July 21, 2012:

PBF Energy has postponed a $1 billion Delaware City Refinery expansion project, and has instead launched a $50 million to $60 million venture that could shift the majority of its crude oil deliveries to rail cars instead of tanker ships.  Company spokeswoman Lisa Lindsey said PBF’s planned rail unloading complex could handle up to 100,000 barrels per day, an amount that is more than half the 191,000 barrel per day capacity of the plant’s first-stage crude refining unit.  In the past, virtually all of Delaware City’s operations were supplied by tankerloads of low-cost imported oil arriving on the Delaware River. Recently, however, company officials began looking to even lower-cost, high-sulfur supplies from Canada’s oil sand fields and the oil shale regions of the Midwest. “This came as a complete surprise, a total shock,” said Mark Martell, a member of the refinery’s Community Advisory Panel, president of Delaware Audubon and a resident of Emerald Ridge, just northwest of the refinery. Martell said local PBF officials mentioned the 100,000-barrel rail plan during an advisory panel meeting this week, after they were asked about dockside pollution emissions and increased rail tank car activity along local track and road-level crossings near Emerald Ridge and the Estates of Red Lion.

The company’s quiet confirmation ended months of speculation over PBF’s seemingly delayed submission of environmental permit applications for new “Clean Fuels” units to produce ultra-low sulfur heating and diesel oil at Delaware City. The units would have required three years and a million hours of construction work to complete, with 50 new jobs added once operations began. “I can confirm that we are delaying future commitments” to the Clean Fuels venture, Lindsey said. “We will instead be investing in strategic capital investments – shorter term projects that will further strengthen our financial performance at the facility, which we must do because we have to initially generate a significant portion of the funds retired for the longer term Clean Fuels project,” Lindsey said.  During PBF’s announcement of the Clean Fuels project in January, company officials said quick action on permits was an “imperative,” with work expected to get under way while states in the Northeast put new heating-oil sulfur limits into effect.

Officials with Gov. Jack Markell’s administration described the company’s changing plans as “encouraging,” noting that PBF already had met spending and job-creation targets set in a $45 million package of aid from various levels of government for its refinery purchase in 2010. “They made a lot of investments that are improving their performance,” said Department of Natural Resources and Environmental Control Secretary Collin P. O’Mara. “I think that getting an additional source of domestic supply for competitiveness reasons just became a higher priority. We’re ready to proceed with their [Clean Fuels] permit whenever they’re ready.” Philip Weiss, an energy analyst with Argus Research, said Friday that ConocoPhillips’ Bayway, N.J., refinery also had begun taking large amounts of crude oil by rail from North Dakota’s Bakken fields, and other refiners also are seeking access to domestic crudes.

“If you’re on the East Coast, you’re at a disadvantage because you don’t have the ability to get crude from Canada or the Bakken by pipeline,” Weiss said, noting that some Midwest producers had made huge investments in rail loading hubs to get shale oil to more Eastern refiners. Norfolk Southern owns track serving the refinery and is involved in the project, according to company spokesman Dave Pidgeon. No other details were available on Friday, however. The largest crude oil tank cars carry about 30,000 gallons, with a 100,000 barrel volume requiring about 140 tank cars. “I’m sure the railroad is thrilled to death, but at the same time, the community has some concerns,” Martell said. “Right now, they run those cars at night, but if they’re expanding, they could be running them during the day, and there could be traffic problems.” PBF purchased Delaware City as a shutdown plant for $220 million in a state-brokered deal with Valero, which had planned to raze the site after losing up to $1 million daily on operations. The deal put hundreds back to work at a time when every refinery along the Delaware River was struggling to stay open.

Martell said that environmental groups are watching DNREC’s oversight of the plant closely, including the agency’s progress toward a requirement for reduced pumping of cooling water from the Delaware River and better protection for fish and other aquatic life now threatened by plant intakes.

By DelawareOnline

July 20, 2012:

demitsu shuts 220,000 bpd CDU at Chiba refinery after fire.  Brings total sudden, extended shutdowns in Japan to 560,000 bpd. Shutdowns to reduce crude demand, may lift diesel premium.  TOKYO/SINGAPORE- Japanese oil refiner Idemitsu Kosan Co has shut a third of its capacity after a fire, the latest outage in Japan that could reduce the country's crude demand and curb fuel exports.  The outage occurred just a few days after Japan's largest refiner JX Nippon Oil & Energy Corp started shutting down a refinery in western Japan for an unexpected safety check that could last a few months. Another refiner, Cosmo Oil Co , has extended indefinitely maintenance on a crude unit at its Chiba plant. Without definite restart schedules, the total of 560,000 barrels per day (bpd) in sudden and extended shutdowns of refining capacity could reduce demand for Middle East crude, as well as curbing the country's diesel exports and buoying regional premiums for the product. "It's bad, bad news for crude, but good for products," a Singapore-based oil trader said.

The outages have offset the restarts of some units that were shut for maintenance in the second quarter, traders said. Sentiment in the Middle East crude market is already weak as the global economic slowdown has hit demand, they added.

IDEMITSU FIRE

Idemitsu Kosan said it immediately shut the 220,000 bpd No. 2 crude distillation unit (CDU) at its refinery in Chiba, east of Tokyo, on Thursday evening after a fire struck near the CDU's naphtha circulation lines. The fire had been extinguished by early Friday morning, it added. There were no injuries. The CDU is likely to be shut for some time pending an investigation into the incident, a fire department official said, though he did not give a schedule for any restart. Some secondary units are still operating, including a 45,000 bpd fluid catalytic cracking (FCC) unit, an Idemitsu official said. He added that there has been no impact on product shipments from the refinery, including truck and marine shipments, but traders expect overall diesel exports from Japan to fall below normal following the refinery outages.

This could lift diesel prices at a time when maintenance at a refinery in Singapore and an increase in Australia's demand have pushed July spot premiums to their highest in more than 15 months. Idemitsu on average exported about two 300,000-barrel cargoes of diesel a month over January to May this year, a Singapore-based trader familiar with the North Asian market said. For July, the company is expected to load a similar amount of diesel but had no jet fuel exports scheduled. At least one cargo could likely be delayed or cancelled if the CDU shutdown lasts for long, traders said. "They will probably prioritise covering shorts in the domestic market before looking at exports," said the trader. Idemitsu's shutdown is not expected to impact naphtha and low sulphur fuel oil (LSFO), traders said. No naphtha crackers were shut while high stockpiles of the light product in Chiba could also cushion the impact of refinery shutdowns, a naphtha trader said.The refiner also has term contracts to import LSFO, a fuel oil trader said. Idemitsu operates four domestic refineries with total CDU capacity of 640,000 bpd. The other three refineries are all operating.

By Reuters

July 20, 2012:

KAMPALA - The Ugandan government is aiming to take up a 40 percent stake in its planned oil refinery and offer a private investor the remaining 60 percent according to a tentative shareholding structure, a senior official said on Friday. Junior energy minister Peter Lokeris told Reuters several investors had already expressed interest in the planned 120,000-barrel per day plant, but that a process to select a developer had yet to start. "Before any discussions with investors ... we already have our own formulae and we want the government to have 40 percent while a strategic investor takes 60 percent," he said. Lokeris said the Ugandan government later planned to offer 10 percent of the project to countries in the East African Community and reduce its stake to 30 percent.

"Initially we'll take 40 percent but to cement our bond with our partners in the East African Community we plan eventually to give them 10 so we cut our own stake to 30 percent," he said. "If they so wish they can take this up but if they don't we'll retain it." East Africa's third-largest economy says it intends to build a refinery in Hoima, about 220 kilometres west of its capital Kampala, to process its crude output. Uganda discovered commercial hydrocarbon deposits in its west along the border with the Democratic Republic of Congo in 2006. Energy minister Irene Muloni, told Reuters crude production was slated to start late next year or early 2014. The government, which estimates Uganda's oil reserves at 2.5 billion barrels, has said the refinery will be developed in phases and would cost an estimated $2 billion.

Muloni said the first phase would have a refining capacity of 20,000 bpd and is forecast to be completed by 2015. The Ugandan government and UK oil and gas explorer Tullow Oil, which operates in Uganda, disagree over the size of the refinery's production capacity. Tullow says the refinery's capacity should not exceed 60,000 barrels per day to be attractive to investors but the government insist a facility with a maximum output of 120,000 bpd is viable and can easily get investors.

By Reuters

July 20, 2012:

A yet-to-be selected private firm will get a 60% stake in the country's oil refinery, leaving the government as the minority shareholder (with 40%) in what is probably Uganda's largest infrastructural project ever undertaken, The Observer can reveal. The refinery, to be developed under the public -private partnership (PPP), will be constructed at Kabaale in Hoima district on a 29 square kilometre tranche of land, which the government has already secured. The information about the nature of the shareholding is contained in the ministerial policy statement from the ministry of Energy and Mineral Development for financial year 2012/2013, tabled before Parliament last week.

According to the same statement, the government could cede another 10% to partner states of the East African Community (reducing its stake to 30%) -- provided they contribute to its realization -- as agreed at a regional summit in Burundi last year. "This arrangement is designed to provide confidence for the investors who are expected to not only provide most of the funding, but also operate the industry," the statement notes. Initial estimates by the government put the cost of constructing the refinery and related infrastructure at between $3bn and $5bn (Shs 7.4tn and Shs 12.5tn) -- a colossal figure that in present terms, would constitute atleast 65% of Uganda's national budget for the financial year 2012/2013, which was Shs 11.1 trillion. It is anticipated that the refinery will take five years to construct.

Some analysts, however, caution that this uneven arrangement, while understandable under the circumstances, could put the government at a disadvantage. "These companies usually borrow money from external sources and the government guarantees the loans. If the project fails, it is government that has to pay," Dickens Kamugisha, the executive director of African Institute for Energy Governance (AFIEGO), which closely monitors developments in the oil sector, told The Observer yesterday. He advised that Uganda should follow Norway's example, where after every three years, the country increases its stake in the ownership of the refineries, which are also run by private firms. Bukenya Matovu, head of communications in the ministry of Energy and Mineral Development told The Observer on Tuesday that no conclusions regarding the shareholding arrangement had been made -- meaning that the figures in the ministerial statement are tentative.

"We have not even selected the company that will work with government to put up the refinery, and even when we do, so many things could change, depending on the outcome of the negotiations," Matovu said. Nearly all oil producing countries on the continent have settled for the public private partnership for construction and operation of oil refineries, but the shareholding arrangements vary. In Nigeria, which produces an estimated 2.6 million barrels of oil per day (largely crude oil), the government controls 60% of oil operations including the refineries. The country nationalized the oil sector in 1977.

In Sudan, the government and the private developer (China National Petroleum Corporation) each own a 50% stake in the oil refinery at Khartoum. The Uganda government projects that oil production in the country will start in 2017 and Uganda will be in position to churn out 20,000 barrels of oil per day. Matovu said at 20,000 barrels of oil per day, the refinery will be processing oil products for only the domestic market. Later, after the capacity of the refinery has been expanded to produce 60,000 barrels of oil a day, the country will be in position to export some of the oil products.

Lobbying

Meanwhile, a host of international firms have started intensely lobbying to be considered for the multi-billion dollar oil refinery, sources in the oil industry told The Observer. Sources said Chinese firm, the China National Offshore Oil Corporation (CNOOC) Uganda, which is undertaking exploratory works at Kanywataba block along Lake Albert, is leading the pack that also includes the China National Petroleum Corporation (CNPC), which constructed the oil refinery in Khartoum in 2000. Interestingly, both CNOOC and CNPC are state-owned companies, although this has not stopped them from competing against each other. Others said to be lobbying for the deal include French firm Total, as well as companies from Russia, Turkey and Iran. In trying to get ahead of each other, some of these companies have enlisted the help of powerful brokers, especially politicians and prominent businessmen, to help unlock the doors leading into the corridors of power.

Sources told us that in the last four months, officials from CNOOC have met with senior government officials, including President Museveni, to assure them that the company has the financial muscle to undertake the project. CNOOC-Uganda's publicist, Wei Chai, however, dismissed the reports as unfounded. "Generally, we do not comment on market rumors," Chai told The Observer via email on Wednesday. Since Uganda discovered oil in 2006, there has been a lot of excitement and hope that the resource will push the country towards the middle income status it aspires. In the same vein, some analysts have expressed pessimism that the oil resource, if not well managed, could turn into a curse, as has been the case in other oil producing countries.

By All Africa

July 20, 2012:

QUITO/HONG KONG - China National Petroleum Corp (CNPC), the country's biggest oil producer, is in talks with Ecuador's government over a potential investment in the OPEC-member's $12.5 billion Pacifico refinery project, an Ecuadorean minister said on Thursday. Chinese state oil firms have been on a spending spree to buy overseas oil and gas assets to secure supply to the world's second-largest oil consumer and maximise returns on oil produced overseas. The Pacifico refinery complex is a joint venture between state-run Petroecuador and Venezuela's state oil company PDVSA. It is slated to begin production in late 2015. "CNPC could become a shareholder ... our challenge is to find a shareholder. We hope to reach an agreement with them, but if it doesn't happen, we will look for another partner. Other companies are interested," Ecuador's minister for strategic sectors Jorge Glas said on the sidelines of a mining conference.

The 300,000 barrel-per-day refinery is intended to cut domestic fuel costs for Ecuador, which has to import oil products because of low refining capacity. Glas said Ecuador was looking for a partner for the project that would provide capital and know-how. He said negotiations with CNPC were advancing at a good pace, but that it was too early to say how much the company might invest. CNPC has asked Industrial and Commercial Bank of China (ICBC) , the country's largest lender, to provide financing for its potential investment in the refinery and petrochemical project, a Chinese industry source familiar with the matter told Reuters. "The negotiations are still underway," said the source, referring to CNPC's talks to invest in the refinery and ICBC's plan to help finance the project. The source asked not be named since they were not authorised to comment publicly on the issue. A CNPC spokesman in Beijing said he could not comment, while ICBC was not available for comment. Media reports in April said that the Ecuadorian government was inviting CNPC and ICBC to help build and finance the project.

After excluding itself from debt markets by defaulting on $3.2 billion in global bonds three years ago, Ecuador has met funding needs with bilateral credit deals, mostly from China. Total debt commitments to China amount to some $7.3 billion, including loans, advance payments for oil sales, and energy project financing.

OVERSEAS INVESTMENT

Chinese oil giants, suffering heavy refining losses at home due to state-control of oil products prices, are pushing into the overseas refining sector to maximise the value of crude they produce overseas, energy bankers and analysts say. PetroChina Co Ltd , the flagship listed unit of CNPC, is in talks to buy Valero Energy's shuttered refinery in Aruba, and PetroChina has reached a deal with PDVSA to supply the Aruba plant with heavy crude, sources told Reuters in May. PetroChina bought a 50 percent stake in chemical group Ineos' European refining business last year for $1 billion, its third overseas refinery deal after acquisitions in Singapore and Japan for more than $2 billion combined. A source close to CNPC was unaware of CNPC's plan on the refinery project but told Reuters the group was currently seeking to expand its investment in Ecuador's oil exploration and production industry. CNPC started talks earlier this year to invest in more oil exploration blocks and reserves in the Latin American country, the source said.

CNPC and other Chinese state oil firms including Sinopec Group and Sinochem already own crude oil producing assets in Ecuador, with CNPC and Sinopec jointly acquiring oil assets there from Canadian oil company Encana in 2005 for nearly $1.5 billion. Ecuador produces around 500,000 barrels of crude oil a day and sends part of its exports to China.

By Reuters