June 9, 2012:

The government is studying the possibility of gradually shifting its energy subsidy spending in the future for investment in oil refineries, part of its bid to help secure domestic demand for gasoline.  “We are studying this to see if it would be better to continue the energy subsidy policy we have now or if it would be better to go in another direction,” said Bambang Brodjonegoro, the acting head of fiscal policy of the Finance Ministry, said in a discussion on Wednesday.  Bambang pointed to state oil and gas company Pertamina, which has only six refineries with a total processing capacity of one million barrels per day. The company produces 32.6 million kiloliters of gasoline per year.   However, the state-owned company is only able to meet 45 percent of domestic demand for premium gas and just 10.2 million kiloliters per year for diesel oil.  Building a refinery has reportedly never been easy for Indonesia.

The biggest problem with building a refinery is securing financing, which is expensive. Also, the amount of time an investor must wait to get any return is long, which is typical for most large infrastructure projects.  In December, a senior executive at Pertamina said the cost to build a new refinery in Tuban, East Java, with cooperation from a Saudi Arabian oil company was about Rp 80 trillion ($8.6 billion).  That amount is about one-third of Indonesia’s spending limit on energy subsidies — Rp 260 trillion. “Indonesia has been spending lavishly for energy subsidies, but if it can find a way to cut back in some areas, the country would eventually be able to afford to build its own refineries and produce its own crude oil,” Bambang said. He said he believed that if the government could limit subsidies on energy prices to just Rp 100 trillion and use half of the rest for building infrastructure, Indonesia would be able to have a new refinery with an adequate capacity.

Bambang, however, did not touch on the consequences of cutting energy subsidies. The government had proposed raising the price of low-octane gasoline from Rp 4,500 to Rp 6,000 in an effort to cut subsidy spending. However, the proposal met with widespread protests across the nation, demanding that the government abandon the move. House of Representatives lawmakers eventually opted to reject the plan and set stringent conditions that would allow the government to increase the fuel price without having to secure approval from legislators. Pri Agung Rakhmanto, executive director of the Reforminer Institute, said that the government should accelerate the building of new refineries, and if it opted to self-finance those projects, Pertamina should be appointed to conduct the construction.

By JakartaGlobe

June 9, 20212:

HARRISBURG, Pa.—Lawmakers briefed on Gov. Tom Corbett's package of financial incentives for a planned petrochemical refinery in western Pennsylvania said Friday that it could also include the cost to clean up pollution from the zinc smelter that has operated there for decades.  The revelation by two state senators is the latest about Corbett's negotiations on the facility with Shell Oil Co., a subsidiary of Netherlands-based oil and gas giant Royal Dutch Shell PLC.  The Republican governor's administration has shared with the public sparingly those plans on what lawmakers say would be the biggest package of taxpayer-paid incentives in Pennsylvania's history for a project being billed as the reindustrialization of the state.  Two senators briefed on the project, Sen. John Blake, D-Lackawanna, and Sen. John Wozniak, D-Cambria, said the project deserves serious consideration. Blake cautioned that the Corbett administration must show that the cost of the incentives must match the potential economic benefit to the state.

The projected multibillion-dollar ethane cracking plant would convert ethane from the area's bountiful Marcellus Shale natural gas liquids into more profitable chemicals such as ethylene, which are then used to produce everything from plastics to tires to antifreeze.  Blake said the administration's financial incentive plans for Shell revolve around a recently disclosed tax credit worth up to $1.65 billion over 25 years and a newly created tax-free zone for the site that the Legislature approved in February.  Department of Community and Economic Development Secretary Alan Walker and the other administration officials who briefed Blake and Wozniak on Wednesday could not immediately provide a figure on the value of the newly created tax-free zone site to Shell, the senators said.  The tax-free zone "is a very lucrative tool, and I don't think we could have lured Shell without it," said Blake, who briefly served as the department's secretary under former Gov. Ed Rendell.  But because Shell likely would have no state tax liability, it could sell up to $66 million in tax credits a year to companies that use its feedstock as a way to encourage a local market in Pennsylvania, senators said. "If they don't do business here, they can't use the credits," Blake said. The tax credits will need legislative approval.

In the meantime, some of the wet gas from the Marcellus Shale region is already under contract to be piped down to ethane crackers on the Gulf Coast, taking the lucrative business elsewhere.  "If we have our ethane facility and all the manufacturing around it," Wozniak said, "we are getting the value added, and that's where you're going to be getting the jobs and building the manufacturing base."  Besides the potential of offering a taxpayer-paid cleanup of the zinc smelter, the administration officials did not mention any other potential taxpayer-paid incentives for Shell, the senators said.  But Wozniak said the cost of an environmental cleanup would be limited since the site is being turned into another industrialized use.  "You're not making a park out of it," Wozniak said.  A spokesman for the Department of Community and Economic Development, asked whether the Corbett administration had offered taxpayer money to clean up the site, responded that any company purchasing a potential brownfield site could apply to a state land recycling program.

In March, Shell announced that it had picked a site on the banks of the Ohio River, near Monaca, about 30 miles northwest of Pittsburgh, and signed a land option agreement so it can further evaluate the site. Ohio and West Virginia also had sought the plant and offered Shell substantial tax incentives.  The Horsehead Corp. zinc smelter that is billed as the country's largest and is operating on the site is shutting down. In September the company announced plans to shut the factory by 2013 and relocate to North Carolina, along with most of its 600 workers.  Horsehead has said it would have to vacate the 300 acre-plus site by April 30, 2014, under the terms of the option.

By ydr.com

June 8, 2012:

Refinery workers accept contract. Workers at the Tesoro refinery in Martinez have voted to accept the company's latest contract offer, ending the possibility of a strike that could have increased California's gasoline prices. The United Steelworkers union, which represents more than 450 employees at the Golden Eagle refinery, said after Wednesday night's vote that the company had agreed not to make substantial changes in workers' benefits for most of the three-year contract's duration. The union complained that in 2011 Tesoro unilaterally eliminated some retiree medical benefits at its refineries and cut the amount it would spend to match employee contributions to pensions and 401(k) plans. Further details of the new contract were not immediately available.

The workers in Martinez initially voted in May to reject the contract offer and were the last at Tesoro's union-represented refineries to reach an agreement with the company. Employees at Tesoro's only other California refinery - in Wilmington (Los Angeles County) - ratified the contract two weeks ago. A strike at one or both of the refineries could have pushed up gasoline prices, which are finally falling in California after two separate price spikes this spring.

By SFGate

June 8, 2012:

Washington-  West Coast oil refiners cut gasoline production after a fire earlier this year at a Washington state refinery, creating a supply shortage that's left West Coast motorists now paying very high prices at a time when the rest of the nation is seeing prices plunge, according to an influential senator and a veteran energy analyst.

In a letter being sent to regulators on Thursday and obtained by McClatchy Newspapers, Sen. Maria Cantwell, D-Wash., calls on the Federal Trade Commission to investigate refinery operators Alon, Chevron, ConocoPhillips, Shell, Tesoro and BP following the shutdown of BP's Cherry Point refinery in Washington state. Citing a report by Portland energy consultant McCullough Research - a group whose work helped topple energy-trading giant Enron Corp. - Cantwell questioned why May gasoline prices in her state soared recently to within cents of the local record of $4.35 a gallon set in July 2008. Meantime, gasoline prices nationwide in May fell 17 cents a gallon and oil tumbled more than $14 a barrel.

The McCullough Research report, published Tuesday, questioned whether the historically low gasoline inventories on the West Coast were really a result of a fire on Feb. 17 that idled the BP plant for about three months. Gasoline prices on the West Coast had tracked closely with the price of West Texas intermediate crude delivered at Cushing, Okla., but in May veered widely from historical norms, according to the report. Had prices followed supply costs, said the report's author, Robert McCullough, retail gasoline prices on the West Coast would have dropped to about $3.65 a gallon. Instead, prices have been about 68 cents higher.

"The sudden price shift has provided a significant windfall for refineries and retailers on the West Coast. At a differential of $.77 a gallon, this translates into a windfall profit of $48 million a day," the report said. In an interview, McCullough was skeptical that the price increase is due to necessary plant maintenance and repairs at West Coast refineries - which are few in number and thus enjoy tremendous pricing power. He stopped short of alleging collusion, but he pointed to U.S. Energy Information Administration data that show a steep drop in West Coast gasoline inventories in late April and May.

"The West Coast is a gasoline island. Since there is very little transportation of gasoline between the West Coast and the rest of the United States, it's not clear you even need to have collusion to influence prices here," he said. "When you do not have enough competition, economists describe that as pivotal suppliers. On the West Coast there are so few players, so it's not difficult for refiners to view themselves as pivotal suppliers." McCullough's research implies that supply was withheld from the market to keep prices inflated.

"The question is not whether there was a fire at Cherry Point. It's whether everybody else in the refining market also shut down capacity to create a shortage," Cantwell said in an interview. "We want answers, and my constituents want answers. ... We think this is an anomaly without a good explanation." Cantwell, McCullough and industry critic Consumer Watchdog, based in California, questioned the timing of the cut in production. Apart from the well-documented Cherry Point closure, the list of production reductions includes: Tesoro's refinery in Martinez, Calif., repairing a hydrocracker, a high-pressure processing unit, from May 2 to May 13; Shell's refinery in Martinez undergoing maintenance from April 27 to May 16; Chevron scheduling seasonal maintenance in Richmond, Calif., on May 28; Alon's hydrocracker restart in Bakersfield, Calif., on April 20; and BP's Carson, Calif., plant undergoing flaring operations from May 15 to May 21.

Also affecting supply was a fire at the ConocoPhillips refinery in Rodeo, Calif., on April 25, and an unspecified and undated production problem at a Tesoro refinery in Anacortes, Wash. "Consumer Watchdog has suspected, with good reason, that refiners, particularly in the West Coast, use their outages to keep prices high," said Judy Dugan, director of research for the group, which advocates more regulation of the energy sector. "We have called for at least state regulation that would oversee refinery outages. They can do anything they want for any reason." Cantwell in recent years has fought for legislation that limited how much of the oil market can be controlled by financial speculators and has pressed the Federal Trade Commission to look more closely at refiners.

In her letter to the FTC, Cantwell said the Cherry Point fire shouldn't have led to record-low inventory levels "unless other West Coast refiners failed to undertake actions that could have made up for the supply shortage resulting from the Cherry Point accident. The reasons why six other West Coast refiners simultaneously reduced operations are not well documented." The only operational reduction that appears to have been announced in advance was BP's flaring operation at its Carson, Calif., refinery. It had alerted the South Coast Air Quality Management District, which monitors air pollution.

BP spokesman Scott Dean said Wednesday that the work at the California refinery was scheduled before the Cherry Point fire and vowed his company would cooperate with any federal probe. "There have been many governmental inquiries into supply disruptions in the past and we have cooperated with them, and should there be another government inquiry into supply disruptions we would of course cooperate," he said. Tesoro spokeswoman Tina Barbee also declined to address the specific allegation, but she said that the refiner performs "routine planned maintenance on a regular basis, as needed, to ensure the safety and efficiency of our operations. It is long-standing Tesoro policy, for proprietary and competitive reasons, not to discuss specific maintenance scheduling or activities."

The Western States Petroleum Association - a Sacramento, Calif.-based trade association for energy companies on the West Coast - denied the allegations. "Sen. Cantwell has, in the past, made similar requests for investigations and there have been literally dozens of investigations into pricing of petroleum products on the West coast and elsewhere in the last dozen years. And all of those have found that market factors are the dominant explanation for changes in product prices," said Tupper Hull, the group's spokesman. "And none of those have found that manipulation of the market has occurred."

One explanation for the findings of past probes, said Cantwell and McCullough, is that the FTC has not moved as aggressively to police refiners and the wholesale gasoline market in a way that the Federal Energy Regulatory Commission has policed utilities and natural gas trading. The FERC's tougher approach followed the finding of manipulation in electricity markets by Enron and its competitors.

Cantwell's letter asked the FTC whether its Gasoline and Diesel Monitoring Project detected anomalies in West Coast pricing, and asked how the agency will obtain market data to make its determination. It also asked the FTC to offer an opinion as to whether West Coast refiners enjoy a market concentration that allows them too much pricing power. If the FTC does open a probe, the focus is likely to be on why so many refiners slowed production at a time when a big supplier was sidelined.

"It would be useful to find out were these maintenance and repairs scheduled or unplanned," McCullough said. Refiners disputed the notion that scheduled maintenance or repairs can easily be put off in order to manipulate price. "This isn't going in and polishing some door handles. These are very important extensive maintenance activities that are extremely necessary to the safe operation of these facilities," Hull said.

By sacbee.com

June 8, 2012:

Malaysia's state energy firm Petronas is expected to make a final investment decision on its $20 billion refinery project in Johor by the middle of next year, a senior executive told Reuters on Friday. The refinery could start commissioning activities at the end of 2016, Wan Zulkiflee Wan Ariffin, Petronas's chief operating officer and executive vice president of downstream, said. The Malaysian project is aimed at creating a trading hub in Southeast Asian nation's south, although Asian refining margins have come under pressure from new refining capacity and the global economic slowdown.

"Refining margins will be under a lot of challenges, but as long as we're doing better than our peers, that's what we're targeting," Wan Zulkiflee said. Petronas first unveiled the Refinery and Petrochemicals Integrated Development (RAPID) project in May and it has signed a heads of agreement with Itochu Corporation and Thailand's PTT Global Chemical Pcl to build two separate petrochemical complexes. Vopak is building a $620 million storage terminal close to the refinery project.

Petronas has another refinery in nearby Malacca, which a company official said has halted Iranian crude imports ahead of Western sanctions that will start later this month. "We've got our sources. As long as we can get the right quality, the right type of oil for our refineries we're okay," Wan Zulkiflee said. Petronas used to import some 50,000-60,000 bpd of Iranian crude for its Malacca refinery and its majority-owned Engen refinery in South Africa.

Plentiful supply and faltering global growth have pushed international Brent crude prices down to around $100 a barrel, from a March peak of $128, making it less costly for buyers to find alternatives.  "I think the prices will weaken. We're not as bullish in the coming quarters," Wan Zulkiflee said, adding that this was fueled by global economic uncertainty.

By Reuters