining refining industry in a tight spot. Without urgent action, Mexico-the world's No 7 oil producer-could be importing more than two-thirds of its gasoline by 2015, according to an unpublished Pemex business plan. Its import dependence crossed the halfway mark this year.

Domestic plants are so run-down that Mexico has outsourced more refining to the U.S. this year, increasing crude exports and re-importing refined fuel. Gasoline production in Mexico fell to an eight-year low in October, down 25 per cent in two years. Over the past five years, imports have doubled.

In the upstream oil sector, state oil company Pemex managed to revive dwindling offshore fields like Cantarall and Ku Maloob Zaap (KMZ) on its own, drilling smaller satellite deposits. Many politicians don't believe it can do the same downstream.

"Pemex has never proved itself as a company competitive in refining," said consultant and former Pemex official Luis Miguel Labardini. "The best option is a new reform that would allow the private sector to invest with more flexibility."

BRAZIL

PdVSA Secures $1.5 Bln Chinese Loan to Help Fund Construction of 230,000 bpd Abreu e Lima Refinery

Venezuela's national oil company (NOC) PdVSA has secured a US$1.5bn loan from state-run China Development Bank to help fund the construction of the 230,000 barrels per day (b/d) Abreu e Lima refinery on Brazil's northern coast, according to local newspaper Globo.

Under an agreement signed in August 2009, PdVSA agreed to take a 40% stake in the Abreu project alongside Brazilian state-run oil company Petróleo Brasileiro (Petrobras). The facility will help Caracas upgrade and increase its refining capacity in order to meet strong domestic demand growth and boost export volumes. Venezuela's refining capacity is currently 1.3mn b/d.

Through its stake PdVSA is liable for 40% of the project's total cost, which has risen substantially from an estimated US$4.3bn in 2008 to as much as US$14bn. However, the Venezuelan NOC is yet to make any financial contribution to the project, leading to a series of construction delays which have left the facility just 35% complete.

On November 30, PdVSA asked for an additional 60 days to provide Brazil's state-run development bank BNDES with the US$2.2bn in loan guarantees required to secure BNDES funding. The China Development Bank loan will help secure approximately 60% of that total with the rest set to come from cash raised by PdVSA, according to Rafael Ramirez, Venezuela's Petroleum and Mines minister.

PdVSA is increasingly reliant on international debt financing for its flagship oil industry projects. The company has issued over US$10bn in debt in 2011 thus far, with the latest tranche of US$2.4bn in 2021 bonds offered on November 14. Much of this money is being used to finance the development of Venezuela's downstream industry. In May 2011, PdVSA announced that it was to invest US$4bn in expanding and adding new units to its Puerto La Cruz (PLC) refinery. The project will allow the plant to process heavy crudes from the Orinoco Belt by adding hydrogen rather than removing coke from the heavy crude. With Venezuela's crude slate increasingly comprising heavy crudes, the technology will become increasingly important to the country's downstream industry.

This is largely why the Abreu e Lima joint venture (JV) makes sense for PdVSA. As well as boosting capacity by 230,000b/d, the facility will be technically advanced. According to a Petrobras investor presentation, Abreu e Lima will boast a Solomon complexity of 9.6 and be able to process ultra-heavy crudes with an API of just 16°. Up to 70% of the product mix will be diesel, a fuel increasingly sought after by traders, as global demand for the fuel is booming. Developed markets are seeking to increase vehicle fuel efficiency, while developing economies require increasingly large volumes for agricultural use. China was forced to raise imports to approximately 1.44mn tonnes (10.6mn bbl) of light diesel fuel in the first eight months of 2011, an increase of 44% on 2010.

Petrobras Signs Enviro Deal for 'Premium' Refinery

Brazil's state-run energy giant Petróleo Brasileiro S/A, or Petrobras, signed an environmental compensation agreement December 16 for the 'premium' refinery under construction in the northeastern state of Maranhão.

"This document is an important step for the correct installation of the refinery, generating development in Maranhão and respecting the environment," Petrobras downstream director Paulo Roberto Costa said in a statement.

Proceeds from environmental compensations to be paid by Petrobras will be invested in conservation units to be determined by the Maranhão environment secretariat, the company said.

The refinery is scheduled to come on stream in 2016, with an initial capacity of 300,000 barrels of oil per day. By 2019, the unit's capacity should double to 600,000 bpd. Construction of the refinery will generate some 132,000 direct and indirect jobs, Petrobras said.

VENEZUELA

JGC Wins PDVSA Oil Refinery EPC Expansion Project in Venezuela

JGC Corp. has been awarded a contract for the detail engineering, procurement support and construction management services associated with constructing heavy crude oil upgrading facilities in the Puerto La Cruz oil refinery by PDVSA Petroleo S.A. (PDVSA), Venezeula's state-run oil company. JGC will undertake the project as leader of a consortium including Chiyoda Corp. and INELECTRA, a Venezuelan engineering company.

The Puerto la Cruz oil refinery is located about 300km east of Caracas, the Venezuelan capital. The cost-reimbursable contract calls for the construction of heavy crude oil upgrading facilities with a capacity of 210,000 barrels/day. The facilities will be first in the world to commercially employ the HDH Plus heavy crude oil cracking process technology, which was developed independently by PDVSA.

The Puerto La Cruz refinery currently specializes in light crude oil products, and addition of heavy crude oil facilities is expected to bring a large increase in revenue as well as enabling more efficient use of non-renewable petroleum resources, making this project a significant asset to the Venezuelan economy. The total investment of client is estimated at approximately $5 billion.

In 2007, JGC was awarded a contract for the FEED (Front End Engineering Design) work for this project, and in 2008 was made the designated engineering contractor for the HDH Plus process. In 2010, JGC received a contract for a portion of the detail engineering and procurement support work for this project, and will now be seeing the project through to completion as project leader for the construction of the actual facilities.

JGC'S highly advanced engineering technology and decades of experience with oil refinery projects were favorably evaluated by the client. Furthermore, JGC has a strong record of project success in Venezuela, including construction of an extra-heavy crude oil upgrading plant in 1998, and modernization work on the Puerto La Cruz refinery for PDVSA in 2001. For these reasons, PDVSA selected JGC to work with the HDH Plus from the development stage through to commercialization.

ASIA

INDIA

Essar Commissions Isomerization Unit at Vadinar Refinery

Essar Oil Ltd, a subsidiary of Essar Energy, on December 8 announced the successful commissioning of a new isomerization unit at its Vadinar refinery. The isomerization unit will help the refinery produce Euro IV grade petrol.

The 0.7 million metric tonnes per annum (MMTPA) Isom unit is a key component of the Phase I expansion of the company's Vadinar refinery that will increase its capacity to 18 MMTPA (375,000 barrels per day).

Among the largest Isom units in the world, the commissioning of the unit was completed in just 32 days (as against an industry average of 50-55 days), without compromising on safety, the company said in a release.

''I am proud of my colleagues at the refinery. This achievement is testimony to their world-class expertise and demonstrates the concerted effort they are making to ensure that the expansion project is completed within schedule and budget,'' Naresh Nayyar, CEO of Essar Energy, said.

The Isom Unit (Penex-DIH) is licensed by UOP, a Honeywell company that is one of the world's leading licensors of technology for the petroleum refining industry.

The Isom unit is the first expansion unit to be fully commissioned, which means that it is now ready to start commercial production. Using Naphtha as its primary feed, the Vadinar refinery's Isom unit will help produce Euro IV grade gasoline of high octane rating and almost zero sulfur content. It is therefore a significant addition to the Vadinar refinery, enabling Essar Oil to produce high grade gasoline that has wide acceptance both in the domestic and international markets.

The Vadinar refinery expansion project is very close to completion. Mechanical completion has been achieved for 27 new units and utilities that are being added as part of the expansion.

Mechanical completion of the pending units - namely the Delayed Coker Unit (DCU), Vacuum Gas Oil Hydrotreater (VGO-HT) and a new Sulfur Recovery Unit (SRU) - is expected by the end of the month. Start-up activity of all new expansion units that have been mechanically completed so far has commenced, and they will be commissioned in a phased manner.

Essar hopes to fully realize increased refinery throughput of 18 MMTPA in the first quarter of 2012.

When completed, the Phase I expansion will increase the Vadinar Refinery's capacity from 14 MMTPA (300,000 bpd) currently to 18 MMTPA (375,000 bpd), as well as increase its complexity from 6.1 currently to 11.8. An optimization project is also under execution at the refinery to further increase the capacity to 20 MMTPA (405,000 bpd) by September 2012.

The capacity expansion, complexity enhancement and subsequent optimization will give the Vadinar refinery the capability to process nearly 87 per cent ultra-heavy crudes, which are lower cost than light crudes. In terms of product yield, the expanded Vadinar Refinery will have the flexibility to produce higher value products, including pet coke.

Euro IV (or its Indian equivalent Bharat Stage IV) norms require cleaner fuels that have very low sulfur content - less than 50 ppm (parts per million). As per an official notification, as of April 1, 2010, all motor vehicles in the top 13 Indian cities (by population) are required to comply with BSIV norms. These are the cities were BS III norms were in force previously. Supply of BS IV petrol and diesel will be extended to seven additional cities, viz, Puducherry, Mathura, Vapi, Jamnagar, Ankleshwar, Hissar, Bharatpur during the current financial year.

Integrated oil company Essar Oil has over 300,000 barrels per stream-day of crude refining capacity that is being expanded to 405,000 bpsd. The company has also over 1,600 oil retail outlets in across the country.

Vedanta Resources May Set Up Refinery to Process Its Own Crude after $8.67 Bln Cairn India Acquisition

Vedanta Resources, which completed its $8.67-billion acquisition of Cairn India on December 8, may set up a refinery to process its own crude and to benefit from a future demand for value-added petro products as older refineries in the U.S. and Europe shut shop or refiners divest to enter upstream oil production, experts said. However, the Anil Agarwal-led company will need to closely look at the feasibility and funding of such a refinery project, as cash flows from refining come in slow, and the company will need to build an entirely new set of capabilities, they cautioned.

"Downstream is a very different animal," said Dilip Khanna, partner, transaction advisory services at consultant Ernst & Young India. "Vedanta might first look at returns from their investments on Cairn's E&P (exploration and production) business before entering refining."

"However, it could decide to value-add to the crude from Cairn's Rajasthan fields, and sell globally, as European and U.S. refiners mothball their plants or divest them to move into upstream business," he added. "This would present new opportunities for Indian refiners."

The $11.4-billion London-based Vedanta, whose interests were primarily aluminum, copper and zinc production till it bought Cairn India, maintained that its focus is on the country's energy security. "Our focus is energy security and we will concentrate on exploration," its spokesperson said. "Cairn India has made the first gas discovery for Sri Lanka and this will be priority for us as well."

State-owned explorer and producer Oil and Natural Gas Corporation or ONGC, which last year said it would set up a refinery in Rajasthan, dropped the plan as it was not financially viable. "Vedanta Resources has deeper pockets," said a consultant. "A 10-million tonne per annum (mtpa) refinery would need an investment of R20,000 crore."

"A refinery in Rajasthan can source crude from Cairn's fields in the state as well as import it through Gujarat on the west coast," he said. He can't be named as he is not allowed to speak on specific companies. But E&Y's Khanna said most of the output from the Rajasthan fields is used up domestically, and it is tougher to operate an inland refinery.

"However, several major global players have integrated operations. Whether Vedanta wants to be into both downstream and upstream is a call the company needs to take," said E&Y's Khanna.

The refining business is under pressure globally, say analysts, but could change over the next few years as more companies in the U.S. and Europe divest their refining business to fund upstream projects, or mothball older refineries.

"Global refining capacity utilization levels have weakened in the last few years, which may persist in the medium term with the completion of large upcoming refineries and conversion projects," said K Ravichandran, vice-president at ratings agency Icra. "But opportunities will emerge as some of the older refineries get shut down in Europe."

"Global refining capacity has increased steadily from 86.1 mbpd (million barrels per day) in calendar year 2005 to around 91.8 mbpd in 2010," he added.

Experts said greenfield refineries will benefit from their capacity to process a variety of crude that will cushion them from the vagaries of crude prices. But the products would need to be sold elsewhere, and not in India. "High crude prices are good news for refineries," said E&Y's Khanna. "However, India has surplus refining capacity already, and is a net exporter of petroleum products, as new capacities are being added in refining."

India's oil refining capacity, at 194 million tonnes (mt) now, will rise by over 22% to 238 mt by 2013 after new refineries by public sector oil companies in Orissa and Punjab are commissioned, minister of state for petroleum and natural gas RPN Singh told newspersons in New Delhi on December 5.

Fuel demand, on the other hand, is pegged at 142 mt in 2010-11, and is expected to rise by 4-5% a year in the 12th Plan period ending 2017, he added.

State-owned Indian Oil Corporation is building a 15-mtpa refinery at Paradip, in Orissa, while Hindustan Petroleum is constructing a 9-mtpa unit at Bathinda, in Punjab.

In addition, Bharat Petroleum is planning to raise the capacity of its recently commissioned refinery at Bina, in Madhya Pradesh, to 9 mtpa from 6 mtpa at present.

PAKISTAN

Pakistan Refineries Plan $9.9 Bln Upgrading Investment

Pakistan’s oil refineries have submitted plans for tentative upgrading and other associated projects to increase refining capacity to a total of 19.34 million tons with an investment of $9.89 billion, according to a working paper submitted to the federal government recently.

However, the focus of the downstream industry would be on upgrading refining capacity from the existing refining level of 12.93 million tons to 32.27 million tons per annum but they would not focus on improving specification of petroleum products, the paper added.

It has been forecasted that the petroleum-product demand by year 2025-26 would be 34.4 million tons per annum.

At present, the demand of petroleum products is 20 million tons per annum against the local production of 12.93 million tons whereas the deficit is bridged by imports which totaled 11.61 million tons in 2010-11.

Currently, the country is importing diesel (HSD) with a specification of "pre-euro" whereas its two immediate neighbors India and China are importing euro-III compliance diesel. Similarly, gasoline specification for Pakistan is also "pre-euro" while gasoline specification for India and China is "euro-IV," the paper revealed.

All automakers in the country are not manufacturing euro-standard vehicles arguing that all the refineries are euro-compliance POL products, a leading automaker said.

The paper also proposed immediate and short-term up-gradation plans of refineries and associated projects worth of $1.59 billion by enhancing the refining capacity of 5.9 million tons. The BOPL will invest $660 million for installing platformer isomerization and DHDS units along with largest RO plant and single buoy mooring facility and LPG village by increasing the refining capacity of 5.4 million tons, it added.

The Attock Refinery Limited (ARL) will inject $250 million for DHDS, isomerization and pre-flash units by increasing refining capacity to half a million tons per annum whereas BPPL will invest $90 million for isomerization, PRL of $250 million for isomerization complex, DHDS and thermal gas oil unit and NRL will make investment of $305 million for isomerization complex and DHDS, said the paper, adding that PARCO will invest $35 million for asphalt production plant as it has already installed DHDS.

The refineries will make a mid-term and long-term investment of $8.31 billion with anticipated additional refining increase of 19.34 million tons per annum from the existing capacity of 12.93 million tons. A major chunk of this investment is the installation of Khalifa Point Coastal Refinery of $5 billion with refining capacity of 11.2 million tons, it said.

The paper further said that Trans-Asia Refinery will increase refining capacity of 0.6 million tons with an investment of $4.5 billion,ARL-II with an investment of $2 billion will increase refining capacity to 2.3 million tons while revamping and bottlenecking of BOPL refinery needs $0.13 billion to increase its refining to 11.34 million tons.

Similarly Mchaike-Morgah-Taru Jabba pipeline project (MMTJPP) willadd 4.5 million tons per annum with estimated cost of $0.3 billion whereas the phase-I & II of BOPL (chemical) will be commissioned with an investment of $0.275 billion, it added.

EUROPE / AFRICA / MIDDLE EAST

NIGER

Niger Wants Audit on Chinese CNCP JV Oil Refinery after $600 to $980 Mln Cost Increase

The West African state of Niger said it will commission an audit on the cost of an oil refinery built by its joint venture with Chinese oil company CNCP after the price tag rose to $980 million from the $600 million agreed at signing.

The announcement on state television came days before the official November 2011 inauguration of the 20,000 barrel-per-day Soraz plant near the town of Zinder, some 900 km (560 miles) east of the capital Niamey.

"Niger is going to commission an audit on the cost of the refinery and the Chinese are in agreement with that. If it turns out that there are questions over the price, we will go back to the negotiating table with our partner," Energy Ministry spokesman Lawan Gaya said.

Gaya said a reduction in the price would be felt in lower local petrol prices from oil refined at Zinder. Some 7,000 bpd is intended for local use.

CNPC signed a $5 billion deal with Niger in 2008 to build the refinery and develop crude oil from the Agadem field a further 700 km east. It is due to start commercial production soon and will supply the refinery with oil. The Soraz refinery is 60 percent-owned by CNPC and 40 percent by Niger.

Niger, whose uranium supplies the French nuclear industry, initially put its oil reserves from Agadem at 268 million barrels, but the estimate has risen to 480 million barrels following tests.

Gaya said Niger had already awarded four out of a total 35 blocks across the country and said Algerian state energy firm Sonatrach was due to start drilling in the northern block of Kafra in 2012.

NIGERIA

Nigeria $130 Bln Investment Plan for Refineries, Petchem Plant and Pipelines

Nigeria's Federal Government on December 6 unveiled a massive $130 billion investment plan for sustainable growth and development in the Nigeria's oil and gas sector within the next five years.

Also, plans are on top gear for the construction of additional 2,000km of oil and gas pipelines across the country in line with government's agenda to fast-track Nigeria's industrial rebirth through a gas revolution program that would boost domestic gas supply.

These disclosures were made by Minister of Petroleum Resources, Mrs. Diezani Alison-Madueke, at the 20th World Petroleum Congress (WPC) held in Doha, Qatar.

She said the five-year investment plan was designed to promote rapid inflow of foreign investments into the Nigerian oil and gas industry as well as develop in-country capacity.

According to her, part of the money would be used for the gas utilization projects, which include the construction of world class petrochemical plant at Koko in Delta State, fertilizer manufacturing plants and three Greenfield refineries in Lagos, Bayelsa and Kogi States.

She listed some of the areas that required foreign investment intervention as Engineering Design and Related Services, Petroleum Engineering Services, Fabrication and Construction, Pipe Mills, Equipment leasing, Civil Works, Logistics and Haulage, Financial Services, as well as in the areas of hospitality services for construction workers.

The minister stated that the 2,000km pipeline would transport gas to the thermal power generation plants to ensure availability of adequate gas for stable electricity supply.

She added that numerous contractual agreements would soon be signed in this regard.

Owing to low domestic industrial capacity and relatively weak gas evacuation infrastructure, produced gas is under-utilized, resulting in the flare of as much as 1.4 billion cubic feet of natural gas per day, (about 30 per cent of produced gas), she said.

She said government was committed more than ever to end gas flares, and that the focus on gas projects was part of government's concerted effort to stop flaring of associated gas.

Alison-Madueke also revealed the government's plan to increase domestic gas consumption from the current one billion cubic feet per day to five billion cubic feet within the next five as provided for in the massive gas infrastructure development projects.

"I can assure you that Nigeria is entering a new phase in the oil and gas industry which is anchored on the principle of using local content to achieve growth, develop in-country capacity as well as attract foreign investment," she said.

She added: "Across the sectors investment opportunities abound for willing multinationals and other partners as the federal government has worked out different investment partnership models to guarantee apt return on investment to all concerned". She stated that though, Nigerian indigenous companies have shown strong capabilities since the advent of the Nigerian Content Act, more foreign investments were needed to help increase the quantity as well as the quality of in-country capacity.

"As you can see we have put in place all the machinery for an explosive growth in across all strata of the petroleum industry from the downstream to midstream and up to the upstream. There is an established enabling environment for investment and we are continually evolving to adapt to the challenges of the time."

On the current status of the refineries, she said final negations with the original builders of were being finalized for the purpose of carrying out a transparent turn-around maintenance work.

She said: "Port Harcourt refinery will kick off in a couple of months once we finish the negotiations; they have assured us that the refinery will be up to 90 per cent utilization. Warri and Kaduna refineries will be phased in over the next 12 months, and by the time we finish in two years time we should have 90 per cent utilization in all three refineries."

Nigeria currently has over 5000km of both crude, gas and petroleum products pipeline traversing the Niger Delta region as well as other parts of the country.

ZAMBIA

Zambia’s Indeni Refinery to Raise $40 Mln for Plant Upgrade

Zambia’s Indeni Petroleum Refinery has initiated a resource mobilization plan to raise US$40 million required for plant upgrade.

Managing director Maybin Noole said in Ndola during a media tour yesterday that the company had advertised for tenders from project consultants as a first step.

The firm would secure the amount required for installing the two major components, isomerizer and desulphurizer. He said the company had already received replies to tenders from consultants to do a detailed engineering study.

Mr Noole said Indeni was in a hurry to upgrade the plant before 2015 which had been set by the African Refinery Association as a benchmark or roadmap for all oil refineries in the region to comply with the new international standards.

The consultants would advise the exact amount that was needed for the two projects.

The isomerizer would enhance the octane levels for petrol from the current 90 to 93 while the desulphurizer would make diesel compliant to international standards.

Mr Noole said the board had approved the engaging of the consultant this year and the feasibility studies were expected to be completed within three months.

He said his firm would source for the money from local banks that were willing to fund the project.

He said the Government, the main shareholder, had also engaged its own consultant to do a feasibility study and thereafter it would help to raise the funds through a loan or progress under the Public Private Partnership (PPP) arrangement.

"We are not just waiting for Government to tell us that it will release the money. We are also engaging with experts and upon their recommendation, we will sit down with the Ministry of finance to discuss the next step," he said.

Technical refinery manager, Valentine Mwila said the company had an early detection system to trace any fault within the plant. "In order to improve operation reliability, safety and maintenance, the refinery undertook a program to upgrade and modernize the control and instrumentation system," he said.

Mr Mwila said the company's Emergency Shutdown System provided for a smooth shutdown whenever there was a fault.

RUSSIA

Topsoe Wins Rosneft Refinery Contract for Grassroots Diesel Hydrotreater

Topsoe has won the contract for a diesel hydrotreating unit for the Russian Syzran Refinery owned by Rosneft, the largest Russian oil company. The Rosneft Syzran Refinery is one of Rosneft's seven refineries.

The new diesel hydrotreater is part of Rosneft's modernization program, aiming at producing clean fuels in accordance with the Euro V specifications, which will be introduced in Russia by 2015.

The contract is a continuation of Topsøe's and Rosneft's collaboration:

"With this project we further strengthen our relationship with Rosneft, and we look forward to initiating the project," says Jens Ole Madsen, General Manager, Refining Technologies.

Rosneft has installed a Topsoe HTCR unit for hydrogen production at the Kuibyshev Refinery and several hydrotreating catalyst charges at refineries in Kuibyshev, Novokuibyshev and Syzran.

The new diesel hydrotreater will process 2.5 million tons per year feed into ultra-low sulfur diesel with less than 10 wppm sulfur.

The contract includes the basic engineering design package, reactor design, TK catalysts and reactor internals.

AFGHANISTAN

Afghanistan and China’s National Petroleum Corp Sign First Oil Contract

Afghanistan’s government signed a deal December 28 with China’s state-owned National Petroleum Corporation, allowing it to become the first foreign company to exploit the country’s oil and natural gas reserves.

The contract, which covers the northeastern provinces of Sari Pul and Faryab, is the first of several such blocks to be put on the market in coming months, Afghan Minister of Mines Wahidullah Shahrani said during the signing ceremony.

Bidding information for blocks in neighboring Balkh province will be released at the end of February, and for the western Herat province by next summer, he said.

Afghanistan has been seeking to find ways to exploit some of its mineral wealth to offset the loss of revenues when foreign aid and spending drops when international combat troops leave by the end of 2014. The government has been keen to develop an oil-extraction and refining capability for the landlocked nation, which is entirely reliant on fuel imports from neighboring Iran and Central Asian nations.

"This will bring enormous financial benefits to the government," Shahrani said. "It will be an important step toward self-sufficiency."

The ministry listed the initial value of the project with CNPC as $700 million. But the total could be ten times greater if more reserves are found and developed, and if international oil prices remain at today’s levels, Shahrani said.

The fuel pact allows the Chinese firm to research oil and natural gas blocks in Sari Pul and Faryab, an area known as the Amu Darya River Basin that was first explored by Soviet engineers in the 1960s. The Soviets estimated the reserves at about 87 million barrels, but both the Afghan and Chinese partners believe they will prove to be much larger.

CNPC will also build a refinery — Afghanistan’s first — within the next three years, after the real size of the reserves is established with greater accuracy, said Lu Gong Xun, president of CNPC’s international branch.

Shahrani said the deal calls for the Afghan government to receive 70 percent of the profits from the sale of the oil and natural gas. CNPC will also pay 15 percent in royalties, as well as corporate taxes and rent for the land used for its operations.

Afghanistan’s army and police will set up special units to guard the project, Shahrani said.

The provinces of Sari Pul and Faryab are located hundreds of miles from the centers of fighting in the east and southeast and are considered relatively safe. As a result, the U.S.-led NATO force has already transferred or is turning over responsibility for security in large parts of the region to the Afghan army and police.

Surveys conducted by the Soviets have shown that Afghanistan sits on vast mineral wealth. Afghan and foreign companies already have shown interest, notably in its untapped copper, iron and oil deposits. But with poor infrastructure and security problems stemming from the 10-year war, most Western mining companies have shied away from firm commitments.

So far, companies from China — with which Afghanistan shares a small stretch of border in its east — have been in the forefront of investments in the nation.

Three years ago the China Metallurgical Construction Co. signed a contract to develop the Aynak copper mine in Logar province. Beijing’s $3.5 billion stake in the mine is the largest foreign investment in Afghanistan so far.

The U.S. Defense Department has put a $1 trillion price tag on Afghanistan’s mineral reserves. Other estimates have pegged it at $3 trillion or more.

But the potential windfall for the landlocked country will require international investment, a better transportation network and much improved security.

"This government must stand on its feet," said Mustafa Zahir, the head of the government’s environment agency. "Without using our natural resources we cannot achieve this.

KAZAKSTAN

Marubeni Wins $1.7 Bln Kazakh Oil Plant Contract with Sinopec-Nikkei

Marubeni Corp. and a subsidiary of a Chinese state-run firm have received a $1.7 billion contract to build a facility at a large oil refinery in Kazakhstan, The Nikkei reported in its December 30.

The contract involves setting up a plant that extracts gasoline and other petroleum products by reprocessing residual oil left after the refining process. The new plant at the Atyrau refinery is slated to begin production in late 2015. The west Kazakhstan refinery is operated by state-run oil company NC KazMunayGas JSC.

Marubeni was awarded the contract jointly with local plant engineering firm KazStroyService Group and Sinopec Engineering Inc., a subsidiary of China Petroleum & Chemical Corp., or Sinopec. At roughly Y130 billion, it is among the largest plant contracts ever for Marubeni.

Sinopec Engineering will design the plant and procure equipment. Marubeni will handle delivery of the equipment, while KazStroyService will install it.

Advances by Chinese firms are a mixed blessing for many emerging countries, which value their cost-competitiveness but at the same time are wary of China expanding its influence.

Since the involvement of Japanese companies seems to ease their anxiety about China's growing might, more Chinese firms are now teaming up with Japanese ones to tap opportunities in emerging markets.

For example, Qingdao Soda Ash Industrial Co. has partnered with Sumitomo Corp. in an effort to export fertilizers to Southeast Asian countries.

A major Chinese coal company, Shenhua Group Corp. and Mitsui & Co. are working toward developing a coal mine in Mongolia.

BAHRAIN

Bahrain to Expand Refining Capacity by 2018

Bahrain will seek more oil and gas offshore as it plans to increase its refining capacity by 2018, the country’s Energy Minister Abdul Hussain Ali Mirza said at energy and petrochemicals conference in Manama, the capital of the Persian Gulf state. He said the country has plans to expand the refining capacity to 400,000 barrels of crude per day. Its current output is about 195,000 barrels per day.

Bahrain needs $15 billion over the next 20 years to expand production capacity at its mature oil fields, Bahrain Petroleum Co.’s Hisham Zubari, the country’s lead negotiator on the project, said September 26 in Manama. HSBC Holdings Plc said in a quarterly regional report on October 6 that Bahrain will require an oil price higher than $100 a barrel this year to balance its budget, the first Gulf Arab state to have a breakeven price that high. The island nation is also seeking to recover natural gas, he said. Bahrain’s proved gas reserves rank 10th in size in the Middle East, at 7.7 trillion cubic feet, or 0.1 percent of the world total, according to the BP Statistical Review of World Energy June 2011.

KUWAIT

Sinopec, Kuwait Petroleum Start Building $9.3 Bln Guangdong Refining Petrochem Project

China Petroleum & Chemical Corp (Sinopec) and Kuwait Petroleum Corp (KPC) in November started building their joint refining and petrochemical complex in the southern Chinese province of Guangdong, the top Chinese oil refiner said.

The $9.3 billion (59 billion yuan) project, including a 300,000-barrel-per-day refinery and a 1-million-tonne-per-year ethylene cracking unit, was expected to come on line in 2015, Sinopec said in a press release.

The National Development and Reform Commission, a powerful ministry in charge of major project approvals, gave its approval for the project in March.

KPC has said it is still looking to partner with an international oil company for some of its 50 percent stake in the project in Zhanjiang in western Guangdong.

The project will secure Kuwait, the world's seventh-largest crude exporter, a stable outlet for its oil as it aims to more than double crude exports to China to 500,000 bpd, while giving the world's second largest oil buyer a steady supply as demand keeps pace with solid economic growth.

In 2009, KPC briefly tapped potential investors Royal Dutch Shell Plc and Dow Chemical Co, but the companies did not commit to form a consortium.

Kuwait said in April that it was in talks with BP Plc and other major energy companies over a possible role in the refinery project.

IRAQ

Shaw Awarded Feasibility Study to Rehabilitate Iraq Basra Refinery

The Shaw Group announced it has been awarded a contract by the South Refineries Company, which is part of the Republic of Iraq's Ministry of Oil, to provide a feasibility study for the rehabilitation of its 140,000 barrels per day refinery in Basra, Iraq. The study will assess the current condition of the refinery and estimate the engineering, equipment supply and construction services required to improve its operation.

The study is funded by the United States Trade and Development Agency (USTDA) through a grant to the South Refineries Company. This is the first grant the agency has provided directly to an Iraqi grantee, marking the USTDA’s support of Iraq’s long-term economic development.

"This study will help to promote the development of Iraq’s oil business and modernize vital facilities," said James Glass, president of Shaw’s Energy & Chemicals Group. "This is Shaw's fourth refining project in Iraq, reinforcing our continuing commitment to the Middle East region."

In Iraq, Shaw is conducting feasibility studies and front end engineering and design (FEED) for two grassroots 150,000 barrels per day refineries near the cities of Maissan and Kirkuk, for the Republic of Iraq’s Ministry of Oil. The FEED work includes all process units, offsite facilities and utilities for both refineries. Through a fluidized catalytic cracking alliance, Shaw, with its partner, Axens, are providing a process design package for a 30,000 barrels per day residual fluidized catalytic cracking (RFCC) unit at Midland Refineries Company’s refinery in Daura.

The undisclosed value of the contract will be included in Shaw's Energy & Chemicals segment's backlog of unfilled orders in the first quarter of fiscal year 2012.

OMAN

Orpic Announces Sohar Refinery Expansion Enhancement with Three Additional Units

Orpic, an affiliate of Oman Oil announced three additional units to be included in the proposed Sohar Refinery Expansion Project. The new expansion supported by the Government of Oman is expected to improve the Sohar refinery's product quality and increase output by more than 70 per cent.

Orpic’s CEO, Musab Al-Mahruqi said, the latest additions to the Sohar Refinery Expansion Project came to enhance the production of petroleum products for the local market and increase the gross margin for the refinery. Also, the addition came in view of the latest improvised operating experiences gained at Orpic. Al-Mahruqi added, Sohar Refinery has recently been operating at high utilization rates reaching 110% of design capacity. The improvement in utilization rate has been incremental over the past few years and 2011 marked the highest average utilization rate for the refinery. 2011 has also marked the second year for the commercial operation of the Aromatics plant in Sohar. The average utilization rate for the Aromatics plant in 2011 exceeds 90% whereas the feedstock is partially supplied by Sohar Refinery. The Sohar Refinery Expansion project is also expected to meet the growing demand of gasoline and diesel in Oman. The expansion project with an estimated cost of US$1.5 billion will be implemented at Sohar Industrial Port to complement the existing Sohar Refinery, which was commissioned in 2006.

GM of Sohar Refinery expansion project, R.P. Singh also explained the recent development, a Delayed Coker unit (DCU) will be added in order to minimize the excess low value bitumen production and increase the production of high value products like LPG, naphtha and diesel. The Bitumen demand to the local market will be met with the addition of a Bitumen Blowing unit “BBU”. An additional MTBE Unit will be added to enhance the Gasoline production. Singh elaborated, The additional units will be added to the current configuration for the Sohar Refinery Expansion Project which includes the following process units: Crude Distillation (CDU), Vacuum Distillation (VDU), Hydrocracker (HCU), Sulfur Recovery Units (SRU), Isomerization (ISOM), PSA unit for Hydrogen, Sour water strippers, Amine Regeneration Unit along with other treating units together with Utilities and Offsites.

Orpic started earlier this year the Front End Engineering Design “FEED” for the Sohar Refinery Expansion Project. CB&I Lummus B.V has been appointed to provide Front End Engineering Design (FEED) for the expansion project. Several specialist contracts were awarded earlier this year to internationally-renowned process licensors, such as Chevron Lummus Global for the Hydrocracking unit and Black & Veatch for the Sulfur Recovery unit. It is expected that the engineering, procurement and construction (EPC) contract will be floated in 2012, culminating in the commissioning and on-stream operations of the refinery units in 2016.

Reputed International EPC contractors were invited for pre-qualification in May 2011. The short listed bidders will be invited to participate in the EPC contract bid in 2012. This large scale industrial investment by the Government in Sohar would support further the economic development in Sohar and provide employment opportunities for the local community while adding to the valuable Refinery and Petrochemical assets in the Sohar Port Area.

Orpic has recruited one hundred engineering and diploma holders to be trained to take over the Operation and Maintenance of the units after construction is completed. Al-Mahruqi also mentioned, an Environmental Impact Assessment (“EIA”) is being developed and would form the basis for obtaining the Provisional Environment Permit from the Ministry of Environment & Climate Affairs (MECA). Orpic is also committed to implement the Environmental Improvement Plan (EIP) for Sohar Refinery and agreed with MECA in addition to adopting the latest proven best available technologies in the Expansion project to control the emissions to the environment.

Orpic refineries at Sohar and Muscat, as well as the aromatics and polypropylene production plants in the Sohar complex, provide fuels, chemicals and feedstock to Oman and to the world. The plants take raw materials, the main one being Omani crude oil, and process them to create a series of important fuels and petrochemicals. Omani crude is processed in Mina Al Fahal into fuel products. In addition, the long residue from this refinery is transferred via the pipeline to Sohar Refinery where, mixed with more Omani crude, it is refined to create fuels, naphtha and propylene.

The naphtha is taken by the Aromatics Plant to create benzene and paraxylene, industrial chemicals used in the production of plastics. The propylene is taken by the Polypropylene Plant. Polypropylene is a widely-used thermoplastic polymer, which forms the basis of many different products - everything from packaging to carpets to banknotes. Together, the four plants have a production capacity of 222,000 barrels per day of naphtha, liquid petroleum gas (LPG), gas oil, gasoline, fuel oil and jet oil; 818,000 metric tonnes per annum of paraxylene and 198,000 metric tonnes of benzene; and 350,000 metric tonnes of polypropylene.

McIlvaine Company,

Northfield, IL 60093-2743

Tel: 847-784-0012; Fax: 847-784-0061;

E-mail: editor@mcilvainecompany.com