May 3, 2021:

A new oil refinery policy is at advanced stages of consideration. Old refineries are getting uneconomic and redundant. Product mix in the local market has changed and new product specifics such as Euro-V have been introduced. This requires BMRE or new investments with a new policy. A good feature of the oil industry is that it does not create liabilities for the government such as “take-or-pay”, which is there in the power sector. However, it should provide revenue to the government, which is well deserved and deserves government attention, however, without undue concessions.

20-year tax holiday

The main issues are highly liberal 20-year tax holiday, 10% margins over international prices, elimination of all taxes and levies during the construction phase, relocation of old refineries, etc. Most development literature argues against providing such long tax holidays on corporate earnings. This is the only benefit which host countries get and if it is waived, what is the net rationale. Tax holidays deprive social sectors of the much-needed investment. It is said that foreign direct investment (FDI) decisions are primarily based on basic project viability and political circumstances.  FDI would come in if feasible with or without tax holidays. The oil industry is a major revenue earner in almost all advanced countries. Only one dollar per barrel tax on a 100,000 barrel-per-day (bpd) oil refinery would yield government revenue to the tune of $35 million per year and $700 million over the 20-year period. With four or five refineries, it would be an enormous loss of around $3.5 billion. After that period, demand and revenue may go down due to lower demand possibly. Other non-tax motivations of FDI could be strategic, forward and backward linkages, employment, self-reliance, technology, etc. On all these counts, oil refineries have very little to offer. There is very little crude oil to be utilised. Comparatively, very little employment is created, neither there are local inputs that are employed nor is there any forward linkage forming raw material inputs for other industries eg textile, agriculture, etc. There is hardly any self-reliance either, as crude oil would be imported any way. As to the strategic dictates, all loss-making businesses have one thing in common – these are defended on strategic grounds. This has been misused for justifying loss-making and unviable projects. Investments in many other sectors and SMEs do have much larger impact on the economy. However, one would not mind oil refinery investments, if there are at least corporate income tax benefits.

A 10% higher price advantage over international prices has been offered, which in itself is a very major concession and to top it all liberal tax holiday, robbing both the government as well as people. If projects are not viable, so be it. All other miscellaneous taxes and duties on construction inputs and services have been waived, which would enable capital expenditure (capex) at international cost. Cheaper labour would be an added advantage.

Falling oil demand

A primary question that comes to one’s mind is that are oil refineries, which last 30 years or so, are really required in view of reducing oil demand and introduction of electric vehicles (EVs)? In advanced countries, at least, there would be significant inroads into EVs and oil demand is expected to go down. In the developing world, however, EVs’ penetration may be modest and oil demand may even increase with development. Some oil refineries in the developed world may become redundant, may be closed down and may try to relocate their operations to the developing parts of the world. Oil producing countries may also try to lock long-term sales opportunities through investments in oil refineries abroad. Currently, there is abundant competitive trade and availability of imported petroleum products.  Who needs investment? It would come on its own, unless we are unnecessarily difficult.

Relocation of refineries

As has been mentioned earlier, due to falling oil demand in the advanced countries, a good opportunity for relocation to developing countries would emerge and is already evolving. Time and cost would be saved by import of such equipment. Most of Pakistan’s industrial development has taken place on used equipment as is the case elsewhere in many parts of the world. If the investment is foreign and all capital is foreign, what is the risk in allowing old refineries when both product specs and environmental standards criteria are met.

Opportunities in oil terminals

Large-sale petroleum imports, whether in the form of crude oil or finished products, would remain in place and both import and inland terminals would be required. Reportedly, there is shortage of storage capacity and terminals, as more demand would be created. More and more unviable oil refineries are being converted into oil terminals, both in the developed and developing countries. There are a lot of common facilities of loading and unloading, blending, storage, water treatment, market linkages, etc. Smaller unviable oil refineries may be allowed to be converted into oil terminals. OMCs should be able to buy such projects. Some policy elements may have to be added in this regard.

Strategic reserves

Existing local rules for reserves requirement are for two weeks of consumption. IEA recommendation is for three months. However, their methodology includes all kinds of purchases and storages even abroad. Strategic storages are established by big international powers like the US, Russia, China and even India. India has been successful in attracting other countries’ reserves and did not have to buy on its own. The reserves are owned by foreign oil producer countries. However, India has some rights and privileges to buy and use. For Pakistan, investing in oil storage other than current provisions would not be financially viable. There should be an effort to get existing rules implemented. For large refineries, added requirements may be considered. We always try to buy current requirements on credit and have often to pay a political cost. However, the strategic oil storage policy for foreigners may be developed and FDI in such storages may be encouraged. Concluding, there is a need for a continuing policy on oil refinery investments. Undue advantages are sought by investors (such as tax holidays and others) when government shows more eagerness. The policy should continue for a long time in order to attract as much good quality FDI as possible. Imports are meeting the requirement, providing high quality products at competitive prices and will continue to do so. Current petroleum prices in Pakistan despite taxation are quite low as compared to the region and outside of it. The policy should avoid any provision that may not be implemented, eg provision on competition in the retail market.

It is a complicated issue. Uniform pricing issues are involved and have a strong political dimension.  While import and wholesale prices are already internationally based, the issue is of only Rs10 or more of distribution margins. If somebody hopes that competition would result in lower prices, he may be sadly disappointed. Prices would certainly increase. We will discuss it in detail at a later opportunity. The writer is former member energy of the Planning Commission and author of several books on the subject.

By The Express Tribune

May 2, 2021:

Iraqi Oil Minister Ihsan Abdul Jabbar said on Sunday a refinery under construction in Karbala, south of Baghdad, should come on stream in September 2022. The state-run Iraqi News Agency quoted the minister as saying that when fully completed the refinery would enable Iraq to phase out 90% of the oil products it currently has to import.

By Reuters

May 2, 2021:

Governor Edwards announced plans for a $700 million renewable diesel refinery in Caldwell Parish this past week. He, along with CEO Paul Schubert of Strategic Biofuels LLC, made an announcement that the company’s wholly-owned subsidiary, Louisiana Green Fuels, will develop the plant near Columbia, LA. The plant will be on a 171-acre site at the Port of Columbia and produce up to 32 million gallons of renewable fuels annually. Louisiana Green Fuels will do this through established refinery processes with wood waste as the feedstock. It’s completing feasibility and financing phases for the project with the anticipation of a final investment decision by late 2022. Louisiana Green Fuels will make a capital investment of at least $700 million through the project. Along with the cash, 76 new direct jobs will be created. These jobs will have an annual salary of over $68,000 along with benefits. Louisiana Economic Development (LED) estimated that the project will result in an additional 412 new indirect jobs — totaling almost 500 new jobs in Caldwell Parish. The building phase is planned to take at least 30 months and will generate another 450 construction jobs. “Louisiana Green Fuels is an example of how our state can merge traditional and emerging forms of energy in exciting ways to address climate change,” said Governor Edwards. “The company has engaged Justiss Oil of Jena to drill a sequestration test well that will confirm the integrity of carbon storage a mile below the earth’s surface. This project would boost our state’s forestry sector by harvesting timber byproducts in a sustainable fashion, and the refinery’s renewable diesel output would be accomplished in a carbon-negative fashion. That means this refinery would achieve better than net-zero emissions – it would actually remove more carbon from the environment than it produces.”   So far, Strategic Biofuels has raised 85% of its early-stage financing from investors in North Louisiana. Along with the Columbia renewable diesel refinery, the company is planning to develop other refineries that will produce renewable aviation fuel along with diesel.

“Caldwell Parish is the ideal location for our Louisiana Green Fuels plant,” said Dr. Schubert, CEO of Strategic Biofuels. “It combines the required forestry waste feedstock for fuel production and the right geology for carbon sequestration within the State of Louisiana’s visionary legislative framework, which has been further strengthened by the Climate Initiative established by Governor Edwards. We are especially thankful for his signature on the recent $200 million tax-free bond allocation, which substantially advances the financing for this project.” LED started the formal discussions with Strategic Biofuels about the project back in July 2020. The State of Louisiana plans to negotiate a competitive incentive package to secure the project once a final investment decision is made. Following that decision, the construction of the initial Louisiana Green Fuels refinery is slated to start at the Port of Columbia and lead into initial plant operations in early to mid-2025.

What Exactly Is Renewable Diesel?

The U.S. Energy Information Administration defines renewable diesel as biomass-based diesel fuel. It’s sometimes called green diesel and is chemically the same as petroleum diesel fuel and can be used in place of petroleum-based diesel. It’s usually produced from cellulosic biomass materials such as crop residues, wood, and sawdust. Allen Schaeffer, executive director of the Diesel Technology Forum, spoke more about it in an article for Government Fleets. “Renewable diesel, much like biodiesel, is derived from waste agricultural products, particularly waste vegetable oils and waste animal fats,” he said. “As long as we grow soybeans and produce livestock, the waste-derived after these products have been processed into food can be refined into a clean, low-carbon fuel.” He also noted that the biofuel helps reduce carbon emissions and petroleum use while improving air quality (compared to conventional diesel fuel). That article also pointed out that the City of Oakland, California, has been using renewable diesel in all of its diesel-powered equipment — including fire department apparatuses and off-road equipment — since 2015. Richard Battersby, manager of equipment services for the city, pointed out that he expected over 1,500 tons of greenhouse gas emissions were eliminated every year. “We expect to displace the consumption of about 250,000 gallons of petroleum diesel and eliminate more than 1,500 tons of greenhouse gas emissions each year, and we have yet to encounter any drawbacks,” Battersby said. “The most common reaction I’ve experienced is disbelief that there is a cleaner-burning direct diesel fuel substitute that is made from renewable sources, doesn’t require any additional expense for the fuel itself, and does not require equipment and infrastructure modifications.” It’s good to see Louisiana focusing more on cleaner fuels. However, living in Cancer Alley has me pretty skeptical. Refineries pollute the air, and after learning about the Formosa plant being built and other plants, I am leery of the “too good to be true” things. Personally, it’s a great thing that this type of fuel has been invented if burning it improves air quality compared to burning petroleum and cuts emissions. I’m all for that.

By CleanTechnica.com

May 1, 2021:

People in Colorado are now getting the chance to weigh in as the state’s major oil refinery is asking for an important permit to be renewed.  Suncor Energy wants the Colorado Department of Public Health and Environment to renew a permit for Plant 2. The refinery sits on 229 acres in Commerce City and employs about 500 people. It produces about a third of the gasoline Colorado drivers use, almost all the jet fuel for Denver International Airport and a majority of the state’s asphalt. “We take our responsibilities seriously,” said Donald Austin, the vice president of the refinery. Austin spoke Saturday morning during a virtual public hearing that’s part of the permitting process. There will be another hearing Tuesday. Austin said Suncor is trying to reduce pollution. He said the refinery has spent nearly $400 million since 2015 on new technology, including automatic shutoff equipment to prevent excessive releases of pollution and a new pipeline that has reduced the number of trucks needing to drive to the facility by about 150 every day.

“Another example would be fuel quality improvements to reduce the environmental impacts of fuels,” Austin said. “Here we added equipment to reduce benzene and sulfur in our fuels.” But for people who live in the neighborhoods near Suncor, all of that is still not enough. “This community is fed up,” said Lucy Molina, a frequent critic of the refinery. “And we’re asking the community to step it up and testify.” Molina has lived about a mile and a half from Suncor for about the last decade. She was there in 2019, when a strange dust rained down over the area. Suncor described it as a “nonhazardous” clay-like catalyst. Molina was also there in 2020, when the refinery released a blast of hydrogen sulfide and carbon monoxide into the air. “It’s time we wake up as a community and as a state and as a nation,” Molina said. “Environmental racism is an issue in our communities, especially in brown and Black communities. Low-income communities.” Molina wants Suncor’s permit to be revised or even revoked.

Suncor recently released an independent report that the company paid for. It describes the refinery as adequately funded and designed to meet environmental permits, although it pointed out that the company’s safety culture needs improvements. Last year Suncor agreed to a $9 million settlement with CDPHE for air quality violations, the largest ever in Colorado for the issue.

By Nexstar Media Inc

May 1, 2021:

Exxon Mobil Corp. is poised to lock out union workers at its Beaumont refinery in Texas at 10am Saturday with the oil giant and the United Steelworkers failing to reach an agreement on a new labor contract by late Friday. The oil giant rejected union counteroffers to its contract proposal made earlier this month. The union continues to work on alternative proposals and wants to keep bargaining and its members working while negotiations continue, a person familiar with the discussions said Friday. In the event of a lockout, the union will picket Exxon with signs declaring the lockout is illegal rather than call a strike. During a lockout, companies typically bring in temporary workers to operate facilities. Exxon has already advertised for workers to replace union members starting Saturday. “Our lockout decision is a result of the Union not accepting the company’s contract proposals and the risk of a strike,” plant manager Rozena Dendy said on Exxon’s website Friday afternoon. “It is vital to the safety of our community that we control this timeline to allow our qualified and highly skilled team to assume safe control of our operations.” United Steelworkers Local 13-243’s six-year work agreement with Exxon expired Feb. 1 without a new collective bargaining agreement in place for the Beaumont refinery and blending and packaging plant. The union contends Exxon’s offer would enact major changes in the existing contract that impact members’ safety, security and seniority. Exxon told union representatives Thursday that the union’s latest offer “still includes items that significantly increase costs to the company and that we have consistently expressed cannot be accepted over the last 108 days of bargaining. To be clear, a ratified contract would still avoid any work stoppage.”

The USW and Exxon provided 75-day notices to each other Feb. 15 as required before a lockout or a strike. Exxon has already rejected the union’s offer of a one-year extension and said it would lock out workers if they didn’t agree to the company’s current proposal. Exxon Beaumont union workers have never been locked out. The facility was also not included in a 2015 strike called by the International Union for 12 U.S. refineries and three other plants. The Beaumont refinery can process 359,000 barrels a day of crude.

By Bloomberg