On the boards: more refinery expansions

More new proposals for refinery expansions are being put forward, and they face prospects that vary depending on the planning and environmental authorities overseeing the process.

Motiva Enterprises said this month that it is considering expanding its refinery in Port Arthur, Texas. The refinery now produces 325,000 barrels per day; with the proposed expansion it would have throughput of 600,000 b/d, making it one of the largest refineries in the United States, according to a Reuters report.

Also in November, Chevron Corp. said that it is seeking an environmental permit to expand gasoline production by 15 percent at its 325,000-b/d refinery in Pascagoula, Miss., according to Reuters.

Besides these expansion projects, plans to build new oil refineries are in the works or under consideration. Arizona Clean Fuels Yuma plans to begin construction of a 150,000-b/d plant, about 100 miles southwest of Phoenix, in 2008.

Irving Oil Corp. announced Oct. 5 that it is exploring the possibility of building a refinery at its headquarters in St. John, New Brunswick, Canada, where it already operates one refinery, Canada’s largest, which exports most of its output to the U.S. A new oil refinery has not been built in the United States or Canada in decades. (For more on the ACF and Irving Oil projects, see “New refineries would be first in decades in U.S. and Canada,” in the Oct. 12, 2006, issue of NPN MarketPulse.)

The Motiva and Chevron expansion projects are in early stages. The Motiva board, for example, is due to vote early in 2007 to decide whether to pursue its project, according to Reuters.

But the project cleared at least one hurdle in mid-November when Motiva, a joint venture of Shell Oil and Saudi Refining, reached agreement with environmental activists who said they would end their opposition to the proposed expansion, Motiva and activists said on Nov.14.

Under the agreement, Motiva will make an initial endowment of $2 million to a foundation providing health care and spurring economic development in impoverished sections of Port Arthur, according to Reuters.

Port Arthur-based Community In-Power & Development Association Inc. agreed to halt its opposition to the expansion as part of the agreement.

CIDA, aided by national environmental organizations, had planned to oppose the permit Motiva must gain from the Texas Commission on Environmental Quality before it can begin expanding the refinery.

For its project, Chevron said it filed an application with the Mississippi Department of Environmental Quality for permission to build a major gasoline production unit, along with other minor units, at its largest refinery in the U.S., Reuters reported.

The new units are expected to increase gasoline production at the refinery by about 15 percent, or about 18,000 b/d.

The company said the new CCR unit – which will continuously regenerate catalyst used to convert low-octane components into higher-octane stocks – will replace two 30-year-old reformers.

"The CCR project will increase the Pascagoula Refinery's ability to provide reliable supplies of gasoline to key markets in the Eastern United States," said Roland Kell, manager of the refinery, which is located on the U.S. Gulf Coast.

Chevron said approval for the project from the state of Mississippi and the company's board would run concurrently. If approved, construction of the project would likely begin during the first quarter of 2008.

The company is already in the process of another expansion to raise its gasoline-making fluid catalytic cracking unit's capacity by 10 percent. Work is on track to be finished at the end of 2006.

Since early 2005, U.S. refiners have planned to add about 1 million b/d to current capacity of about 17.4 million barrels.

Presently, about 355,000 b/d of expansions are already on the books but rising costs of labor and materials are expected to delay some projects, according to some analysts.

U.S. refiners have said a complex and multi-level permitting process involved in construction is the primary reason they don't build new refineries, according to MarketWatch. An analysis prepared for NPRA, a group of investors trying to build the refinery in Arizona, says permitting typically takes four to five years following one to two years of refinery project development and before three to four years of engineering and construction.

It took Arizona Clean Fuels LLC almost four years to obtain permits from multiple agencies at the federal, state and local levels, the analysis said.

A listing of permits required for the Arizona Clean Fuels plant and pipeline projects shows about 30 permits required, excluding local zoning, access and construction permits, MarketWatch reported in November.

Recently announced expansion plans from integrated oil companies are contingent upon either lower-priced Canadian crude or equity swaps with oil producers.

BP Plc plans to invest $3 billion to upgrade and expand its refinery in Indiana, and Marathon Oil is considering upgrading its Michigan and Kentucky plants. Both companies are pursuing supply arrangements with Canadian oil sands producers, according to MarketWatch.

ConocoPhillips and Canadian producer EnCana Corp. swapped upstream and downstream equity in the creation of two joint ventures, which they'll manage and fund together.

In a rare instance of a self-funded refinery expansion, Marathon said in early November that it had given final approval to a project to nearly double processing capacity of its refinery in Garyville, La.