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The Tampa Tribune: Gulf Refiners Gearing For Expansion

EXTRACTS: …the 3,600-acre Motiva refinery is planning an expansion that the facility’s general manager says will double its production by 2010 and make it the largest U.S. refinery.  Motiva, a Houston-based joint operation between Saudi Refining Inc. and Shell Oil Co., is preparing land parcels while it awaits permits and final approval from parent companies on the $4.5 billion expansion proposal.

THE ARTICLE

By STEVE QUINN The Associated Press

Published: Sep 5, 2006

PORT – ARTHUR, Texas – Stark reminders of damage wrought by last year’s hurricanes emerge while entering this Gulf Coast refinery town about 110 miles east of Houston.

Trees and utility poles are bowed. Blue tarps cover wrecked homes. Business signs that flew away nearly a year ago haven’t been replaced.

Even with these humbling reminders of hurricanes Rita and Katrina – which last year temporarily shut down 28 percent of the nation’s refining capacity and pushed pump prices past $3 a gallon – the oil industry is busy expanding on the Gulf Coast.

Refiners expect to boost capacity by 2010 by as much as 1.9 million barrels, about 11 percent of the current rate, with the most significant changes on the Gulf Coast.

For example, the 3,600-acre Motiva refinery is planning an expansion that the facility’s general manager says will double its production by 2010 and make it the largest U.S. refinery.

“You could ask, ‘Aren’t you increasing the risk if you’re going to be sticking it in the Gulf Coast area?’ During two months out of the year, probably,” Todd Monette said. “When you start looking at core infrastructure needed to put a big site like this in place, that’s what the Gulf Coast is all about.”

Despite such confidence, last year’s storms led to fundamental changes that could delay or put some expansion plans out of reach. The labor pool is tight. Orders for materials and parts take longer to fill. Competition from other industry or hurricane-related projects put a drag on resources. Each contributes to increased costs.

San Antonio-based Valero Energy Corp., the nation’s largest independent refiner, is close to completing a 75,000-barrel-per-day capacity expansion in Port Arthur. But labor and material problems delayed a September completion by two months.

Richard Marcogliese, Valero executive vice president of operations, said project costs have risen 20 percent. Material orders that took 18 months now take almost 36, he said.

“The implication for the industry is that in this environment, projects are more expensive, so you have to ask, ‘Are they all going to get built?'” Marcogliese said.

This hurricane-related impact reaches outside the Gulf region. Last month, San Antonio-based refiner Tesoro Corp. canceled a 25,000-barrel-per-day expansion at its Anacortes, Wash., plant.

Bill Haywood, Tesoro vice president of refining operations, said last year’s storms are pulling resources from one end, but projects in booming economies such as China and India are tugging from the other.

Reliance Industries Ltd. is building the world’s largest refinery in India, where it can take advantage of lower costs, while planning to sell the fuel to the U.S. market.

“There are only so many shops who have the ability to fabricate, weld and put those things together for you,” Haywood said. “It’s supply and demand, and prices have gone out of sight.”

Undaunted, Motiva, a Houston-based joint operation between Saudi Refining Inc. and Shell Oil Co., is preparing land parcels while it awaits permits and final approval from parent companies on the $4.5 billion expansion proposal.

The project could start next year. Motiva has also lined up its contractor and is working with state work force commissions, local economic development authorities and schools to help build a steady labor pool.

Projects on the Texas and Louisiana coasts soon will be competing for up to 20,000 workers, said Rick Strouse, a project manager for Motiva. But finding homes for the workers is a problem in a town where blue tarps have covered some houses since after Rita hit last September.

A successful expansion would take Motiva’s Port Arthur refining capacity from 275,000 barrels to 600,000 barrels a day. That would be bigger than the largest single producer, Exxon Mobil’s Baytown facility, now at 557,000 barrels per day capacity.

The number of refineries dropped from 324 in 1981 to its current level of 149. Refinery capacity is approximately 1.5 million barrels per day lower, the Energy Department said.

Current refinery production of 17.7 million barrels per day is 3.7 million barrels per day higher than in 1981 as refineries are producing at 92 percent of their capacity, compared with 69 percent in 1981. This comes largely because of expansions.

That’s why building new refineries is not practical, industry executives said. So oil and gas companies prefer to boost supplies by expansion.

For example, over the last decade, Exxon Mobil said it has added the equivalent of three average-sized refineries – about 250,000 barrels of production per day – all through expansion.

A new refinery can cost close to $21,000 per barrel of installed capacity compared to costs ranging from $9,000 to $12,000 per barrel for an expansion, said Charlie Drevna, executive vice president for the National Petrochemical Refiners Association. Still, a new refinery is not out of the question, Drevna said.

A U.S. House of Representatives bill designed to convert closed military bases into oil refineries has one Texas town hopeful it can turn economic misfortune into the first new U.S. facility in 30 years.

In June, the House passed a bill that essentially streamlines permitting and directs the president to identify three or more closed military bases as potential refinery sites.

 

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