WORLDWIDE REFINING BUSINESS DIGEST The fast-read, comprehensive newsletter for busy professionals working in the refining industry

HYDROCARBON PUBLISHING COMPANY Translating Knowledge into ProfitabilitySM

P.O. Box 661 Southeastern, PA 19399 (U.S.A.) Phone: (610) 408-0117/ Fax: (610) 408-0118 WORLDWIDE REFINING BUSINESS DIGEST

The fast-read, comprehensive newsletter for busy professionals working in the refining industry

November 2000

Top 10 News ...... p 1 Feature of the Month ...... p 2 Refining & Marketing News ...... p 4 Refinery-Petrochemical Business Briefs ...... p 18 Mergers, Joint Ventures, Acquisitions & Divestitures ...... p 20 Technological Developments ...... p 23 Industry Trends & Forecasts ...... p 25 Refiner Business, Strategy & Finance ...... p 33 Supplier & Contractor News ...... p 42 Alternative Fuels News ...... p 45 Environment & Regulatory Legislation ...... p 47 Spot Market Monitor & Trends ...... p 50 Recently Announced Refinery Construction Projects ...... p 54 List of Important Literature Articles ...... p 56 Company Index ...... p 58

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WORLDWIDE REFINING BUSINESS DIGEST is published monthly by Hydrocarbon Publishing Co., P.O. Box 661, Southeastern, PA 19399 (U.S.A.). ISSN 1077-4831. © 2000. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or translated into any language or by any means—electronic, mechanical, photocopying, recording or otherwise—without prior written permission of Hydrocarbon Publishing Company (HPC). HPC shall not be liable for any errors or delays in the content, or for any actions taken in reliance thereon. To order: call (610) 408-0117, fax (610) 408-0118, or write to P.O. Box 661, Southeastern, PA 19399, (U.S.A.). For further information, please visit our website at www.hydrocarbonpublishing.com REFERENCE SOURCES & ABBREVIATIONS

Sources: ACN...... Asian Chemical News IEA...... Int’l Energy Assoc. Oil Marketing Report BW...... Business Week IH...... International Hydrocarbon C&EN...... Chemical & Engineering News NW...... Newswires: Business Wire, Knight Ridder, CE...... Chemical Engineering OPECNA, PR News Wire, Reuters, UPI, etc. CEP...... Chemical Engineering Progress CMR...... Chemical Market Reporter NYT...... New York Times CW...... Chemical Week OD...... Oil Daily DFN...... Diesel Fuel News OGJ ...... Oil & Gas Journal ECN...... European Chemical News PE...... Pollution Engineering EP ...... Environmental Protection PTQ ...... Petroleum Technology Quarterly EPCA...... European Petrochemical Association SN...... Science News HA ...... Hydrocarbon Asia TR...... Today’s Refinery HE...... Hydrocarbon Engineering WR ...... World Refining HP...... Hydrocarbon Processing WSJ...... Wall Street Journal

Abbreviations: 1Q, 2Q, 3Q, 4Q.....(the) first, second, third, and fourth j.v...... joint venture quarters, respectively LPG ...... liquefied petroleum gas AAA ...... American Automobile Association K...... thousand AGA ...... American Gas Association MITI ...... Ministry of International Trade and ANS...... Alaskan North Slope crude Industry (Japan) API ...... American Petroleum Institute (U.S.) mm, mil...... million ASTM...... American Society for Testing & MOU...... memorandum of understanding Materials mpg...... miles per gallon b, bbl, Bbl...... barrel(s) mt ...... metric ton bn...... billion MW ...... megawatt boe ...... barrel(s) of oil equivalent N.A...... not applicable or not available CA ...... California NAAQS ...... national ambient air quality standards CAA...... Clean Air Act (U.S.) NESCAUM...... Northeast States for Coordinated Air CARB ...... CA Air Resources Board Use Management cf...... cubic feet NG...... natural gas Concawe...... Conservation of Clean Air and Water NGL...... natural gas liquid Europe NPRA ...... National Petrochemical & Refiners C.I.S...... Commonwealth of Independent States Association (U.S.) CNG...... compressed natural gas NYMEX ...... New York Mercantile Exchange (U.S.) d...... day OECD...... Organization for Economic D.O.E...... Department of Energy Cooperation & Development EC (or EEC)...... European Economic Community OPEC...... Organization of Petroleum Exporting EIA ...... Energy Information Countries Administration (U.S.) OSHA ...... Occupational, Safety and Health EPA ...... Environmental Protection Administration (U.S.) Agency (U.S.) PC...... petrochemical(s) EPC...... engineering, procurement, PM...... particulate matter and construction RFG ...... reformulated gasoline EUROPIA ...... European Petroleum Industry RMT ...... refining, marketing, and Association (Brussels) transportation FCV ...... fuel cell vehicle RVP ...... Reid vapor pressure f.o.b...... freight on board SCAQMD ...... South Coast Air Quality Management gal, g...... gallon District GTL ...... gas to liquid(s) WTI ...... West Texas Intermediate h...... hour y...... year H1 or H2 ...... first or second half of the year ¢ ...... U.S. cent(s) IEA ...... Int’l Energy Agency (Paris-based) DM ...... Deutsche Mark(s) IPAA...... Independent Petr. Assoc.of America £ ...... U.K. pound(s) IPE...... International Petroleum $ ...... U.S. dollar(s) Exchange (U.K.) ¥ ...... Japanese yen IPO ...... initial public offering TOP 10 NEWS

(1) The U.S. is buzzing over heating oil. p 6

(2) The Unocal patent verdict will get a federal p 11 review in the U.S.

(3) The José upgrading complex (Venezuela) nears p 12 completion.

(4) Total Fina Elf will sell 10 ppmw sulfur p 14 gasoline in France.

(5) Iran and Venezuela will consider an oil swap. p 14

(6) Japanese refiners are asked to add 6mm bbl to p 15 the international heating oil market.

(7) Phillips Petroleum’s S Zorb sulfur removal p 23 technology proves good for diesel.

(8) Global diesel/gasoline trading patterns emerge. p 29

(9) Irving Oil’s $1bn “King of Cats” Refinery p 33 Upgrade Project in Canada is near completion.

(10) EU ministers have set an ozone limit. p 49

November 2000 1 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected FEATURE OF THE MONTH

Chevron and Texaco, Two Long-time Partners, Decide to Merge

On Oct. 15, Chevron agreed to purchase Texaco. The two companies have operated Asian R&M j.v. Caltex since 1936. The price tag of the acquisition is $45.4bn, paying $35bn in stock, and the assumption of 1) Texaco’s debt and preferred stock of $7.4bn and 2) $2.7bn debts carried by their Caltex j.v. Chevron will own 61% of the new company called Chevron Texaco, which will be the world’s fifth-largest and U.S.’s second-largest publicly-traded oil company. The firms had total combined sales of $66.5bn in 1999 ($31.5bn from Chevron and $35bn from Texaco), compared to ExxonMobil’s $160.9bn. Chevron’s Chairman Dave O’Reilly will be the chairman/CEO of the company and Texaco’s chairman/CEO, Peter Bijur, will become a vice-chairman. Mr. Bijur will be responsible for downstream, power, and chemicals operations. Mr. Richard Matzke, Chevron’s current vice chairman for upstream will retain his current functions. Texaco shareholders will receive 0.77 share of Chevron for each Texaco share, i.e. $64. 87 share or an 18% premium over Oct. 13’s closing price of $55.25. The merger will eliminate 7% (or 4,000 jobs) of their combined 57,000 workers, leading to savings of at least $1.2bn within six to nine months of completion. This latest attempt by both companies is expected to boost the share price and achieve high price-to- earnings ratios, similar to the other two supermajors, ExxonMobil and BP (plus Amoco and Arco). Chevron Texaco will have a market capitalization of $85bn, the fifth largest publicly traded oil company after ExxonMobil ($315bn), Royal Dutch/Shell ($220bn), BP ($207bn), and Total Fina Elf ($112bn.) Downstream Worldwide Both companies have extensive downstream assets in refining, marketing/retailing, lubricants, asphalt, LPG, ocean terminals and depots around the globe as summarized in the table below. Chevron Texaco will have a combined refining capacity of 3.1mm b/d, behind ExxonMobil (6.5mm b/d), Royal Dutch/Shell (4.0mm b/d), and BP (3.2mm b/d.)

Worldwide Fuel Refinery Capacity (K b/d) Chevron Texaco USA El Paso, TX (65), El Segundo, CA (260), 44% in Equilon Enterprises (Bakersfield, A-62, Martinez, CA-155, Honolulu, HI (54), Pascagoula, MS (295), Anacortes, WA-145) and 31% in Motiva Enterprises (Delaware City, Richmond, CA (225), Salt Lake City, UT (45) DE-152, Convent, LA-225, Norco, LA-230, Port Arthur, TX-235) Canada Burnaby, BC (52) N.A. Latin America N.A. Panama (60), Guatemala (17) Europe N.A. Pembroke, Wales (200), 31% in Netherlands Refining, Europoort, Holland (380) Caltex Asia-Pacific 50% in LG-Caltex at Yosu, S. Korea (650), 64% in Star Refinery at Map Ta Phut, Thailand (300), 1/3 in Singapore Refining (285), Caltex Philippines at Batangas (72), 50% in Caltex Australia at Sydney and Brisbane (220), 12.69% in New Zealand Refining at Whangarei, 12% in Pakistan Refinery at Karachi (46) Africa Caltex Oil SA at Cape Town, S. Africa (110), 16% in Kenya Petroleum Refineries at Mombasa (70) Note: Parenthesis figures indicate the total capacity of the refinery

November 2000 2 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected FEATURE OF THE MONTH

Since Chevron and Texaco have overlapping R&M assets on the West Coast (and in the Midwest), Texaco is likely to relinquish its 44% stake in Equilon Enterprises, which it co-owns with Shell Oil. Texaco may also sell its three-way joint venture (Motiva Enterprises in the East and Gulf Coast regions) with Shell Oil and Saudi Aramco. Both enterprises were formed in 1998 and operate 23,500 Shell and Texaco branded service stations with a combined market share of about 13%. Caltex reported annual sales of about $14bn in 1999 and has interests in 11 fuel refineries with equity refinery capacity of nearly 850K b/d. Race in Upstream The new company—with oil and gas reserves equivalent to 11.2bn bbl and daily production of 2.7mm bbl—expects to aggressively compete in lucrative upstream projects around the world. Chevron Texaco feels it can combine its deepwater E&P interests in the Gulf of Mexico, Brazil, and West Africa as well as investments in Asia Minor. In natural gas and NG liquids, Chevron Texaco will be able to produce 4.5bn cfd of natural gas, 3bn cfd of NG liquids, and have an estimated combined sales of 9bn cfd of natural gas.

Oil and Gas Reserves and Production Comparison ExxonMobil Royal Dutch/Shell BP Chevron Texaco Total Fina Elf Proven Reserves, bn boe 20.8 19.9 13.7 11. 2 10.3 Oil Production, mm b/d 2.6 2.4 2.4 2.0 1.5 Gas Production, bn cf/d 10.8 7.7 6.6 4.3 3.7

Exit from Petrochemical and Plastics Texaco sold its chemical business to Huntsman Chemicals several years ago. Chevron’s recent j.v. in the chemical business (e.g. ethylene and polyethylene) with Phillips Petroleum may be an indication of Chevron’s strategy to gradually move away from this sector, according to an industry analyst. Power Play and Alternative Energy Chevron CEO Dave O’Reilly may prefer to strengthen the company’s position in alternative fuels technology. Presently, Chevron holds a 26% stake in Dynegy, a power generation company. Texaco has significant gasification and cogeneration savvy with an equity interest in 3.5K Mw of power currently operating or under construction. The firms are said to have complementary operations that will be easy to integrate. Analysts expect Chevron Texaco will further invest in fuel cells, photovoltaics, advanced batteries, and hydrogen storage. Finally, both companies have significant interests in gas-to-liquids technology. Texaco has established joint ventures with two GTL developers—Syntroleum and Rentech. Meanwhile, Chevron announced a technology alliance with Sasol of South Africa and a major investment in Nigeria to convert flare gas into valuable products, as revealed in the Alternative Fuels News section on p. 46.

November 2000 3 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS

Time-Frame Crude Oil and Finished Products Futures Price Movements on NYMEX and IPE October was a tumultuous month for the futures market, resulting from unstoppable violence in the Middle East. Light, sweet crude in the U.S. and benchmark Brent crude topped $36/bbl and $34/bbl respectively in the middle of the month, i.e. a ten-year high. The market also reacted to Iraqi warnings that it would stop exports if its request for payment in euros instead of U.S. dollars was denied. However, OPEC’s willingness to increase production based on its price-band mechanism took away the upward momentum. As a result, futures prices only went up modestly—LSC up $1.86/bbl, unleaded gasoline up 6.66¢/gal, and heating oil up 1.7¢/gal in New York with Brent up 92¢/bbl and gasoil down 2.06¢/gal in London.

Futures prices were mostly unchanged, though the overall market was rather volatile during the week. October 2-6 · Middle East tensions, prompted by Iraq and Kuwait accusations of crude stealing along their borders recently and during the Gulf War, drove up crude prices. Also, the threats of two tropical storms in the Gulf of Mexico made traders worry about supply disruptions. Unlike the U.S., the EU will not unload emergency oil reserves to cool off the market. · In the U.S., heating oil stocks were about 36% below last year and the Northeast—the largest consuming region—was down about 70%. Nevertheless, the recent decline in prices in the U.S., due to the Strategic Petroleum Reserve release, has provided even better arbitrage opportunities for trans-Atlantic shipments since the European market remained tight. · Prices retreated after the API’s announcement of stock builds of crude (up 3.4mm bbl), distillates (up 336K bbl), and gasoline (up 5.2mm bbl) for the week ending Sept. 29. The market finally accepted the imminent crude release from the SPR after the D.O.E. awarded the contracts to 11 bid winners. Out of the 30mm bbl of crude awarded, 26mm bbl were sweet and suitable for heating oil production in comparison with sour crudes. However, traders were skeptical about its positive contribution to the heating oil supply, since U.S. refineries have already been operating at full tilt and oil majors, such as ExxonMobil, expressed little interest in SPR bidding. · Meanwhile, Japan urged its oil refiners to export more gasoil to restore the heating oil balance in Asia and stabilize global oil prices. Some traders have already observed higher global crude stocks as OPEC started to send additional crude (800K b/d in an agreement resulting from the Vienna meeting on Sept. 10) to the market after Oct. 1. U.S. light, sweet crude prices had eased by more than $7/bbl since the mid-Sept. announcement of the SPR oil swap to replenish heating oil inventories. * * * * * * * * * * * * * * * * * * * * The futures market was tremendously volatile in the second week due to Middle East tensions causing potential oil October supply disruptions as well as cooler weather conditions throughout in the eastern U.S. Light, sweet crude on 9-13 NYMEX surged $4.13/bbl while North Sea Brent futures gained $2.42/bbl in a week. · Saudi Arabia warned of possible Israeli army retaliations after clashes with Palestinians over Ariel Sharon’s visit to the politically-sensitive Temple Mount in Jerusalem. The army may pursue Syria and Lebanon for kidnappings of Israeli soldiers by the Iranian-backed Hizbollah group. However, the Kingdom acknowledged that it would not impose an oil embargo as happened during the Arab-Israeli war in 1973, which served to punish the West for supporting Israel. In the meantime, colder weather in the U.S. Northeast and a hurricane threat in the Gulf of Mexico lent support to higher prices. Oil workers in Brazil and Venezuela threatened to walk off their jobs over wage disputes with the governments. To muddy the water further, Iraq (which pumps 5% of internationally traded crude or 2.3 mm b/d) asked the United Nations to pay for the oil cargoes in euros not U.S. dollars starting in Nov., warning that it would stop oil shipments under the oil-for-food program. · The Paris-based IEA confirmed oil supply tightness due to 1) low oil stocks in OPEC producing nations, 2) too much optimism about non-OECD production, and 3) underestimated global oil demand. The API reported higher-than-expected stockdraws in crude and refined products for the week ending Oct. 6.

November 2000 4 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS

· Futures prices exploded after Israeli forces attacked targets near Palestinian Chairman Yasser Arafat’s headquarters. Also, news of a terrorist attack on the U.S. Navy destroyer Cole at the port of Aden in Yemen that killed several soldiers pushed prices up further. A British embassy in the capital of Sanaa (Yemen) suffered an explosion in its property hours later. LSC streaked past the $36/bbl mark and Brent settled above $34.5/bbl on Oct. 12. Heating oil futures climbed above $1.05/gal reacting to the API’s bullish report that storage on the East Coast was 51% lower than a year ago. · The emotionally-charged market finally calmed down before the weekend and speculative investment funds took profits after the week-long rally. * * * * * * * * * * * * * * * * * * * * * The third week turned out to be rather uneventful with a narrow trading range for both NYMEX light, sweet crude October and North Sea Brent. However, futures prices lost ground as Middle Eastern nerves were temporarily calmed and 16-20 traders took profits, i.e. down $1.24 for LSC and 90¢ for Brent. · The week started off with a considerable price decline—LSC slipping more than $2/bbl—as the market reacted to 1) an emergency Israeli-Palestinian meeting in Sharm el-Sheikh (Egypt) giving hope to tension-easing in the region, 2) the end of a Venezuelan oil worker strike, and 3) Saudi Arabia’s hint of a possible production hike ahead of the Nov. 12th meeting. · Although the API and EIA reported stockdraws in crude and distillates for the week ending Oct. 13, the market responded mildly. The impending release of 30mm bbl of Strategic Petroleum Reserve crude had lingered in the minds of traders. · At week’s end, oil prices received support from renewed bloodshed in the Middle East, dashing hopes for a U.S.-brokered cease fire. It added bullishness to the already jittery oil market, very concerned about a nearly 24-year low inventory level. An Arab summit over the weekend was expected to reinforce the on-going verbal attack against Israel, but Saudi Arabia and other Arab states were unlikely to use oil as a weapon against the West. * * * * * * * * * * * * * * * * * * * * * October The futures market on NYMEX was mixed, with crude prices sliding lower (down $1.01/bbl) and products futures 23-27 edging higher (up 18¢/gal for gasoline and 31¢/gal for heating oil). On the other hand, both the IPE’s Brent crude and gasoil futures lost ground for the week—down 67¢/bbl and 47¢/gal respectively. Overall, the market operated in a tight trading range. · Despite a cease-fire agreement between the Israelis and Palestinians, continued violence in the Middle East has been haunting the energy market. Meanwhile, the U.S. D.O.E. reported that 7mm bbl of crude from the SPR remained unclaimed because two small bid-winners could not come up with the financing. Syncrude Canada announced its huge oilsands processing in Alberta will be down until mid-Nov. · Traders spent most of the week pre-occupied with the possibility that OPEC may raise production by 500K b/d on Oct. 27 if high prices trigger the price band mechanism—the OPEC basket of crudes remains above the $28/bbl threshold for more than 20 consecutive trading days. This news put a damper on crude futures, but some dealers are skeptical of the hike in physical output since most OPEC producers are pumping at capacity. Meanwhile, product prices were lifted by the news that the Capline pipeline running from the U.S. Gulf to Chicago would be shut down for an unspecified period of time. · The API reported a stock-build of crude oil, but reduced inventories for both distillates and gasoline for the week ending Oct. 20. Refinery utilization rates improved in light of the Fall turnaround period. So far, the heating oil market has been calm because of abnormally mild weather in the Northeast.

* * * * * * * * * * * * * * * * * * * * * The last two trading days were overshadowed by OPEC’s decision to raise the output by 2% or 500K b/d. But the October market remained bullish, thanks to concerns over Iraqi threats to cut off exports, the temporary shut-down of 30-31 Capline, and colder weather in the U.S. Overall prices were relatively firm with LSC and Brent settling above $32/bbl and $30/bbl respectively.

November 2000 5 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS

NYMEX (LSC, Gasoline & Heating Oil) and IPE (Brent & Gasoil) Futures Prices 38 120

36 115 34 110 $ 32 / 30 105 ¢ / b 28 100 b g 26 l 95 a 24 l 90 22 20 85 18 80 10/02 10/04 10/06 10/10 10/12 10/16 10/18 10/20 10/24 10/26 10/30 Date

LSC($/b) Brent($/b) Gasoline(¢/gal) Heating Oil(¢/gal) Gasoil(¢/gal)

(OD, OGJ, and WSJ)

U.S.-AMERICAS Although both agreed that prices did rise in the fourth week of Oct., the D.O.E. survey of 800 stations and a Lundberg survey of 10,000 stations differed on exactly U.S. retail prices fluctuate. how much they rose. The D.O.E. reported that gasoline Gasoline fell for the second week in a row in early Oct. went up 1.2¢/gal from the third week’s $1.551/gal or 31¢ The Dept. of Energy reported the average gasoline price higher than the year-ago level of $1.25/gal. Lundberg to be $1.524/gal during the first week of Oct.—a decline recorded $1.61/gal as the average, up 2.8¢ from 2 weeks of 2.4¢ from the last week of Sept. Diesel prices fell to an prior. As usual, the West Coast saw the highest prices, average of $1.625/gal as well. Many feel the price drops but the $1.751/gal level was actually down a penny from were due to the U.S. decision to release 30mm bbl of the previous week, according to the D.O.E. However, crude from the SPR. Whether or not to call the effect Lundberg reported a 2¢ drop on the West Coast as well “psychological” is a matter of opinion. as a 10¢ jump in the Midwest. The D.O.E. reported that On Oct. 17, AAA reported an average price of the Gulf Coast saw the lowest price: $1.437/gal, which $1.549/gal, which is a minor change from their Sept. 19 was down by 0.5¢. figure of $1.58/gal. In some regions prices fell by Meanwhile, the D.O.E. also reported that the national 2-3¢/gal and mid-grade and premium fell across-the- average for diesel was $1.648/gal, down 2.2¢ from the board. Self-serve mid-grade was $1.645/gal, a 3.3¢ previous week, but up from the year-ago level by 42¢. decrease from Sept. Oct.’s average price of self-serve The lower Atlantic states saw the lowest diesel prices gasoline is 11¢/gal lower than the all-time high of (down 2.2¢ to $1.588/gal) while the West Coast saw the $1.659/gal hit on Jun. 23 of this year, but 25.4¢ higher highest (down 2.1¢ to $1.85/gal). than one year ago. (OD/Oct 4/p 7, 19/p 6, 23/p 7, 25/p 9 & NW/Oct 17, 23) Analysts have pointed out that prices are likely to surge as refiners begin producing more heating oil and the flow The U.S. is buzzing about heating oil. of motor fuel supplies begins to slow down. Some even The EIA projects no shortage of heating fuels this fear that the severe price spikes seen in June may Winter—just higher prices. If the weather is normal, the resurface. Economic growth and the continued popularity D.O.E. estimates that oil bills would increase by $190- of gas-guzzling SUVs are expected to push gasoline $240 for a typical household this Winter, as reported in demand up by 2%. Some believe that RFG production the EIA’s Oct. Short-Term Energy Outlook. If the capacity will not increase in line with demand. With weather is severe, heating oil and NG prices could gasoline stocks on the low side, analysts began to see skyrocket. But, unless the Winter is unusually cold, their predictions come true as prices started to rise again. supplies are anticipated to be adequate. At present, distillate stocks (a combination of diesel fuel and heating

November 2000 6 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS oil) on the East Coast are about 40% below last year and reserve. The total spending bill consists of $18.8bn with the newly-announced crude release from the SPR is only $95mm slated for an electric power plant initiative, but expected to add an extra 3-5mm bbl of distillates to the no funding to purchase additional crude for the SPR. The supply. spending bill still needs approval from the Senate. Meanwhile, many users had stockpiled heating oil earlier Furthermore, with most pipelines fully nominated, on, which could trigger a price slide if the temperatures heating oil transport to the Northeast could become are above normal in the season. During Sept., refiners troublesome. This Winter will see only about two thirds broke distillate production records pumping out more the number of domestic tankers hauling gasoline and than 3.75mm b/d, well-ahead of the season. The API’s heating oil as last year to the New England and New Monthly Statistical Report found refinery utilization York Harbor consumer hubs. ExxonMobil and BP are down slightly to 94.1%. Distillate disposition is 10% using more ships than usual for ANS crude this year. higher than last year, hinting that consumers are buying There are 80 U.S.-flagged tankers which are permitted to heating oil as fast as refiners can produce it and transport petroleum products around the U.S. The Jones stockpiling in secondary and tertiary inventories. Tosco Act prevents foreign ships from doing so and it is Corp. has reported that many wholesale heating oil believed that only a significant cold spell or a wartime suppliers have secured their inventories sooner than usual emergency would convince Washington to waive the Act. this year. The company could not comment on whether However, legislation has been introduced that would end-users had filled their tanks promptly as well. initiate a 90-day waiver of the Act. Usually, around 18 of However, the New England Fuels Institute says that the tankers would be running products to the Northeast, record numbers of heating oil users have locked in prices but only about 12 are expected to be available this year. under a program begun a few years ago. Throughout the Average capacity of the ships is 250-300K bbl. The Northeast, about 25% of oil-heated homes fall under the shippers are enjoying hearty profits because of the fixed-price plan so that home-owners will not feel the situation. Last year, they were averaging 3.5¢/gal for a pinch if a cold spell occurs at a time of higher prices as trip from the Gulf Coast to NY Harbor; now that trip happened last year. Heating oil is currently selling for averages 6-6.5¢/gal. about $1.50/gal, close to a record high. Apparently, Meanwhile, a group of 29 congressmen have urged tensions in the Middle East pushed up heating oil futures President Clinton to invoke an executive order on on NYMEX to $1.08/gal on Oct 12, a gain of 5.95¢ in exports. As U.S. distillate inventories struggle to gain one day. (Crude prices also rose at one point to $37/bbl.) ground, many companies continue to export heating fuel Mid-Oct. futures were at their highest since 1981 to Europe at high prices. Sentiment is mounting that the ($1.11/gal on NYMEX) but have since fallen to under U.S. should restrict exports while supplies at home are $1/gal. Inventories are at 46mm bbl—25mm bbl lower inadequate. Some energy analysts feel such a move than this time last year. One market observer commented would be counterproductive because refiners may choose that when heating oil prices spiked last Winter, the to stop producing heating oil since it would be put into market responded with an impressive boost in imports storage. For years, refiners have made it standard policy that re-balanced supply and demand. The creation of a to keep distillate inventories low to cut down on storage heating oil reserve in the Northeast, however, may costs. During Sept., European customers were willing to discourage potential suppliers from the risk of additional pay 4-9¢/gal more for heating oil. imports when a reserve release could pressure prices downward almost instantaneously. U.S. Energy Secretary Bill Richardson said that four oil companies have volunteered not to export heating oil: However, questions of payment have been stalling the Amerada Hess, Royal Dutch/Shell, Texaco, and Saudi reserve. A funding bill totaling $8mm for the creation of Aramco affiliates Equiva Trading and Motiva the northeastern heating oil reserve is being held up over Enterprises. Virgin Islands refiner Hovensa (a j.v. of disagreements of the royalty-in-kind payment to be used Amerada Hess and PDVSA) with a capacity of 545K b/d, and the exact trigger mechanism for the release of the oil. is not part of the agreement involving exports. The RIK payment allows the government to take a (OD/Oct 3/p 1,7, 6/p 5, 10/p 2, 13/p 4, 19/p 5 & NW/Oct 6, 10, 24, 26) portion of the oil produced on federal lands without consideration of a fair market value. Several lawmakers Europe is expected to continue draining U.S. want the language changed to adhere to the Minerals and Management Service regulations before passage of the distillate supplies. bill. The House of Representatives overwhelmingly The release from the SPR may be more than counter- approved the $8mm funding bill for the heating oil balanced by Europe’s tight heating oil market, according to Pira Energy Group. With 50% higher demand for November 2000 7 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS heating oil, Europe’s heating oil imports from the U.S. crude.) However, John Surma, a senior VP from already jumped sixfold during the first 7 months of the Marathon, commented that his company did not win as year. (NW/Oct 5) large an allotment as it hoped in the initial bidding round. He expressed concern over the entire bidding process and U.S. jet fuel production reaches record high the possibility that the D.O.E. considered unrealistic bids. levels. Also, Conoco‘s bid for 1.5mm bbl was rejected. Refineries reported that they are producing about 12% In the end, after Lance Stroud and Euell Energy were not more kerosene jet fuel than usual, due to strong demand. able to provide adequate letters of credit, the D.O.E. held a second round of bidding for the 7mm bbl originally On a separate note, a Boeing official warns that high fuel offered to those firms. (Euell said that several oil costs could undermine the market for new aircraft. The companies shied away from its negotiations and will high price of jet fuel has caused airline companies to charge those firms with collusion.) 1.5mm bbl went to increase fares at least twice this year so far and jet Marathon Ashland, 2.5mm bbl to Vitol, and 3mm bbl to manufacturer Boeing is concerned that demand for new BP Oil Supply. The 3 companies will return 7.57mm bbl planes will wane. (NW/Oct 10, 12) (an 8% premium) to the SPR within 12 months for the oil obtained in the second bidding round. The oil will be Crude deliveries hold steady. delivered from the SPR’s West Hackberry facility in Dec. The sole U.S. deepwater oil port is expected to see steady These three firms also took a collective 11.45mm bbl in (if not increasing) deliveries for Nov. The Louisiana the first round. Critics have said that the delays will mean Offshore Oil Port unloads more than 900K b/d of that the product will not be marketable before the heating imported crude for U.S. refinery processing. There was oil season ends, but the government believes that it will initial speculation that foreign deliveries might fall be sold during Jan. or Feb. Government officials have because of crude releases from the domestic petroleum also assured reporters that informal agreements have reserve, but that has not yet been the case. (OD/Oct 18/p 9) been reached with some companies, ensuring that the oil will not be shipped overseas. Plus, the Commerce Dept. The U.S. D.O.E. deals with SPR issues. must issue a license before the oil could be exported and The government chose which oil companies would said it would allow crude to be exported only if it will receive the 24mm bbl of sweet crude from West result in extra refined products coming back to the U.S. Hackberry and 6mm bbl of sour crude from Bayou However, the Administration does not expect any of the Choctaw and Bryan Mound. BP Oil Supply, Marathon 30mm bbl to head to Europe even though there is quite a Ashland, and Valero were among the top volumes of financial incentive to ship product across the Atlantic, as crude awarded. All of the 30mm bbl of oil was to have the arbitrage gap widens further. Europe’s heating oil been delivered by the end of Nov. and the firms agreed to market is 50% larger than the U.S. market and supplies return a total of 31.5mm bbl by Nov. 2001. Among the are so tight that it is expected to be a constant drain on lower volumes to be delivered were Burhany Energy U.S. distillate supplies. Some analysts feel that is why the Enterprises (FL), Euell Energy Resources, and Lance U.S. heating oil inventories are low to begin with—too Stroud Enterprises—3 small brokerage firms, of which much had been shipped overseas to fetch a higher price. many oil companies have never heard. Critics questioned One trader commented that action should have been the entire bidding process; a Philip K. Verleger analyst taken on Jul. 1 when it was first truly evident that U.S. was stunned that the government would give SPR oil to distillate inventories had not gained any ground. companies that are not in the practice of buying and selling oil. A spokesperson from the D.O.E. said that the Four dozen lawmakers have signed a letter to the companies chosen offered the best value in terms of President requesting an export ban, but the Clinton replenishing the SPR next year and that the firms were administration said it is opposed to banning exports of checked out to verify certain facts. One interesting view heating oil or any petroleum products. Opponents of the is that the three small firms were chosen because of a SPR release feel the crude will be processed into heating lack of participation from the big oil companies because oil and exported, in direct opposition of its intent. One they do not need any more crude, as they are running politician said that a ban on heating oil exports would refineries at 96% capacity. (ExxonMobil was noticeably encourage refiners to produce other products that could absent from the bidding process; according to a be exported. Many analysts and oil firms argue that the spokesperson, the firm’s refineries are producing at crude released will translate into very little extra heating maximum capacity and would have no use for extra oil since refineries are running at maximum utilization and can not produce any faster. Asia is the only region

November 2000 8 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS that has spare capacity and could produce heating oil for prices. Output is currently reported at 8.5mm b/d, but the U.S. and Europe, but it will have a difficult time Saudi capacity stands at 10.5mm b/d. (OD/Oct 5/p 5, 13/p 7) meeting tough environmental standards. An EPA official is talking to several Northeastern states about temporarily Saudi Crude Price Differentials for November relaxing the heating oil standards for this coming Winter, $ f.o.b. but no applications have yet been submitted. Grade U.S. (discount Europe (discount Meanwhile, the EIA estimates that around 20mm bbl of to WTI) to Brent) the release will not truly be added to the market as that Arab Heavy -7.10 -6.55 amount of imports from other sources is expected to be Arab Medium -6.60 -5.60 displaced by the release. Therefore, the 30mm bbl release Arab Light -5.05 -4.20 is actually estimated to only put an extra 10mm bbl of oil Extra Light -3.25 -2.35 on the market. Senator Frank Murkowski of Alaska is very critical of the D.O.E. and estimated that only 800K- 900K bbl of the 30mm bbl will be processed into usable Tosco Corp. and Arcadia Petroleum settle heating oil this Winter. (WSJ, OD & NW) their lawsuit over Brent crude pricing. In early Sept., Tosco filed suit with the U.S. District Saudi Arabia widens differentials for U.S. Court accusing Arcadia of manipulating the Brent market crude. and causing prices to jump from the usual $1/bbl The $0.5-1/bbl reductions in prices is viewed as not discount to a $1/bbl premium over WTI. The oil aggressive enough to stimulate crude purchases from the company sought compensation for the market Kingdom when oil firms are waiting for SPR crude. The “squeezing” by Arcadia and other traders. Both parties table below shows the price changes. have settled the dispute out of court for an undisclosed sum. Sources say that Arcadia benefited by $30mm in the Meanwhile, the Kingdom has allocated full crude price scheme, but that the settlement is far below that volumes for Nov. No contractual volumes were changed, amount. Once again, the U.S. courts/regulators will not even though it pledged to boost supplies to calm high be given the opportunity to define authority over the unregulated Brent market. (OD/Oct 18/p 1)

U.S. Refinery Shut-downs/Restarts Date* Refinery Location/Capacity Details 10/3 Crown Central Petroleum’s A 56K b/d FCCU was restarted on Oct. 4 after being shut for scheduled maintenance on Sept Pasadena, TX/100K b/d 20. 10/3 Valero’s Paulsboro, NJ/ The plant will close down a 24K b/d catalytic reformer and 45K b/d distillate hydrotreater for a 155K b/d 20-day maintenance program starting in Nov. 10/4 Sunoco’s Philadelphia, PA/ Restart of the 144K b/d CDU will be delayed further due to undisclosed trouble. The unit has 307K b/d been shut down since a fire on Sept. 7. 10/5 Marathon Ashland The refineries were closed in late Sept. for routine turnarounds, which could be expected to Petroleum’s Detroit, MI/ take the average month. However, there was a fire in the Robinson gasoline unit in Aug. 70K b/d and Robinson, IL/ Chicago gasoline prices surged after MAP purchased heavily in preparation for the shut-downs. 166K b/d 10/18 BP’s Texas City, TX/ A 60K b/d hydrocracker will be shut down for six weeks of scheduled maintenance. 450K b/d *Approximate date of announcement

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PADD I: East Coast Amerada Hess looks to expand its marketing Air pollution violations haunt Sunoco and Premcor. in the Southeast. The Air Management Services of Philadelphia (PA) has Hess is negotiating to sell branded fuel at A.T. charged Sunoco with 15 violations at its local refinery Williams‘s 120 retail outlets and 21 Wilco travel centers following an explosion and fire. Each count could cost up located in NC, SC, and VA. The j.v. ownership would be to $25K. In Illinois, Premcor is facing fines of up to 50:50 and named WilcoHess. (NW/Oct 10) $50K per violation for particulate releases from its Blue Island refinery. In June, the plant released 23 tons of PADD II: Midwest & Great Lakes spent catalyst into the nearby atmosphere. Testing the next month continued to show particulate emissions that Indiana brings back its gasoline tax. exceeded the limits by an average of 27%. The spent The governor had suspended the 5% sales tax for 60-day catalyst releases are not toxic but considered irritants periods. Oct. 26 marked the end of the second period. according to environmental officials. (WR/Oct/p 12) IN’s prices are now below the national average of $1.57/gal by 6¢. If retail margins do not swallow some of The Colonial Pipeline expansion will be the tax, consumers will see approximately a 7¢/gal operational in Nov. increase. Back in June, IN retail prices were over $2/gal. Officials said that the 950K b/d distillate line will It is estimated that the state lost some $40mm in revenues increase flow to 1.1mm b/d early next month. The due to the tax suspension, but the high prices resulted in pipeline transports gasoline and distillates from Houston more revenues than expected by $34mm, so the total loss to New York. (OD/Oct 20/p 9) was only around $6mm. (Illinois also suspended its gasoline tax until year-end.) (OD/Oct 26/p 8) BP markets ultra-low-sulfur gasoline in the Mid-Atlantic. Oct. and Nov. see a fully nominated Capline 150 retail outlets in the Washington DC area have begun pipeline. selling gasoline with an 80% lower sulfur level than the Equilon Enterprises‘s 1.1mm-b/d, 40-inch crude line average premium gasoline sold in the region. Some transports 25 different grades of crude and is likely to be stations in Philadelphia (PA) Baltimore (MD) and one of the arteries for SPR crude delivery. The line Richmond (VA) will also be selling the product. BP says transports petroleum to Pakota (IL) from St. James (LA). that switching to the product (which meets EPA (NW/Oct 5, 26 & OD/Oct 27/p 6) standards for 2004-2006) is the equivalent of taking almost 40K cars off the road each day. PADD III: Gulf Coast & Southwest General Motors is planning to use some 400K gal/y of Koch pleads innocent to benzene charges. the fuel for factory fill-ups at its Baltimore assembly plant. The EPA has rated GM’s GMC Safari and The Corpus Christi (TX) refinery was charged with Chevrolet Astro vans as the most fuel-efficient in their venting excessive cancer-causing emissions. The class of 2001 model year vehicles. GM also uses BP’s indictment, with 97 felony charges, focused on the ultra-low-S diesel in its hybrid transit buses. The plant’s release of 91 mt of the chemical as opposed to the company is also working on direct-injection engines, 6 mt limit in 1995. The company said it did not violate which will be even more fuel-efficient, but will require the federal air pollution laws as indicated in a lawsuit a no-sulfur fuel. (NW/Oct 6) week ago. It reportedly disclosed and repaired the problems. The plant has been running fine since then. Florida forms a coalition to change fuel The trial was set for April 9. (NW/Oct 6) marketing laws. The state has a law that prohibits retailers from selling BP‘s Seaway pipeline is running at capacity. gasoline below cost and forces motorists to pay 2.6¢/gal The 65K b/d products line had been shut down for more for gasoline and diesel. The Coalition for Lower maintenance, expected to last only 10 days. However, Gas Prices was formed to fight for reform of the “abnormalities” were found that required the pipeline to legislation that adds up to consumers paying millions be closed for three weeks. (OD/Oct 5/p 10) more for fuel. The group says Floridians are especially sensitive because so many residents are seniors living on fixed incomes. (NW/Oct 11)

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Crown Central Petroleum ends a 4 ½ year $200K to the local fire department, and spending $800K refinery lockout. to set up water recycle equipment. In the settlement, ExxonMobil agrees to study the toxicity of the The company announced that it has reached a tentative groundwater, which is suspected to be caused by agreement with union workers at the Pasadena, TX plant naturally occurring manganese or iron. The study costs after years of tense negotiations. The union agreed to end about $300K. (NW/Oct 2) its boycott activities and resolve litigation with Crown. (NW/Oct 11) The oil tanker Neptune Dorado was found to be PADD V: West Coast defective. The Unocal patent verdict will get a federal The captain of the tanker delivering crude to Tosco‘s Rodeo, CA refinery has been arrested and charged with review. safety violations. The ship’s ballast tanks (used to After being petitioned by oil companies and over 30 stabilize the craft) contained crude oil, instead of water. states to review the case, the U.S. Supreme Court has Officials said that the fumes from the area could be asked the federal government to examine the ruling. A ignited and the tanker could explode. Captain Kiriakos federal appeals court had judged that oil companies must Daioglou was charged with falsifying documents and pay millions of dollars to Unocal for reformulated lying to inspectors; however, he speaks very little gasoline patent infringement related to gasoline English. (NW/Oct 10) production during a five-month period in 1996. The decision ostensibly allows Unocal to pursue royalty fees Canada throughout the U.S. for products made over a more extended period of time. The review process could take The spread widens between Canadian light and months. (NW/Oct 3, 16 & OD/Oct 17/p 4) heavy crudes. The price differential has jumped to the highest ever: MTBE usage rises despite California’s pending $13.58/bbl. Analysts said the large discount on heavy oil ban. is due to reduced seasonal demand and fears that a host The California Energy Commission reported that the of heavy oil projects coming onstream will create a amount of MTBE blended into gasoline in the state market glut. Imperial Oil, for example, set the price of increased 14% from April to June. The state has ordered light, sweet crude at Edmonton at C$52.15 ($34.54), that the additive be banned by Dec. 31, 2002. One while medium-heavy Bow River was C$31.64 ($20.81). environmental group commented that refineries use MTBE Analysts will be watching closely to see if any heavy oil to extend fuel supplies especially when inventories are as projects get shelved due to the lower price. Canadian tight as they have been recently. Other environmental heavy oil production is projected to be 6.9% higher this officials are calling for an immediate ban of MTBE. Duane year. Steve Kelly of Purvin & Gertz commented that Bordvick of Tosco Corp. said MTBE is required in larger companies should not overreact since the differential will amounts for Summer gasoline, and that an immediate ban stabilize and be more reasonable when the overall price would upset supply and demand severely. of crude declines. (NW/Oct 19) Meanwhile, contamination has been found at numerous Petro-Canada looks to increase production at sites in Washington state. The Washington Dept. of McKay River. Ecology has identified low levels of the gasoline additive in ground water in several areas around the state. Currently approved to produce 22K b/d, the company has Washington has never used MTBE in its cleaner-burning applied to expand production at the oilsands facility to fuels, but some refiners blend it into gasoline to boost 30K b/d by 2002 at a cost of C$290mm or $10/bbl. They octane, but at lower levels than used in California RFG. are also looking for approval to increase to 80K b/d by The D.O.E. will continue testing and develop redemption 2010. Upgrading the Edmonton refinery to process 80- programs. (NW/Oct 5, 11) 150K b/d of bitumen from the McKay River site is also being explored by Petro-Canada. ExxonMobil will pay a $1.5mm fine. Meanwhile, Syncrude Canada has cut its projected The Torrance, California refinery was charged with water production again after a coker at Fort McMurray (Alberta) and air pollution violations. An EPA lawsuit was settled has its restart delayed, pulling expected production down with the company paying a $500K penalty, contributing to 75mm bbl for the year from the earlier forecast of 79mm bbl, which was a significant cut from the initial goal of

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92.5mm bbl. Also, overall operating costs have increased Brazil, Ecuador, Colombia, and Venezuela have so far from $9.25/bbl to $11.24/bbl. Canada’s market for light, remained immune to protests, because of price ceilings sweet crude is, consequently, expected to see continued and other forms of price control. (OD/Oct 13/p 5) tightness. However, the company expects 2001 to see record production. Pemex readies Cadereyta refinery for operation. A “pressure wave” resulted during the start-up of an The Mexican oil company said the 235K b/d refinery associated fractionator in a maintenance run. The coker’s upgrade is complete and start-up will begin by the end of tower internals were damaged and it is not expected to be Oct. The facility will produce mainly gasoline and allow running until mid-Nov. No serious injuries occurred the country to reduce its gasoline imports. (NW/Oct 18) related to the incident. (OGJ/Oct 9/p 9, NW/Oct 24 & OD/Oct 24p 6) Oil workers strike in Venezuela. A consortium has been formed to expand the The unions called for a 24-hour nationwide strike to protest Alberta pipeline. PDVSA‘s refusal to authorize pay increases to workers. Koch Pipelines Canada, Alberta Energy, and One official estimated that 90% of workers participated. Canadian Natural Resources Ltd. will join forces to The company has offered a 3.5K bolivar/day pay raise build an adjacent 200K b/d line for approximately (equivalent to $5). Any prolonged work stoppage could $95mm. The 155-mile Cold Lake pipeline will have threaten oil output and exports. The contract negotiations capacity raised to 450K b/d and transport heavy oil from have been in progress for about a year and workers feel Cold Lake to a major pipeline center at Hardisty, Alberta. they are in a good position to benefit now that oil prices (NW/Oct 5) have hit highs. PDVSA says that the main oil workers’ union, Fedepetrol, had not filed its latest complaint through Canadian companies are cleared of price gouging. the proper channels. After striking for four days, the union Canada’s Industry and Natural Resources ministries settled for an $8.70/day pay increase plus other benefits commissioned the Conference Board of Canada, a private and employees returned to work. research group, to conduct a study in response to Similarly, workers in Brazil are demanding wage consumer complaints about rising retail prices. The study increases and have threatened to strike. Petrobras concluded, however, that international crude prices and offered a 5% pay raise which was rejected by the unions. taxes are the primary culprit. 82% of the pump price was The workers are pushing for a 9.21% pay increase plus attributed to crude costs and taxes with each taking about other salary benefits. (NW/Oct 10, 14) half of that portion. Refining costs make up about 11% with profits taking only 7% of the final retail price. The José upgrading complex (Venezuela) nears Comparatively, U.S. pump prices give about 77% to crude costs and taxes, 16% to refining costs, and 8% to completion. retail operations. The report also noted that retail margins Petrozuata (a j.v. of PDVSA and Conoco) will soon be have been generally shrinking for Canadian companies able to upgrade the extra-heavy Orinoco crude at the $1.8bn, and the nation’s gasoline prices are amongst lowest 800-acre complex. With around 237bn bbl in reserves in the across the globe. (OD/Oct 25/p 4) area of the Orinoco River, Venezuela has been hoping for a long time to begin profiting from the tar sand. Orinoco crude Latin America & Caribbean is highly acidic, contains 4-6% S, and registers at about High prices cause protests throughout Latin 9.3°API. The José upgrader will process the crude to result in a product of 4% S and 20-25°API, which will be refined at America. Conoco’s Lake Charles (LA) facility. The chaos over high fuel costs that rippled through Oct. is expected to see the completion of construction Europe last month is evident now in Central and South and production will begin in Dec. with exports expected America. Angry truckers and motorists are protesting the early next year. The j.v. partners are considering high costs through roadblocks and protests in Peru and upgrading the complex and expanding the production Argentina. Fuel strikes practically brought Peru to a halt area to double the anticipated capacity. Petrozuata earlier this week, as prices in the country are the highest expects that 120K b/d of feed will result in 103K b/d of in the region. The government convinced local refiners to crude output. The remainder will be fuel-grade coke to be lower prices slightly, but says it will not intervene again. sold as boiler fuel, LPG, and sulfur. Lighter LPG will be In Argentina, the government negotiated with used as fuel at the complex while the heavies will be independent refiners to lower diesel prices somewhat. bought by a PDVSA affiliate.

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Other joint ventures are planning similar heavy crude crude is selling at a higher price ($1.45 below WTI) than upgrading projects in the José industrial area. The Oriente or even West Texas Sour ($3.40 below WTI). planned facilities listed in the table below are all to be Analysts expect S. American crude prices to see short- located east of Zuata. term increases and then gradual declines over the medium and long terms. Spot market traders are J.V. Name (Partners) Capacity concerned that a further price increase will diminish their Sincor (PDVSA, Statoil, and Total Fina Elf) 160K b/d profits, but Petroecuador would like to see an even Cerro Negro (PDVSA and ExxonMobil) 120K b/d narrower differential. (OD/Oct 26/p 6) Ameriven Hamaca (PDVSA, Phillips Petroleum, 190K b/d and Texaco) EUROPE/MIDDLE EAST/AFRICA (OD/Oct 24/p 4) The European Union votes against releasing Cuba and Venezuela will sign a Caracas energy crude from strategic reserves. agreement. With the recent protests and complaints by small Presidents from both countries will sign a 15-year crude companies about being squeezed out of business, Spain supply/marketing deal by the end of the month. PDVSA and France requested a draw from the strategic reserves, will supply an additional 80K b/d of crude to 11 Central but Germany and Britain (among others) voiced American/Caribbean countries through soft loans or opposition to that plan, saying that the high prices did not bartering arrangements involving sugar or services. The equal a severe crisis and that the reserves should be saved financing will be based on crude prices ranging from 5% for true emergencies. for $15-bbl oil to 20% for a $30-bbl. This agreement will The EU held a summit on Oct. 13 to discuss authorizing actually extend the current San José Accord where a crude release, but the 15 members said “no” and Mexico and Venezuela jointly supply 160K b/d of crude pushed for the development of an intervention policy in to those neighboring countries. (NW/Oct 2, 19 & OD/Oct 10/p 7) the immediate future. Benchmark Brent crude prices have hit 10-year highs, and concern is mounting that violence Petrobras‘s Landulpho Alves refinery in in the Middle East could disrupt supplies and push prices Bahia, Brazil is back on stream. even higher. The European Commission has said that it Unit 32 in the plant was disabled by a fire on Sept. 6 and wants the governments of member nations to coordinate was forced to halt production of 28K m3/d of naphtha, taxes and policies more closely in line with one another diesel, kerosene, and fuel oil. This represents 60-65% of and place strategic reserves together under the EU’s the refinery’s total output. (OGJ/Oct 9/p 9) authority rather than that of the individual nations. Proposals include developing better relationships with Independent refiners in Argentina agree to cut oil-producing countries like Russia and increasing energy fuel prices. efficiency. (NW/Oct 5 & OD/Oct 16/p 7) Protests ended with news that the price of diesel would be lowered to $1.71/gal and tolls would be reduced by The EU may increase Russian imports. 50%. The government will also reduce gasoline taxes Several EU members have suggested doubling imports of which currently weigh in at $1.86/gal. (OD/Oct 6/p 7) Russian gas and increasing oil and electricity imports as well. Russia currently supplies 16% of the oil required in Chiléan truckers protest high fuel costs. the EU and 20% of its gas. Leaders of several countries have met to discuss strategic partnerships where A strike by a fifth of the country’s truck drivers failed to technology could be supplied to increase E&P of block major ports, but did clog some roads heading into Russia’s reserves. (OD/Oct 3/p 7) the larger cities. Many of the trucking groups did not respond to the call for a strike, therefore, it is considered The IEA urges oil firms to globally produce a failure and prices will remain the same. (OD/Oct 19/p 8) more heating oil. Petroecuador wants to boost Oriente prices. The Agency met in an emergency session to discuss options for oil management with respect to supplies and In the third week of Oct., Ecuador decreased its f.o.b. prices. The outcome was that the IEA said crude supplies prices to a $4 differential below WTI/Cushing and then are adequate but low product stocks and regional raised the price to $3.75 below the benchmark or imbalances need to be tackled. In essence, the agency $29.50/bbl. The U.S. consumes over 30% of the 400K b/d pushed off the blame to oil companies and urged them to Ecuadorian production. Currently, Alaska North Slope produce more heating oil. One suggestion is that oil companies change operations to increase stocks and

November 2000 13 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS reduce “just-in-time” inventory management. The IEA The Spanish government will compensate does not favor releasing oil from strategic reserves, but truckers for high fuel costs. does want the members of the European Union to A $300mm deal was reached between truckers, cargo develop a coordinated strategy for oil management, handlers, and the government to end protests that choked hinting at a “global index” for pricing that would reflect major roadways in Spain. The relief will be in the form of the whole market. (OD/Oct 5/p 1) tax exemptions and credits. Some protesters are unhappy with the deal and are pushing for the removal of special Total Fina Elf will sell 10 ppmw sulfur fuel taxes. (OD/Oct 5/p 8) gasoline in France. The company plans to produce and market this ultra- Tariffs rise 28% for Russian product exports. clean fuel (for lean-burn direct-injection engines) in 100 Prime Minister Kasyanov will increase tariffs on stations next year before a progressive introduction in the gasoline, kerosene, and jet fuel from $21.42 to rest of Europe. Current gasoline sulfur content is about $27.42/ton to curb exports. Fuel oil tariffs will be raised 150 ppmw. (OGJ/Oct 9/p 9) 34% from $17.24 to $23.13/ton. (OD/Oct 17/p 8) The German Parliament will block gasoline tax Yaroslavl oil refinery in Russia is ready to produce relief. high-quality turbojet kerosene for exports. A group of 16 finance ministers from individual states With assistance from BP, the Slavneft company claims agreed unanimously to stop the legislation proposed to its fuel meets international standards and will supply the reduce fuel taxes unless their states will be compensated British company for the next five years. (NW/Sept 29) for a loss of revenue. The government said that the loss of $1.4bn in annual taxes collected would be shared by Two Ukrainian refineries resume operations. both the federal and state authorities. (OD/Oct 6/p 6) The Galychyna (12.5K b/d) and Naftokhimik U.K. independents protest low prices from majors. Prykarpattia (17.65K b/d) plants have restarted now that crude supply has been secured. The refineries had been Demonstrations have taken place in Huddersfield and shut for two weeks due to lack of crude. (TR/Oct/p 9) Leeds (both in Yorkshire) to bring attention to what some retailers are calling unfair practices. Bayford Thrust Croatia is ready to resume supplying oil to claims that refiners have charged $4.90/gal (diesel) to Yugoslavia. small retailers while only charging $4.79/gal to the public The European Union said it would lift economic at their own filling stations. A Rix Petroleum sanctions against Yugoslavia following the fall of representative has accused the government of interfering Slobodan Milosevic, including an oil embargo. Croatian with pricing policies, resulting in smaller companies oil firm INA said it could produce 1.5-2 mil. mt/y of oil being pushed out of business. Average U.K. diesel prices products to be delivered to its neighboring country. were running at $4.79-4.91/gal at the end of Oct., a 12¢ (NW/Oct 9, 10) increase from previous week. Meanwhile, Greenpeace supports Europe’s high fuel Iran and Venezuela will study an oil swap. taxes and plans to challenge refinery blockades in The countries’ Presidents met to discuss an arrangement Britain. The group wants a percentage of the revenues to where Iran would supply oil to Venezuelan customers in go toward alternative fuels. A survey in Britain found the Middle East and PDVSA would supply crude to that 68% of consumers would not mind paying the high Iran’s clients in North and South America. Iran already taxes if the money was spent on reducing pollution and has a similar arrangement with Kazakhstan in the Caspian improving public transportation. (OD/Oct 6/p 7, 26/p 7) Sea region. (OD/Oct 3/p 7)

Conoco will begin offering Internet access at Iraq’s request to switch to euros confuses the some U.K. fuel outlets. UN and traders. The company considers this trial-basis program similar to providing ATMs and pay phones at service stations. The UN sanctions committee is expected to approve the There will be a fee for Internet time which will be paid request to use the euro for transactions in the oil-for-food program, but that decision is not expected until sometime through a debit card. (NW/Oct 11) on Oct. 25 and Iraq set Nov. 1 as the deadline. Many think that, since there will not be enough time for the change- over, supplies from the nation will be disrupted for at least a week since letters of credit are expected to be submitted

November 2000 14 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS to Banque Nationale de Paris-Paribas seven days before Nigeria to aid Ghana. Tema officials said that a new loading. (BNP-P holds the UN-controlled Iraqi escrow boiler is scheduled to be installed at the end of Oct. account for the program.) Others say that 2 months could which should help boost throughput and ease shortages. be needed to establish euro payments. However, other producing nations (primarily Saudi Arabia) have agreed to In the meantime, NNPC reiterated that the Kaduna refinery pump extra crude to make up for a potential decline in will resume production after a two-year maintenance normal Iraqi exports of 2.3mm b/d. Plus, if OPEC abides outage. The turnaround was delayed several times due to by its price-band mechanism and prices do not fall before lack of funding needed to complete the extensive repairs, Oct. 30, an additional 500K b/d should be coming from modernization, and upgrades. The company reports that the OPEC producers. FCCU and heat exchanger repairs are completed, and will start up next month. Total International was contracted Meanwhile, some traders submitted letters of credit to for the repairs at the facility. (NW/Sept 29, Oct 10) BNP-P in euro denominations, but they were refused. When dollar-denominated letters were submitted to Iraq’s trader Somo, the company insisted on euro High fuel prices threaten Tanzania’s economy. denominations. Pump prices were raised from 584 shillings to 600 shillings for diesel and increased by a similar amount for It is presumed that the Iraqi request is an effort to other fuels as well. Public transportation was forced to encourage a wider use of the euro, which would push increase its rates also, putting severe pressure on the down the value of the U.S. dollar. However, the U.S. has weak Tanzanian economy. The World Bank estimates expressed no opposition to the request, saying that their that developing economies will see their GDP fall by 1% only concern is that the oil revenues be used for medical supplies and food rather than for weaponry. Some have next year if oil prices remain at $35/bbl. (NW/Oct 2) said that the request is merely an excuse for a supply disruption, especially in light of the upcoming U.S. ASIA-PACIFIC presidential election. (OD/Oct 26/p 1) Japanese refiners are asked to add 6mm bbl to Texaco will team with Alon Israel Oil for a the international heating oil market. refinery. Japan’s Ministry of International Trade and Industry Details are sketchy, but an Israeli newspaper reported (MITI) called on domestic oil companies to honor the that Texaco will invest several million with Alon for a IEA’s request for extra gas oil in hopes of fulfilling new facility to process oil products for Israel and for European and North American heating oil demand, export to Eastern Europe. The Texaco name brand will thereby expecting to reduce crude prices. Since kerosene be used at new and existing retail stations throughout is a more popular home heating fuel in Japan, it is not Israel. (NW/Oct 19) expected that extra exports of gas oil would cause problems for the domestic fuel market. Some company The use of synthetic fuels prevents a fuel crisis executives have already responded favorably to the in South Africa. request. Besides, Japanese gas oil stocks are estimated to Sasol operates the only coal-based synthetic be 10% greater than they were last year since more manufacturing plant in the world and has helped steady petroleum products were produced along with the extra fuel supplies and costs in South Africa. The country has power generation fuels (fuel oil) needed during the to import all of its crude and is therefore very vulnerable exceptionally hot Summer with high electricity demand. to crude price movements. With the recent high costs, (NW/Oct 5, 6) synthetic producer Sasol has increased profits by 126% to 3.9bn rand ($547mm) for H1. Analysts H2 to bear MITI agrees to increase Japan’s oil reserves. even higher returns for Sasol, especially if crude prices The country’s national oil reserve will be increased by remain high. (NW/Sept 13) 1mm kiloliters (6.3mm bbl) to 51mm kiloliters (320.79mm bbl) by March 2002. Farther down the road, Nigeria agrees to supply crude to Ghana. Japan will up the reserve to 55mm kiloliters by 2010. Nigerian National Petroleum Corp. will supply 30K b/d (NW/Sept 21) to the Tema Oil Refinery beginning Nov. 1. Ghana has been faced with a fuel crisis due to outdated equipment at Japanese refiners relinquish capacity. the Tema facility. Apparently a steam boiler is inefficient So far the oil industry had committed to removing 220K and causing a problem with the reformer at the refinery. b/d of refining capacity and plans to cut another 321K A 130-day “credit facility” is being considered by

November 2000 15 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS

b/d next year. For years analysts have been warning that (190bn won) for fixing prices of fuel sold to the military. Japan suffered from a severe over-capacity which led to Because of the Inchon acquisition, Hyundai took the poor profits for oil companies. The next step will involve highest fine—95bn won. slashing some of the 55,153 retail operations. In 1995, While they did not reject the collusion charges, the the country had some 60K retail operations, which companies plan to appeal, saying that the fines are too sparked severe competition which dug into profits. high. The companies were originally told that the fines Cosmo Oil (Japan) will cut refining capacity by 8%. A would be likely to total only 120bn won. The FTC said company spokesperson said that by April 2001, that the fines were increased because the companies did throughput would be lowered by 50K b/d or 8%. The not fully cooperate with the investigation. Resolved to Osaka plant will cut back from 110K b/d to 80K b/d and reform the oil industry and establish fair competition, the the Kagawa Prefecture will be reduced from 140K b/d to Commission has said that it is unlikely to back down 120K b/d. Cosmo will streamline its operations as well. from the original ruling. The commission claims that the firms had a system that forced retail stations to only use Nippon Mitsubishi Oil also plans to cut capacity by one supplier, thereby controlling prices. 121K b/d or 9% during 2Q next year. Its affiliate, (NW/Oct 2, 11 & OD/Oct 3/p 9) Wakayama Petroleum Refining Co., will see a 50K b/d refinery closed down. Another subsidiary will see a total 71K b/d capacity decrease at 3 refineries which it runs. Formosa Petrochemical starts a UOP- (NW/Oct 2, 10, 16) designed resid FCCU. The company has commissioned the unit at its Mailiao Japanese retail prices are up. refinery in Taiwan. Formosa has already increased feed Various products saw price hikes last week, as can be capacity to over 73K b/d due to the high transportation seen in the table below. costs of fuel and olefins. (ECN/Oct 9-15/p 10) Product New price Old price Last price More Indian refiners will export surplus increase gasoline and diesel. regular gasoline ¥103/liter ¥102/liter late July Since the Indian government abolished its administered high-octane gasoline ¥116/liter ¥114/liter early July pricing system for petroleum products last year, gas oil ¥83/liter ¥82/liter July 10 companies have the option of reducing production or kerosene ¥46.4 ¥45.2 exporting any surpluses to maximize profits. Just this Several oil companies had earlier warned that they would year, refining capacity has outstripped demand and firms push their prices up by ¥2.2-2.5/liter to reflect the find they have product to export. Hindustan has floated a increased cost of crude imports. Even ExxonMobil, tender for 25K mt each of gasoline and diesel and which normally changes prices by less than ¥1/week, tendered some naphtha and furnace oil as well. Until now, Reliance Petroleum was the only refiner in India boosted its prices by up to ¥2.5 last week. (NW/Oct 4) that had the opportunity to export products. (NW/Oct 18) South Korea will purchase crude to expand its Hindustan Petroleum Corp. Ltd. (HPCL) strategic reserve. receives approval for a refinery project. The country said it will raise its oil reserves to 90 days of consumption by purchasing 57mm bbl of crude for The Bhatinda Refinery project in the state of Punjab will storage next year. The nation is totally reliant on crude proceed now that the Indian government has given its imports and its import bill doubled to $15.8bn for the seal of approval. HPCL will seek a j.v. partner for the 9 first 8 months of this year, as consumption hovers around mil. mt/y project while beginning construction. (NW/Oct 19) 2mm b/d. The IEA recommends that all countries hold 90 days worth of reserves. (NW/Oct 18) Indian oil companies may back out of a domestic pipeline project. South Korea investigates refiners for collusion. Bharat Petroleum Corp. Ltd. (BPCL) and Essar Oil The country’s Fair Trade Commission conducted a may opt out of the Central India pipeline being executed 3-month investigation into five major oil companies for by Petronet CI and Reliance Petroleum (RPL). Both evidence of price-fixing at the retail level. Last month, BPCL and Essar were to hold 11%, with IOC, RPL, and Hyundai Oil Refinery, Inchon Oil Refinery, LG Petronet holding 26%. However, BPCL and Essar said Caltex, S-Oil, and SK Corp. were fined $170mm they will drop out if IOC-RPL is awarded the EPC

November 2000 16 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINING & MARKETING NEWS contract, as they feel the user should not be the contractor Malaysia and Indonesia agree to cooperate for of the project. IOC-RPL have implied they will not gas and oil processing. participate in the project unless awarded the EPC. (NW/Oct 2) Petronas (Malaysia) has agreed to process 20K b/d of sour crude (for six months) for Pertamina (Indonesia) into Widespread protests in India follow price increases. gasoline, kerosene, diesel, and fuel oils. In a separate deal, Petronas will purchase up to 1.5 trillion scf of natural gas The government raised the price of fuel and petroleum from Pertamina’s West Natuna Sea region in a 20-year products and spurred action by the Traders’ union to deal, which involves linking gas-prolific areas of both boycott the lifting of diesel and petrol from oil countries. Officials feel these recent arrangements will companies. (NW/Oct 5) open further cooperation between the countries. (NW/Oct 5)

Indian oil firms are ordered to sell on credit. New Indonesian refineries are in the works. After fertilizer and chemical producers faced liquidity PT Kilang Minyak Intan Nusantara (KMIN) plans to troubles due to the cessation of credit sales by Indian Oil build two 300K b/d refineries—one on Rempang Island Corp., Bharat Petroleum Corp. Ltd. and others, the (Batam of Riau) and one in Bacukiki (Pare-Pare of South government is forcing the companies to return to the Sulawesi). The company has invested $6bn in the project, practice. Southern Petrochemical Industries Corp. was which is expected to produce fuel oil, kerosene, LPG, one of the companies facing hardship since it needed to naphtha, and sulfur. Alfax International Fund (U.S.) raise 2.5bn rupees in added working capital if it was to will finance the construction. China National Electrical buy naphtha from IOC. The oil companies had wanted to Equipment Corp. (40%) Saudi Arabia’s Al-Banader decrease the number of payment defaults. (ACN/Oct 23/p 7) International Group (40%) and Indonesia’s PT Intan Jaya Agro Megah Abadi (20%) are j.v. partners in Pakistan revisits a domestic refinery project. KMIN. Negotiations have resumed for the Iran-Pakistan Oil Meanwhile, BA Asia (the Hong Kong unit of Bank of Refinery at Khalifa Point in Pakistan after 9 years. America) will conduct a feasibility study for j.v. partners Delegates from both countries will also discuss the Hitech International Group (Saudi Arabia) and PT export of high-speed diesel to Pakistan as part of the Minyak Pola Permai. While the 9-month study will not deal. (NW/Oct 11) involve Pertamina, the state company would participate in operating the potential $3bn, 300K-b/d refinery which Pertamina creates extra processing work for Shell. would be located on Tanjung Sauh Island. Facing refinery difficulties at its two plants (Balikpapan (NW/Oct 23 & OD/Oct 24/p 8) and Bolongan), the Indonesian state-owned company has contracted Shell International Eastern Trading Co. Philippine refiner Caltex defends price increases. (SIETCO) to process 50K b/d of Arabian Light Crude in CEO Jock McKenzie announced that the latest product 4Q. Thanks to this contract, Shell’s Singapore refinery on price increases have finally put the company into a the island of Pulau Bukom will boost its throughput by profitable range. However, he emphasized that it is not 18% to 292K b/d (or 40K mt/d) in Oct., its third increase enough to offset earlier losses incurred. Refiners in the in 3 months from 28K mt/d in July. Philippines raised prices nine times so far this year. The Since Pertamina’s remaining 5 refineries can only fulfill government pleaded with oil companies to temper price 80% of the nation’s requirement, the company has been hikes for the benefit of consumers rocked by economic outsourcing its refining work. Malaysia’s Petronas has hardships and a weakening currency. (NW/Oct 9) been awarded a 15K b/d processing contract starting in Nov. ExxonMobil’s Singapore refinery is reportedly in VietRoss delays the Dung Quat refinery by one year. talks with Pertamina for a possible 35K b/d processing The PetroVietnam-Zarubezhneft j.v. will begin deal. Singapore Refining has been negotiating to handle accepting EPC bids in 2001 and expects to select a another 50K b/d while it tries to maintain its operating contractor by the end of the year so that the 130K-b/d capacity at 220-230K b/d in October in spite of healthy refinery will be completed by 2004 instead of 2003. margins. An explosion at Kuwait’s 443K b/d Mina Al- Front-end engineering is already complete. VietRoss is Ahmadi refinery in June has disrupted product supplies also planning for a PP facility downstream of the planned in Southeast Asia. (NW/Oct 2) refinery. The 110K mt/y project is also expected to start up in the same year, with a feasibility study expected to be done during 1Q next year. (ACN/Oct 16/p 29)

November 2000 17 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINERY-PETROCHEMICAL BUSINESS BRIEFS

U.S.-AMERICAS EUROPE/MIDDLE EAST/AFRICA

Styrene turnarounds push down benzene prices Sadaf schedules outage on benzene unit. in the U.S. The unit, located in Ibn Rushd, Yanbu (Saudi Arabia), Oct. contracts for benzene have settled at around has been running at only 60%. It will be closed for 6 $1.40/gal, falling 10¢ from Sept. Outages at Lyondell weeks of maintenance beginning in March 2001. Chemical’s plant at Channelview, TX and Shell Throughput has been low largely because the product Chemical’s styrene facility in Scotford, AB (Canada) could not be used at Sadaf/Petrokemya’s 500K mt/y, Al have put a damper on demand the past few weeks. Jubail styrene unit. The new unit is ultra-sensitive to (CW/Oct 11/p 13) benzene quality and, although the Yanbu unit’s benzene was not off-spec, the unit will be adjusted during the Aromatics margins hit a five-year high. shut-down so that the product can be used for the styrene Benzene generated the most profit (largely due to strong unit. U.S. consumption) according to Chem System’s In the meantime, Sadaf will need to import around 10K Quarterly Business Analysis. Higher benzene prices mt/month. The company has already arranged for Korea encouraged production from domestic hydrodealkylation to provide 12K mt and Petronas of Malaysia to provide of toluene and increased imports from Europe and Asia. 15K mt. Saudi Arabia was not expected to require U.S. benzene consumption grew by 13% for H1 of this benzene imports, since it has a capacity greater than 1.1 year. mil. mt. If all units are operational, a surplus is expected Toluene spot prices fell back slightly after reaching highs for next year. (ECN/Oct 23-29/p 10) of $1.20/gal in Jul. and Aug. Chem Systems projects that more HDA units will operate due to a benzene-to-toluene ASIA-PACIFIC price differential of around 40¢/gal during 3Q. Domestic consumption of mixed xylenes is up, although Benzene prices remain high. PX margins have been squeezed by tight supplies. TDP Producers in South Korea were dealing benzene at (toluene disproportionation) units produce mixed xylenes $450/mt in spite of declining crude prices. A strong with benzene as a co-product, but a slowdown of the PET demand for derivatives is keeping supplies tight in Asia, resin bottle season will ease prices. Analysts predict along with the announced postponement of Formosa some TDP units will maximize benzene production while Chemicals & Fibre Corp.’s aromatics facility to Dec. 1. others may cut back rates to reduce xylenes production in Rumors are that the start-up of a 900K mt/y cracker at the near future. (CMR/Oct 2/p 24) Formosa Petrochemical has also been delayed until the end of Nov. Traders anticipate benzene prices will Freedonia expects U.S. additives demand to fall. remain high for the short-term, although some Asian With CA’s MTBE ban, the overall additives market will producers fear that falling U.S. prices will have an impact fall through 2004 (reaching 35bn lb), but specialty in their region as well. Oct. contract prices for benzene in additives are expected to see demand growth. Freedonia the U.S. settled at $1.40/gal, a fall of 10¢/gal since Sept. predicts that the amine market will exceed 2bn lb by Quite the opposite is true for propylene, though. 2004 with specialty amines (for plastics and gas Increased availability is leading to an oversupply processing) seeing exceptional growth of 7.3%/y in 2004 situation, with prices in Korea falling to $430/mt. South from their 4.8%/y in 1999. The following table lists out Korean producers had been rebuilding inventories for a Freedonia’s forecast for demand change and market surge in demand that never happened, so they appear to value in 2004. be willing to settle for lower prices. An outage at SABIC’s Ibn Rushd aromatics facility has forced Demand change Forecast market value purchases from South Korea. Naphtha prices also slipped Fuel and gasoline additives 2.8% decline $6bn to $315/mt cfr Asia. Ethanol 10%/y growth $2.4bn Prices for mixed xylenes in Asia have jumped by 10¢/gal Specialty fuel additives 6.6%/y growth $1.5bn to $110/gal f.o.b., leading producers to believe that 4Q Amines 4-6% growth $1.8bn contract averages will increase. (ACN/Oct 2/p 36, 9/p 36 & CW/Oct 4/p 31) (PTQ/Autumn/p 14)

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Indian benzene prices are up by about 30-40%. April saw quotes of 19 rupees/l and on Oct. 5, there were benzene quotes of 27 rupees/l. In early-to-mid-Oct., domestic benzene liters were selling in the range of 25-27 rupees while imported liters took 28-29 rupees. Rising demand and the government’s upcoming petroleum price increase may push benzene prices up by another 10-15%. (NW/Oct 10)

Petronas and Indian Oil Corp. plan for more partnering. IOC is planning to purchase a 10% share of the Kerteh (Malaysia) aromatics complex as soon as a price is negotiated. Discussions are also underway for Petronas to buy a 26% share of the Panipat (India) aromatics complex. The two companies belong to a consortium which will install an Indian LNG import terminal in Kakinada, Andhra Pradesh; Petronas will send product to the terminal. Also, they are 50:50 j.v. partners in the founding of another Indian terminal; this one, for importing LPG, is located in Haldia, W. Bengal. Furthermore, they established Indian Oil Petronas nearly 2 years ago in order to market LPG as a decontrolled petroleum product under India’s parallel marketing scheme. (ACN/Oct 23/p 6)

Chinese Petroleum Corp. (CPC) backs out of a Philippine PC venture. The Taiwanese company will be replaced by Philippine National Oil Co. with a 40% share in the project. Other shareholders include Petron, BP, JG Summit Petrochemical, and Petrochemical Corp. of Asia. (CW/Oct 18/p 27)

November 2000 19 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected MERGERS, JOINT VENTURES, ACQUISITIONS & DIVESTITURES

U.S.-AMERICAS Sargeant and AIPC will work together. American International Petroleum Corp. (AIPC) and Giant will purchase two U.S. refineries. Sargeant Group (SG) subsidiaries have signed new processing and marketing agreements. The following Giant Industries has signed a letter of intent to purchase table illustrates the agreements effective after minor Chevron’s 90K b/d El Paso, TX plant and El Paso capital enhancements (financed by Sargeant Refining’s 55K b/d facility near the same location. Giant Bulktainers) and a preliminary, 40-60K bbl condensate will increase its total refining capacity to 189K b/d with run has been completed. the purchases. The company owns and operates a 260- mile crude gathering pipeline system that services its AIPC SG location terms refineries and several product terminals in New Mexico subsidiary subsidiary and Arizona. Giant also is the parent of Phoenix Fuel, • AIRI will refine SB’s the largest independent distributor in AZ. (TR/Sept/p 4) American Sargeant AIRI’s International Bulktainers Lake crude, producing asphalt, diesel oil, Inland Resources cancels the purchase of the Refinery, (SB) Charles Inc. (AIRI) refinery kerosene, naphtha, Flying J refinery and related assets. and vacuum gas oil • SB will provide Inland announced that it has discontinued purchase financing for a capacity negotiations involving the North Salt refinery, 9 gasoline expansion and other stations, and the Uintah Basin oil and gas assets because improvements to the it was unable to resolve certain issues with Flying J. The refinery companies had signed a letter of intent to purchase in Gulf Coast Sargeant U.S. • GCPT will purchase May of 1999. No further details were released. (NW/Oct 11) Petroleum Bulktainers and market the Trading, Inc. products from SB Phillips Petroleum dumps its coal businesses. (GCPT) The company reportedly sold its 50% interest in Walnut Creek Mining Co., its 50% stake in Dry Fork coal, and Based on current and expected market conditions and a other coal assets for a total of $191mm in cash. Phillips crude volume of 10-18K b/d, these agreements with an plans to focus on E&P businesses in the near future. earlier j.v. between the companies are expected to give (NW/Oct 12) AIRI some $150mm or more in revenues. The j.v. involves SB providing financing and supplying asphalt Motiva and Equilon will shed 5% of their and other raw materials to AIRI. The companies are also retail businesses. planning to distribute asphalt again from AIRI’s St. Marks refinery in FL. AIRI believes that these contracts In an effort to restructure and improve their financial will improve the company’s portfolio to greatly improve returns, the downstream companies will sell negotiations with various entities in Kazakhstan. approximately 1,150 of their retail assets over the next (NW/Oct 29) five years. New management has been brought in to help turn around the poor performance of each venture. ENAP and Petrobras plan to cooperate. (Please see related article on p. 30 of July Digest.) A The two companies signed a 120-day MOU related to spokesperson said that overlapping Shell and Texaco work on various E&P, RMT, lubes, asphalt, and PC retail outlets would be targeted for sale. (OD/Oct 13/p 3) ventures. The companies will examine projects such as 1) a coker at Chilé’s Concon refinery so that RPC can Ultramar Diamond Shamrock expands its process Brazilian heavy oil and 2) lubes production at retail presence in Texas. Petrox’s Talcahuano refinery (Chilé). In the past, The company announced it has purchased 23 outlets and ENAP’s subsidiary, Sipetrol, has bid on licensing rounds the wholesale business of Valley Shamrock. All of the for E&P projects in Brazil. (OD/Oct 28/p 2) businesses are located in the Texas Rio Grande Valley, considered to be one of the fastest growing regions of the Texaco sells a Trinidad oil investment. country. (NW/Oct 4) The oil major announced that it sold its one-third share of Trinmar to state oil company Petrotrin for $115mm, because it was not profitable. It marks the end of a 15- year relationship for Texaco and Trinidad. The company

November 2000 20 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected MERGERS, JOINT VENTURES, ACQUISITIONS & DIVESTITURES

will continue to pump from offshore fields and market the state liable for any losses incurred by the refining fuel and lubes in the country. Petrotrin is looking to company, which amounted to $350mm last year. increase crude production from 35K b/d to 50K b/d. (OD/Oct 19/p 7, 24/p 6) (NW/Oct 3) Russia may buy a damaged Serbian refinery. EUROPE/MIDDLE EAST/AFRICA LUKoil, the largest Russian oil company, has expressed some interest in acquiring the 60K b/d Novi Sad facility The OMV-Veba merger still questionable. in Serbia. Officials from both companies recently met in Belgrade following the end of an oil embargo against Although talks between the companies have been Yugoslavia. The refinery is operational but output is ongoing, it was reported in Germany that Veba Oel’s minimal due to low crude imports. LUKoil wishes to parent company, E.ON, might be planning not to swap increase its presence in the Yugoslav market. (OD/Oct 18/p 8) the gasoline station network for shares of OMV and its NG unit. In response to the reports, OMV stock fell by 1.57 euros (around 2%) to a 79.01-euro low. (Please see Unipetrol will be privatized. related article on p. 16 of Oct. Digest.) The government of the Czech Republic wishes to sell Meanwhile, OMV plans to increase its presence in 52% of its 63% holding in the oil/PC company as part of Eastern Europe by purchasing a 5% stake in Hungarian a planned privatization. The state commented that oil company MOL for an undisclosed amount. MOL chemical company Spolana and the Paramo refinery recently denied that talks were in progress for a strategic would be incorporated into Unipetrol before the sale. No alliance with OMV. Many believe that MOL became date was given for the sale. (OD/Oct 6/p 7) attractive to OMV now that it is purchasing a majority stake in Slovak refiner Slovnaft. OMV unsuccessfully Rompetrol Group (Netherlands) may purchase bid for a stake in Slovnaft earlier this year. (NW/Oct 11, 24) a stake in Petromidia (Romania). Rumors are that the Dutch oil firm may acquire a 70% RWE-DEA will not split. stake in Romania’s largest oil refinery which has a After rumors that BP was going to purchase DEA, the capacity of 100K b/d. Petromidia negotiated a sale with refining and PC unit, RWE announced that its Turkish company Akmaya last year for $720mm plus a restructuring plans do not include the sale or spin-off of $220mm investment guarantee, but the deal fell through. the unit. The company does still plan to sell Condea, the The price of this latest deal was not disclosed. (NW/Oct 18) chemicals business. (Please see related article on p. 16 of Oct. Digest.) (CW/Oct 25/p 8) Chevron and Sasol form Sasol Chevron Holdings for GTL development. Repsol YPF sells its U.K. business to cut debt. The new company plans to invest $5bn over the next Petrochem UK, an oxygenated solvent distributor, will 5-10 years for commercialization of GTL plants acquire the company’s Carless Refining & Marketing. worldwide. Proprietary technologies of both companies The sale is part of Repsol YPF’s strategy to exit non-core will be used—Chevron’s ISOCRACKING™ and Sasol’s markets in NW Europe and focus on South America, Slurry Phase Distillate Process. The first project will be a Southern Europe, and North Africa. Carless’s assets are 33K b/d plant in Nigeria using the Sasol Fischer-Tropsch valued at 75mm euros, but no purchase price was process, in conjunction with Nigerian National disclosed. It will be renamed Petrochem Carless. Petroleum Corp. Scheduled for operation in 2005, it is (CW/Oct 18/p 21) to be constructed alongside the current Escravos Gas Project as it undergoes a major expansion. Escravos A Lithuanian court says faulty legislation presently recovers 150mm cf/d of flared gas (previously permitted the Williams purchase. just waste) from Chevron’s southern offshore fields. Last year Williams International was allowed to gain a (OD/Oct 17/p 5 & NW/Oct 17) 33% stake and operating control of Mazeikiu Nafta for $150mm. The government has, however, stated that the Nigeria furthers privatization. new ruling will not affect the deal. The court said it was An 80% stake in products marketer National Oil and unconstitutional to strip Mazeikiu minority shareholders Chemicals Marketing Co. (owned by the government of their right to sell to whom they wanted and to offer tax and Royal Dutch/Shell) has been sold to local company incentives to the U.S. company. Also, the contract makes Conpetrol for $72mm. (Petroleum India International

November 2000 21 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected MERGERS, JOINT VENTURES, ACQUISITIONS & DIVESTITURES is a 30%-owner of Conpetrol.) Financial offers were not Shell is looking to increase its 34.27% stake in the only consideration as Solgas Petroleum offered 36.5 Woodside Petroleum, Australia’s largest producer of oil naira/share while Conpetrol only bid 36.02 naira/sh. A and gas, but a recent offer was rejected by the company’s privatization official said that financial and managerial board as too low. There was concern over the idea of competence plus technical skills were important factors. foreign interests controlling the major upstream Petrochem (a domestic oil company) and Engen of producer. The bids for Fletcher and Woodside are part of South Africa (Malaysia’s Petronas has an 80% share and Shell’s strategy to expand into Asia’s LNG and oil and Worldwide Africa has 20%) also bid for the stake. The gas market. government sold its 30% share in African Petroleum U.S. company Apache hopes to purchase the Canadian (also a products marketer) for $22.4mm to another local upstream assets of Fletcher, which include reserves close company, Sadiq Petroleum. Next year, the government to 141mm boe. The company is also planning on a plans to sell 4 refineries as well as the national $600mm purchase of Argentinean upstream assets from telecommunications and electricity companies.(NW/Oct 24, 25 & OD/Oct 25/p 8) Shell. It is unclear what the rejection of Shell’s bid will mean for Apache’s plans. Nigeria and Venezuela discuss cooperation. Meanwhile, FCE has also sold its stake in New Zealand PDVSA has agreed with Nigerian National Petroleum Refining. The 14.3% holding went to Emerald Capital Corp. to investigate energy business opportunities Ltd. for $13.4mm. New Zealand Refining jointly owns including refining, supplying, and marketing. Nigeria is and operates the Marsden Point refinery with BP, Mobil, looking to place its crudes in Venezuela’s refineries for and Shell. (NW, OD & Bloomberg News Release) refining, in exchange for certain marketing rights in Nigeria. The two are also discussing a bitumen development project in Nigeria with the possibility of supplying West African markets. (OD/Oct 6/p 7)

ASIA-PACIFIC

China Resources Enterprise makes a purchase. The company will pay HK$2.65bn ($301mm) for the oil distribution business of parent company China Resources Holdings to increase earnings and cash flow. It distributes chemicals and LPG in Hong Kong and China. (NW/Oct 17)

Shell bids again for Fletcher. After the government rejected its previous offer of $1.6bn, Royal Dutch/Shell has submitted a new application to the Commerce Commission of New Zealand. Fletcher Challenge Energy (FCE) is the No. 1 oil and gas producer in the nation and regulators were concerned that Shell would monopolize the domestic NG industry. The Commission has 10 days to respond to the new offer, but can extend that period if desired. Shell hopes that its revised plans to sell more of Fletcher’s upstream assets will win approval. The company has offered to sell 10% of its holdings in the giant Maui field, divest some interests in the smaller Tariki, Ahuroa, Waihapa, and Ngaere fields, and lower its holding in the Pohokura oil and gas fields. An analyst from John S. Herold commented that the bid will be a lengthy process for Shell, and may require more concessions.

November 2000 22 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected TECHNOLOGICAL DEVELOPMENTS

U.S.-AMERICAS Texaco forms an alliance with UniPure for heavy oil desulfurization and upgrading. Catalyst suppliers continue to innovate in Officials from Texaco announced that it will purchase a serving refiners’ needs. 20% equity stake in the process technology company. Engelhard has developed the NaphthaMax catalyst for UniPure markets its PureEnergy™ process which focuses FCC short contact time (SCT) applications. The catalyst on upgrading and desulfurization of heavy and extra- increases conversion, yields a high liquid volume, and heavy crudes. (NW/Oct 19) raises LPG olefinicity at the expense of bottoms and coke production. It is based on a unique distributed matrix Praxair leads a research team. structure (DMS). These structures, combined with its The consortium will study oxygen transport membrane existing Pyrochem-Plus zeolite, are said to enhance the (OTM) technology to develop new ultra-clean diffusion of feed molecules and promote selective transportation fuels and emission controls. The U.S. precracking. The catalyst has been used in a refinery and Department of Energy has awarded $15mm to a Praxair- delivered more than $10K/d in extra yields. led group (other partners include BP plc, Sasol Haldor Topsøe recognizes the importance of removing Technology (South Africa), Statoil (Norway), less reactive or more refractive dibenzothiophenes with International Truck and Engine, and Nuvera Fuel side chains (e.g. 4-methyl dibenzothiophene and 4,6- Cells) to explore the technology in a 3-year program. BP, dimethyl dibenzothiophene) in hydrotreating the Praxair, and Sasol formed an OTM alliance in 1997 to feedstock to meet the new gasoline sulfur specification pursue the use of ceramic membrane in synthesis gas (<30 ppmw). These sterically-hindered sulfur compounds production. Syngas is then converted into clean gasoline could be handled by two reaction paths: direct extraction and diesel. The total cost of the program is $37mm of of the sulfur atom (using a CoMo catalyst) or an indirect which the partners will contribute $22mm. (NW/Oct 4) route involving hydrogenation of the aromatic ring followed by subsequent sulfur extraction (using a NiMo BP will shell out $20mm to develop methane catalyst). H2S and nitrogen compounds are known to conversion technology. inhibit the direct reaction. The indirect reaction is The company will jointly fund the California Institute of intrinsically faster even though its rate would be slowed Technology (Caltech) and the University of California at down by the nitrogen compounds. Berkeley to study catalytic conversion of methane to Criterion Catalyst/CRI claims its Centinel preparation liquid fuels/chemicals. Both homogeneous and technology greatly improves catalyst active-component heterogeneous catalytic processes will be explored. The utilization. The primary features are 1) high dispersions schools will work closely with BP to develop the of the single-layer microstructures of MoS2 and 2) fully technology for commercialization. sulfided metal components in the final active form. The (C&EN/Oct 2/p 17, CW/Oct 4/p 36 & ECN/Oct 2-8/p 39) catalysts are said to be highly active and stable for HDS, HDN, and HDA applications. (TR/Oct/p 18) ExxonMobil licenses its toluene disproportionization technology. Phillips Petroleum’s S Zorb SRT (sulfur Known as PxMAX, the selective process uses a zeolite removal technology) proves good for diesel. catalyst to produce para-xylene with a higher purity than other processes. ExxonMobil claims it reduces the cost of Laboratory data indicated its gasoline desulfurization PX production by 15-20%. The technology is an technology based on regenerable adsorbents could be improvement of Mobil’s MTPX process that was extended to diesel applications. The process, which is commercialized in 1996. (CW/Oct 4/p 36 & ECN/Oct 2-8/p 36) expected to produce ultra-low sulfur products, would be cheaper (in both capital and operating costs) and consume much less hydrogen than conventional UOP’s MaxEne™ process is available for hydrotreating technology. Testing in a pilot plant is license. underway. (NW/Oct 3) The adsorptive separation technology allows producers to increase ethylene yields from naphtha crackers by 30% while maintaining a constant propylene yield. The process also removes C5-C11 n-paraffins from the feed to the catalytic reformer thereby boosting octane-barrel production by 5%. UOP says it is the newest application

November 2000 23 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected TECHNOLOGICAL DEVELOPMENTS of its popular Sorbex™ technology. Feedstocks consist of ammonia and refinery sour gas, (CMR/Oct 2/p 3 & UOP News Release/Sept 27) both refinery byproducts. Kalundborg had been selling some 4K mt/y of sulfur to chemical companies, leaving Pig fat is a suitable replacement for No. 6 fuel around 275 mt/y of left-over S byproduct which resulted oil. in SO2 emissions of around 550 mt/y. Haldor’s process Penn State researchers have discovered that, although produces more steam and uses less electricity than the slightly less energy-efficient, choice white grease and processes used to convert H2S and ammonia into H2SO4 lard burned in process boilers produces nearly two-thirds (for sale) and NOX and SO2 (for emission). (OGJ/Oct 9p 57) less NOX and zero SO2. Little retrofitting is needed to burn the pork byproduct in process boilers and, although Delphi and PSA/Peugeot partner for they are not liquid at room temperature, they only need to plasma/catalyst system for diesel applications. be heated to about 120°F (No. 6 is typically heated The group will produce a diesel car NTP-catalyst system before use anyway). It is not likely that pig fat will be for Euro4 cars in 2005 that is more sulfur-tolerant. A widely used as a replacement any time soon as it is more prototype has achieved 65% reduction in NOX without expensive than fuel oil. (CEP/Oct/p 18) hydrocarbon injection, and the designers feel that, when combined with a PM trap, it could cut PM emissions by Cummins is developing an NOX adsorber and over 90%. The NTP-cat system can use base metal PM trap for diesel engines. catalysts in place of precious metal catalysts reducing the The company is working on a twin-path system where costs substantially. Delphi and PSA/Peugeot feel that the one PM trap can be regenerating while the other is process can eventually be combined with an NOX removing particulates from diesel exhaust. However, conversion catalyst for practical diesel engine even if the EPA requires a 15 ppmw cap of ultra-low- applications. (DFN/Oct 9/p 9) sulfur diesel, Cummins worries that meeting the combined strict sulfur and NOX emissions requirements ASIA-PACIFIC with just one process system will be a challenge. The firm’s engineers say that NOX and SOX adsorber China will implement a coal liquefaction regeneration requires low oxygen partial pressures, a program. supplement of reductant, low space velocities, and moderated temperatures. PM regeneration, on the other The State Development Planning Commission is pushing hand, requires high temperatures, high oxygen partial for coal liquefaction during the next 5 years to ease fuel shortages. China has extensive coal reserves and adding pressures, high NO2 concentrations, and moderate space velocities. So far, it is not practical to combine these hydrogen under high temperature and pressure can form systems, and the fuel cost penalty could be much higher crude oil. With current technologies, coal liquefaction than the 2% the EPA originally predicted. Cummins said can process 2 tons of coal into one ton of oil at a fraction increases of 6-8% of operating costs is more likely and of the cost of conventional oil production. (NW/Oct 4) fuel with a 5 ppmw sulfur level may be a necessity. (DFN/Oct 9/p 6)

EUROPE/MIDDLE EAST/AFRICA

Statoil has started up its new fertilizer plant. Haldor Topsøe was contracted to provide the $8.3mm unit to the Kalundborg, Denmark refinery. This premier plant will reduce refinery NOX emissions by 30% and SO2 by 60% by using nearly 100% of the refinery’s ammonia and 99.95% of its H2S to produce ammonium thiosulfate (ATS) in a 60% aqueous solution. The product will be sold as a fertilizer to the northern European agricultural industry by The Dan Gødning Co. Statoil expects to see a 15-27K mt/y output from the plant.

November 2000 24 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

U.S. Refined Products Demand 9 8 M i 7 l l 6 i 5 o n 4 3 b / 2 d 1 0 5/00 6/00 7/00 8/00 9/00 10/00 Month Motor Gasoline Distillate Jet Fuel Residual Fuel Oil

U.S. Refinery Output & Operating Rate 9 99 8 O u 97 O 7 t p p e u 6 95 r t . , 5 93 R a M 4 t M 91 e 3 b , / 89 d 2 %

87 1

0 85 5/00 6/00 7/00 8/00 9/00 10/00 Month Motor Gasoline Distillate Jet Fuel Residual Fuel Oil % Utilization

Source: OGJ and OD

November 2000 25 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

OGJ Crack Spread Prod. Value minus Brent/Lt. Swt. Crude 15

14 S p 13 r 12 e a 11 d 10 , 9 U 8 S $ 7 / 6 b 5 b l 4

3

2 6/2/00 6/16/00 6/23/00 7/7/00 7/21/00 8/4/00 8/18/00 9/8/00 9/15/00 9/29/00 10/13/00 Avg. for Week Ending Spot Prices-Brent 1 Mo. Futures-LSC 6 Mo. Futures-LSC

E. & Y. Wright Killen Refinery Margins US Gulf Coast 3

M a 2 r g i 1 n s , 0 $ / b -1 b l

-2 07/99 08/99 09/99 10/99 11/99 12/99 01/00 Month

High Conversion Medium Conversion Regional Average

Note: The refining margins do not include income taxes, depreciation, and financial charges. Source: OGJ

November 2000 26 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

Pace Refining Margins US$/bbl 16

M 14 a r 12 g i 10 n 8

$ 6 / b 4 b l 2 0 4/00 5/00 6/00 7/00 8/00 9/00 Month US Gulf Coast NY Harbor Los Angeles Rotterdam Singapore Mediterranean

Note: US Gulf Coast (West Texas Sour); US East Coast, NY Harbor (Arab Med); US West Coast (ANS); NW Europe, Rotterdam (Brent); Mediterranean, Italy (Urals); Far East, Singapore (Dubai).

Refinery Utilization in Canada, Europe & Asia-Pacific

110

100

90

80 Utilization rate % 70

60 03/00 04/00 05/00 06/00 07/00 08/00 Date OECD Euope Canada Japan Australasia

Source: OGJ and IEA

November 2000 27 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

GLOBAL PRODUCTS STOCK CHANGE

North America 0.3

0.2

0.1

0.0

Million b/d 03/00 04/00 05/00 06/00 07/00 08/00 -0.1

-0.2

-0.3

Gasoline Distillates Fuel Oil

Europe 0.5 0.4 0.3 0.2 0.1 0.0 Million b/d -0.103/00 04/00 05/00 06/00 07/00 08/00 -0.2 -0.3 -0.4

Gasoline Distillates Fuel Oil

Pacific 0.30 0.25 0.20 0.15 0.10 0.05 Million b/d 0.00 -0.0503/00 04/00 05/00 06/00 07/00 08/00 -0.10 -0.15

Gasoline Distillates Fuel Oil

November 2000 28 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

U.S.-AMERICAS Mexico was third for U.S. imports, at 1.36mm b/d, followed by Canada at 1.29mm b/d and then Nigeria which exported 1.108mm b/d to the U.S. (OD/Oct 20/p 6) The oil market is called “nervous” and “fragile.” The IEA said that the global oil market remains Has heating oil demand peaked? vulnerable to unexpected disruptions, despite some According to Oil Market Intelligence, “panic buying” recent positive developments. The market will probably may have caused the first peak of the heating oil season, not fully absorb additional OPEC output and the SPR prior to the start of Winter. In the U.S., demand normally release until next year. Crude prices have fallen from a reaches its first peak in Oct., but a buying spree of 300K high of nearly $38/bbl in early Sept. to around $30/bbl in b/d more than usual was evident during Sept. Heavy recent weeks, but renewed tensions in the Middle East purchases now mean that refiners will have time to catch have created volatility. The IEA projects global demand up after maintenance turnarounds this month. Much of will increase by 3mm b/d in 4Q to 78.4mm b/d (with Europe has experienced the same and Japan has offered supplies running tight and many refiners running at to “turn on” its idled production to produce more heating capacity) especially if the weather turns cold for a oil for global inventories. prolonged period. World production in Sept. averaged 77.4mm b/d, but inventories of OECD countries fell by Heating oil can have different meanings from country to 14mm bbls during the month of Aug. alone. The IEA country. In Asia, heating oil refers to kerosene; in Europe reiterated that low crude and product inventories result in and the U.S. it also means gasoil. Jet fuel is blended into unstable market fundamentals. heating oil to increase flow properties. Heating oil generally has a higher sulfur content than is allowed for Meanwhile, EIG reported that global oil supply rose use in diesel vehicles. For refiners, heating oil is “middle during the month by 500K b/d to 77.3mm b/d, while distillates” which includes kerosene, diesel, jet fuel, and demand was 77mm b/d. The implied build in stocks, naphtha. For every five barrels of oil produced in the meaning the difference between supply and demand is world, two are middle distillates. Heating oil use is very 300K+ b/d, which is normal for this time of year. concentrated so product trade is high. It is very However, total inventories in key regions of the U.S., dependent on weather patterns and a few degrees plus or Europe, and Japan fell by 10mm bbl from Aug. A minus can make a huge difference in supply and price. difference in observed supply and demand for Sept. may This Winter, the market will be under additional pressure actually prove that total commercial inventories fell, but because of high natural gas prices as well. where are the barrels? Analysts suggest that distillate (OD/Oct 6/p 2 & IEA/Oct 10/p 7-8) products have been channeled into secondary and tertiary storage to prepare for the coming Winter. It also means Diesel/gasoline trading patterns emerge. that abnormally mild Winter weather could weaken In 2Q 2000, the U.S. imported a net 32K b/d, with 50% prices by a large amount. coming from Canada, 25% from Venezuela, and 10% Global Oil Picture, mm b/d from the FSU. The U.S. had not imported from the FSU at all last Winter. Sept. 2000 Change from Change from Aug. 2000 Sept. 1999 European net imports averaged 241K b/d in 2Q, mainly Supply 77.3 0.49 3.95 from the FSU. Imports will move among regions if there is a sufficient differential in product prices to offset the Demand 77.0 0.69 1.47 cost of transportation. With low heating oil stocks Inventories 4,491 9.0 -123 globally, it remains to be seen if differentials will support

(NW/Oct 10 & OD/Oct 11/p 1, 19/p 1) the transport of product from Asia to rebalance the Atlantic Basin. (IEA/Oct 10/p 23) Crude imports from Venezuela are up 23%. The calcined petroleum coke business faces During Aug., total crude imports into the U.S. increased from 8.68mm b/d to 9.85mm b/d, or 11.3%, according to changes. the EIA. Saudi Arabia was the top importer, with Analysts project that demand for calcined coke, used 1.54mm b/d, followed by Venezuela at 1.50mm b/d. primarily for the manufacture of aluminum, will increase Sources close to Venezuelan subsidiary Citgo said the in the near term, after years of decline. Several new number seemed a bit on the high side and several queries calcined coke projects will be completed in 2001, but the have begun into the reporting of Venezuela’s figures. demand surge will be felt before then. Producers need to

November 2000 29 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

respond to the increase and develop strategies for $1.74/bbl. Mediterranean cracking refineries reaped huge increased production. (NW/Oct 11) gains as the price of Urals crudes fell $2.50/bbl, increasing margins by $3.39/bbl to $8.68/bbl and actually The petroleum wax market tightens. reaching $10/bbl at one point. Singapore margins fell as With feedstock costs rising and demand remaining flat, oversupply and poor demand continue to dominate those domestic wax producers are seeing their margins shrink. markets. The following table illustrates refining margins The 3 primary petroleum waxes—microcrystalline, semi- during Sept. microcrystalline, and paraffin waxes—are byproducts Refining Margins, $/bbl when lube oil is produced with a crude petroleum feed. U.S. Gulf Coast Mediterranean Lube base oil manufacturers continue to reduce Avg. Chg. from Avg. Chg. from production and wax producers are planning to raise Sept. Aug. Sept. Aug. prices in an attempt to recoup production costs. Brent C 1.78 +0.98 Urals H 3.67 +1.61 ExxonMobil is planning to increase petrolatum prices by WTI C 2.86 +0.53 Urals C 5.94 +1.33 1-2¢/lb while Crompton has already upped petrolatum NW Europe Singapore and microcrystalline prices by 2¢. At a time of rising Brent H 1.08 +2.05 Dubai H 1.67 -0.48 crude costs, the base oil market has not been strong enough to keep plants running. Brent C 2.97 +1.74 Dubai C 4.30 -1.59 Cracking (C) or Hydroskimming (H) At the same time, imported candles are taking a greater (OD/Oct 3/p 10 & IEA/Oct 10/p 36) share of the U.S. candle market, which claims about 25% of the overall petroleum wax demand. Furthermore, Mega-mergers pay off. waxed corrugated boxes (about 15-20% of wax demand) are seeing rather slow growth and demand for other The following table illustrates the benefits of waxed packagings is falling. restructuring from the formation of the three giant oil companies over the past two years: BP (plus Amoco, Chevron is planning to abandon the wax business ARCO, and Burmah Castrol), ExxonMobil, and Total altogether when its Richmond (CA) wax plant closes on Fina Elf. Jan. 30 next year. The following table shows some of the current wax production capacities around the country. Creation of Supermajors Company Details Company Refinery Type of wax Capacity ExxonMobil · H1 2000 refining throughput: over 5.5mm b/d Chevron Richmond, CA food-grade, 140mm lb · H1 net income: $8bn (up by $4.6bn) refined · H1 earnings: $7.5bn (up by over $4bn) paraffin · Overseas H1 earnings: $591mm (down $40mm) semi-refined 30mm lb · Downstream earnings: $776mm (up $392mm) paraffin · FTC requirements: sale of its Benicia (CA) unrefined 120mm lb refinery, divestment from its eastern service Calumet Rouseville, PA (recently various, 1K b/d stations network, long-term supply contracts for Lubricants bought from Pennzoil- including 12K b/d base oil from the Gulf Coast region to Quaker State) petrolatum 1-3 customers, the sale of its global jet turbine ExxonMobil Baton Rouge, LA various 700K lb lube oil unit, etc. Baytown, TX various 952K lb · Merger synergies: $4.6bn in the near-term (65% Sunoco Tulsa, OK food-grade 800 b/d higher than initially anticipated) Yabucoa, PR slack 2.2K b/d BP · Refining throughput: over 2.7mm b/d · (CMR/Oct 16/p 10) 2Q pro forma results: $3.61bn (up 164%) · H1 combined cost structure: down by $1bn Refining margins in Sept. give mixed results. · Global refining margins: $3.56/bbl (up 217%) Total Fina · H1 net income: 3.4bn euros (up 165%) In major refining centers, margins gained some ground Elf · Operating income for refining: 1.2bn euros from slight losses in Aug. Brent cracking margins on the (up 136%) U.S. Gulf Coast fell for the first two weeks of the month · H1 revenues: 52.4bn euros (up 62%) due to increasing crude costs, but eventually leveled off · H1 European refining margins: $18.5/t for a gain of 98¢/bbl. Rotterdam margins fluctuated (up 96.8%) wildly from -$2/bbl to +$6/bbl, but ended at a positive (TR/Oct/p 22)

November 2000 30 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected INDUSTRY TRENDS & FORECASTS

Diesel advocates push fuel efficiency. EUROPE/MIDDLE EAST/AFRICA With three diesels among the top five vehicles in their recently published ratings for fuel economy, the EPA and Analysts warn of a price collapse next year. D.O.E. might be more inclined to listen to diesel The Center for Global Energy Studies feels that oil prices advocates. With recent advances in clean diesel will fall to $12/bbl by the end of 2001 unless production technology, the Diesel Technology Forum hopes that the cutbacks are implemented. Their monthly oil report said combination of lower emissions and greater fuel that OPEC will need to act promptly and cut output by efficiency will be the answer to improving SUVs, since 2mm b/d in early 2001, as stocks begin to rise to 88 days their popularity is not significantly waning. (NW/Oct 4) of forward demand by the end of 1Q. Of course, the timing and size of production cutbacks depend on the MTBE is likely to see less use. severity of the approaching Winter throughout the world. CA’s intention to ban the ether by 2002 does not seem to (OD/Oct 18/p 7) have enough opposition to stop it and some other state governments as well as the EPA are looking to phase it Russian exports fall 8.18%. out. Other nations have not seen as much anti-MTBE Petrologistics reported that gas oil exports during Sept. sentiment and some have focused more on preventative decreased from 550K b/d to 505K b/d, while fuel oil measures, such as repairing leaks and more carefully exports increased prior to the implementation of a 10% maintaining storage tanks. However, if the U.S. does limit. The Russian Energy Ministry said that, during Oct., away with its consumption of 300K b/d, the global the limit will be tightened to 5% maximum allowable MTBE market will take a hit and U.S. refiners will need exports since domestic seasonal demand increases need to look for other additives or technologies to preserve to be met. Throughout the year, Russian product exports gasoline quality. (Please see related articles on pp. 15 have been very high, with fuel oil exports up 25% this and 18 of Oct. Digest.) While MTBE content averages Sept. versus last year. At the same time, imports of oil 4% of gasoline across the nation, PADDs I and V and products into Russia have fallen by 57.7% for H1 of average a much higher concentration of 8%. this year. (NW/Sept 28, Oct 12) MTBE and sulfur (which is about to be further restricted) allow for higher octane levels. Combine the added The rising Middle Eastern supply-demand investments in refining operations in light of the new imbalance shifts international patterns. regulations with the currently tight petroleum market and High fuel prices have dampened domestic demand in Iran refiners are looking at some potentially tough times and Saudi Arabia. Rising supply due to refinery ahead. This would also mean that aromatics, butylene, expansions will outstrip consumption of light and middle and propylene prices would be pushed up since their distillates. In the past, products were primarily shipped to value as additives would be enhanced. Isobutylene (a key Asia which has not fully recovered from the economic MTBE-producing component which is derived from crisis several years ago and on-going capacity growth has butadiene-extraction processes and tertiary butyl alcohol deterred imports. Middle Eastern refiners are now production units) will need to find alternative outlets diverting their products to Africa and Latin America. such as conversion to butylene as alkylation feed. (PTQ/Autumn/p 8) (OGJ/Oct 9/p 52) ASIA-PACIFIC Canadian petroleum sales increased in Aug. Sales of refined products increased 2.4% compared to 12 Asia’s appetite for W. African LSC increases. months ago, reaching 8.35 mil. m3, with gasoline sales up 2.3% from the previous year. Total sales of all products Refiners in the Far East and India have been purchasing for the year has increased only 0.8%, with increased more light, sweet crudes (LSC) from Nigeria and its demand for transportation fuels and drilling activity neighbors in spite of 1) the doubling of freight costs since contributing to an 8% jump in diesel sales. Heavy fuel oil early 1999 and 2) the small price advantage of W. sales in Canada fell 11.4% and petrochemical feedstock African crudes over Dubai-related and regional Asian sales were down 6.7% for the year so far. (NW/Oct 3) crudes. Oct. shipments are likely to exceed the Sept. figure of 860K b/d. LSC has become baseload supply to Asian refineries and, therefore, could create instability in the global sour crude market. In comparison, shipments to the Americas and Europe have been steady standing at

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1.33mm and 650K b/d respectively for the month. India expects to surpass its refining target. (OD/Oct 6/p 5) The current five year development plan predicted growth The Asian financial recovery may lead to in certain sectors during the 1997-2002 period, but those figures are now expected to be exceeded. The table excessive oil demand. below lists out the actual figures for the 1997-1998 fiscal The crisis in 1997 resulted in an oil glut which was year as well as the original and amended predictions. instrumental in the price drop on crude. Before 1997, the Overall growth was estimated at 6.8% during the first 3 region’s demand had be growing more quickly than other years of the 5-year period. regions’ and it seems to be making a comeback. Now that economies are recovering, the added consumption of oil 1997- original new 2002 1999- has aided OPEC’s efforts to boost crude prices. Some 1998 2002 forecast 2000 even say that Asian demand growth is the primary reason figure forecast figure for the higher prices. Asian demand has reached 21mm (all figures are given in mm t/y unless otherwise indicated) b/d, which is 27% of the 77mm b/d in global demand and Refining capacity 61.5 113.95 129.04 N.A. is equivalent to U.S. consumption. Per capita consumption is far lower, though. Average annual Crude imports 39.8 90 N.A. 63.94 consumption in Asia is only 2 b/y while, in the U.S., it is Product demand N.A. 104.8 110 N.A. up to 24 b/y. As living standards improve and more Product imports 18.09 N.A. N.A. 10.36 vehicles are on the roads and more appliances are Crude production N.A. N.A. 36.98 N.A. running in homes, Asian oil demand could explode. NG production N.A. N.A. 30.7bn m3 N.A. While much of the world is becoming more energy- efficient as business moves towards information and Petroleum demand, however, has slowed down. Total services and away from more energy-intensive heavy demand for products dropped from 6.5% to 2.5% last manufacturing, much of Asia (excluding Hong Kong and year; as more capacity came onstream, prices shot up and Japan) seems to be using more energy in less efficient local demand waned. As a result, many oil firms have ways as manufacturing is a predominant source of product, especially diesel, to export and some have even revenue. South Korea, for example, draws about a third cut throughput to save money and prevent a market glut. of its economic output from manufacturing, which is a India’s refining margins have fallen by 5-10¢/bbl because higher percentage than before the ‘97 crisis. Seoul has of high crude prices. Crude costs make up 93% of a recently required bathhouses to shut down one day each refinery’s operational costs. week and has begun to restrict neon light use in an effort Meanwhile, for the first time, the Indian government is to conserve energy. It has been said that if oil prices rise trying to counter-balance price hikes by adjusting duties by $10/bbl or more for a sustained period of time, S. and using other instruments to minimize the impact on Korea’s current surplus could fall into a deficit, cutting the public. It is expected that only about 33% of the GDP by 2%. global price increase will be felt by consumers. The China, already the number-three oil consumer, is also government also wants to educate the public about the expected to expand its industrialization. With fledgling need to increase product prices when global crude prices efforts to reduce the use of dirtier coal, which provides are rising since India imports about 70% of its crude oil. 70% of China’s energy, oil demand is bound to increase (NW/Sept 8, Oct 18, 25 ) rapidly. Currently, China imports about a fifth of its consumption, but that is expected to increase to half Thailand feels the pinch of high oil prices. before 2010. Total consumption is now at 4.4mm b/d, but The Commerce Ministry reported that total domestic it has been predicted to increase to 7.2mm b/d by 2010 petrol sales fell by 4.25% so far this year, due to a 40% and 10.7mm b/d by 2020. increase in oil prices. Sales of premium gasoline fell by 23.3%; however, regular grades increased by 39% to However, if more advanced technologies continue to find 2.132bn liters. One explanation is that the National greater reserves and if OPEC increases production as it Energy Policy Office conducted a huge campaign has agreed to, oil prices may see a downward trend. informing motorists that premium gasoline was not While many analysts are tentative about the seemingly necessary for most vehicles, thereby causing them to booming recovery, others have raised their growth switch. (NW/Oct 18) expectations for the region. (NW/Oct 11)

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U.S.-AMERICAS firms on the basis of net cash margins per barrel processed. Paczkowski also said that the largest benefit is that employees can now focus on reliable customer Analysts expect even higher 3Q oil earnings. service. (NW/Oct 3) The sustained high oil prices should have integrated oil companies earning 10-15% over 2Q levels, according to Equilon-Martinez Refining Co. seeks a Lehman Brothers analyst Paul Cheng. He also projects $10mm tax refund. that upstream earnings could jump by 111% from last year’s levels. The dramatic improvement can be The California oil refinery claims the government attributed to higher commodity prices and a lack of overvalued its profits, causing it to pay too much in local production growth for oil and gas. Crude oil production taxes. The refinery was assessed at $1.3bn, while growth for 12 large, integrated firms was only 0.3% for company officials say it is worth $800mm. The H1 of this year. That is because of lower upstream governmental assessors said that improvements to the spending budgets put in place last year when prices were facility have increased its worth. (NW/Oct 14) low. Refining margins are expected to be positive, although somewhat lower than 2Q. (Please see 3Q A U.S. court denies a further appeal of the earnings results on pp. 39-41.) (OD/Oct 10/p 1 & NW/Oct 10) Exxon Valdez verdict. ExxonMobil appealed the $5bn awarded as punitive Stock buyback frenzy projected for the near damages in the 1989 Alaskan oil spill from its tanker in future. the Prince William Sound due to “jury irregularity.” The UBS Warburg concluded that $82.5bn will be spent by company said the court bailiff behaved inappropriately the top 10 integrated oil majors to repurchase stocks and may have influenced the verdict when he jokingly through 2004. Many other consultants concur with the threatened a juror after 32 days in trial. The judge ruled findings, noting that surplus cash will be spent to this that the one dissenting juror—not the same one that was effect. However, Carl H. Pforzheimer & Co. disagrees threatened—had no knowledge of the bailiff’s comments and thinks some companies will increase capital spending during deliberations and, therefore, the incident could not as more emphasis is put on increasing U.S. exploration have influenced the decision. (OD/Oct 3/p 2) and production domestically. (OD/Oct 4/p 6) Texaco establishes a new business unit. The President of Citgo is replaced by a PDVSA Texaco Technology Ventures (TTV) will oversee the board member. 20% share of Energy Conversion Devices (ECD) which was purchased in June for $67.4mm. The relationship David Tippeconnic will step down from his presidential will expand Texaco’s work in H storage, fuel cells, post at Venezuela’s U.S. refining arm, as PDVSA 2 batteries, and photovoltaics. The two companies have consolidates its overseas interests. Brig. Gen. Oswaldo also planned to establish development and commerciali- Contreras Maza will take over as President and indicated zation joint ventures for advanced energy technologies. that personnel changes will be a priority. Analysts noted Frank Ingriselli of Texaco has been appointed as TTV’s that this is another move to centralize power over President. (HA/Sept/p 62) Venezuela’s oil interests and should force Citgo to be more dependent on PDVSA for its crude needs. (OD/Oct 11/p 5) Valero Energy makes management changes. Gene Edwards, VP of supply, marketing, and transpor- Conoco uses benchmarking to develop world- tation will move to VP of planning, business develop- class operations. ment, and risk management. His replacement will be Plant reliability and profitability have significantly Gary Arthur. (OD/Oct 11/p 6) improved with benchmarking metrics to manage changes occurring in the industry today. George W. Paczkowski, Irving Oil’s $1bn “King of Cats” Refinery President of Asia Pacific R&M commented that the Upgrade Project is near completion. company’s crude throughput is up 15% since 1996 with The Canadian refiner is scheduled to pre-commission a little or no capital expenditures. He said, “Conoco’s 70K b/d residue FCCU on Oct. 8. This unit is the largest multi-step approach to benchmarking and our rate of of its kind in North America and will produce low-sulfur change rivals the best in the oil industry.” In 1999, Wood gasoline and diesel. In addition, the 250K b/d plant has MacKenzie consultants ranked Conoco No. 1 among 19 taken on 1) two other process units (a 120K b/d crude

November 2000 33 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINER BUSINESS, STRATEGY & FINANCE distillation unit and an 80K b/d sulfuric acid alkylation after oil spills brought the company much criticism this unit) and 2) five environmental units (sulfuric acid year. (Please see related stories on p. 10 of Mar., p. 9 of regenerator, flue gas scrubber, sulfur plant tail gas unit, Aug., and p 12 of Sept. Digests.) amine sulfur recovery unit, and sour water stripper unit). The company will invest $5.6bn in refinery upgrades. Irving Oil owns 13% of Canada’s refining capacity and Brazil will modernize and reconfigure its ten refineries to exports more than half of the country’s gasoline exports. (NW/Oct 6) produce lighter products for its domestic market. The country currently imports a large amount of lighter oils Shell Canada will resume its bitumen project for blending to enhance product quality. Petrobras plans in Alberta. to increase its overall refining capacity to 1.5mm b/d by 2005. The company will spend $50mm to restart a heavy bitumen project in Peace River using a new technology. The Brazilian oil firm believes these efforts will give the The process is called soak radial recovery where steam is company greater profitability, agility, and accountability. used to soak bitumen and then extract it from oilsands. Company officials expect the plan to be implemented by Shell initially began the project in 1986 but put it on hold May. The company is also looking to extend its when oil prices fell dramatically. The company hopes to international presence with plans to invest over $1bn in produce 8K b/d by the end of the year and expand to 12K Bolivia and Nigeria as well as establishing offices in b/d in 2001. (NW/Oct 10) Argentina, Colombia, Cuba, Trinidad and Tobago, Venezuela, the U.S., the U.K., Kazakhstan, Angola, and PDVSA chief ousted after successful oil Equatorial Guinea. worker’s strike. In order to raise $188.5mm, the company plans to issue Unhappy with the way company president Hector 2.8mm preferred shares and 4mm ordinary shares. BR Ciavaldini handled the strike and caved into workers’ Distribuidora shareholders will receive 12 Petrobras demands, Venezuelan President Hugo Chavez fired shares for every 20K BR shares, giving aggregate Ciavaldini. Brig. General Guaicaipuro Lameda, formerly shareholders a 0.6% stake in the parent company and head of the national budget office, was appointed as his removing BR from the Sao Paulo Stock Exchange. replacement. The move surprised analysts and PDVSA Petrobras currently owns 73.6% of BR and will be sole staff, as it came only days after PDVSA board member owner when the swap is completed. (NW/Oct 17 & OD/Oct 24/p 8 25/p 4) Gen. Oswaldo Contreras was named president and chief of U.S. subsidiary Citgo. Neither appointee has any oil Ecopetrol enlists Shell Global Solutions for a experience and many are calling it “...the militarization of PDVSA,” as Chavez gains more control over the oil refinery modernization. company. Several consultants expressed concern that the The Colombian oil company has signed a six-year new management will be pressured to increase payments contract with Shell Global for technical assistance with to the state and deprive PDVSA of the cash to make the modernization of the Barrancabermeja and Cartegena necessary refinery investments. Chavez just calls it refineries. Ecopetrol wishes to increase refining capacity “major restructuring” which truly puzzles analysts during at the two facilities by 26% to 335K b/d over the next this time of higher oil prices. (OD/Oct 17/p 1) four years. (NW/Oct 10)

Petrobras seeks greater competitiveness. EUROPE/MIDDLE EAST/AFRICA After reorganizing business practices in order to sell shares in New York (Please see related story on p. 34 of Mobil and Esso European lube operations will the Sept. Digest.) the Brazilian major is planning for be joined. further restructuring. The company has just announced Regulatory approval was given after the companies the establishment of 40 new business units which will agreed to dissolve the Mobil-BP j.v. Full integration operate under its four business divisions: international, energy and gas, supply, and E&P. These four units were under ExxonMobil Lubricants is expected before 2001 subsidiary companies, but last Spring, the company and the company will be headquartered in Brussels. The announced the consolidation of the companies under a company will serve the automotive, aviation, marine, more centralized structure. In addition, seven corporate industrial and commercial markets and hopes to make inroads in eastern Europe’s developing economies. units (i.e. environment, safety, health, etc.) will also be (NW/Oct 23 & OD/Oct 24/p 8) established, with extra focus on environmental efficiency

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Chevron teams with Germany’s hte GmbH for Angola will privatize its state oil firm refining research. Sonangol. Chevron Research and Technology has signed a 5-year The government announced plans to sell 49% of the agreement with the German company for development of company to private or foreign interests. The sale is combinatorial and high throughput techniques that may expected to generate up to $100mm. Interest has already be applicable to refinery processes. Specific goals been expressed by foreign companies that operate in include optimization techniques for new catalyst Angola, such as BP, Chevron, ExxonMobil, and Total development for natural gas and oil processing. Fina Elf. (NW/Oct 13) (PTQ/Autumn/p 146) Ivory Coast again plans to privatize its refinery. ENI of Italy may acquire smaller companies. After an earlier tender was nullified, the government The company is not actively seeking a large mega- recently published a new, international privatization merger, but says it will keep an eye out for smaller tender for Société Ivoirienne de Raffinage. The company purchases. Vittorio Mincato, ENI Chief advisory bank, Credit Agricole Indosuez, will assess Executive, said that independent firms producing potential investors for the company, which currently is 200-300K b/d may bring added value to his company. He divided between the government (47.25%) Burkina Faso also hopes the government will sell its remaining 37% (5.39%) and ExxonMobil, Shell Group, Texaco, and stake in ENI. (NW/Oct 20) Total Fina Elf. (NW/Sept 16)

Royal Dutch/Shell will stick with its ASIA-PACIFIC conservative spending program. Speaking to investment bankers, Chairman Mark Moody- Ssangyong will be back in petroleum imports Stuart announced that spending will be increased only and sales. moderately next year even though oil prices have skyrocketed and added to earnings. Shell recently The Korean concern, after selling its 24% in Ssangyong embarked on a restructuring, cost-cutting, and down- Oil Refining to Saudi Aramco, has applied for a permit sizing frenzy to better its position. Shell will set spending to import petroleum products and sell oil to retail for next year at roughly $11bn, mostly for E&P projects. stations. (NW/Oct 4) (OD/Oct 3/p 4) Sinopec IPO awards 19% to ExxonMobil. Unipetrol searches for an advisor to oversee As the Chinese company began trading on the New York privatization. Stock Exchange on Oct. 18, ExxonMobil was anxious to The Czech Ministry of Industry and Trade and the become a strategic investor and will look for cooperative Finance Ministry are looking for someone to guide business ventures in China. (OD/Oct 19/p 7) Unipetrol through its privatization early next year. The Czech government currently owns 63% and will reduce Chinese Petroleum Corp. reschedules its stake. The sell-off involves PVC producer Spolana, privatization. oil refinery Paramo, and state oil company Cepro. (ECN/Oct 9-15/p 5) The Taiwanese government had planned to complete the divestiture by the end of next year, but has postponed the Saudi Arabia tightens its reigns on Saudi sale until some key regulatory reforms are in place, Aramco. probably by 2003. Taiwan Premier Tang Fei recently resigned which could cause further delays. A total of The Kingdom decided to form the Supreme Petroleum 51% will be sold to private or foreign companies, with Council to keep a check on oil and gas policies. Saudi 33-34.5% made available to the public. (ACN/Oct 9/p 4) Arabia is the largest oil exporter in the world and is to be closely monitored by King Faud who heads both the India will hold on to larger shares of state- Supreme Council and the Higher Council, concerned owned companies. directly with transactions of the oil company. (OD/Oct 17/p 8) The government will only divest 49% of Indian Oil Corp., Oil and Natural Gas Corp., and the Gas Authority of India Ltd. when it had previously planned

November 2000 35 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINER BUSINESS, STRATEGY & FINANCE to sell as much as 74% shares. The decision is thought to while Malaysia is not will make the outcome very be a trade-off between the Petroleum Ministry and the interesting. (OD/Oct 18/p 9) cabinet; the latter views hydrocarbon industries as non- strategic while the former has been fighting against Petron posts a loss. divestment. The Ministry believes that an uninterrupted For the first 3 quarters of the year, the Filipino company petroleum supply can only be maintained through control lost 1.3bn pesos ($26.7mm). For the same period in of the hydrocarbon sector. 1999, it reported a net income of 2bn pesos. Product The healthy distribution networks of IOC and ONGC are prices have not been able to keep up with increasing expected to preserve investor interest even though crude prices; product prices have risen by about 94% controlling stakes will not be available. The government while crude has risen by 240% since last Feb. Also, the currently holds 82.15% of IOC. The cabinet approved a peso has lost ground against the U.S. dollar, which is 10% stake sale for the current fiscal year, but the sale is used for international oil trades. (NW/Oct 25) not likely to happen before the next fiscal year. IOC already has joint ventures related to lubes, oil storage, and LPG imports and is expected to attract foreign majors as partners for further ventures. There are currently no plans to sell more of the state’s 83.62% stake in ONGC. (ACN/Oct 23/p 6)

Shell Singapore shuffles management. Lee Tzu Yang will be the new chairman of Shell Singapore while retaining his position as VP of strategy and portfolio for Shell Oil Products East. Current Chairman Simon Lam will move to managing director of Shell Nanhai in China. The refinery manager at the company’s Pernis, Netherlands facility, Tom de Jong, will replace Lam as managing director of Shell Eastern Petroleum Pte. (PTQ/Autumn/p 151)

Pertamina reports a 374% increase in fiscal- year profits. From April 1999 through March 2000, the company took in 4.98 trillion rupiahs versus the previous year’s 1.05 trillion rupiah net profit. Revenues were up 22.3% from 11.69 trillion rupiahs to 14.3 trillion rupiahs. Export revenues increasing by 26% is credited with the overall revenue expansion. Indonesia’s State Audit Agency recommended that the company restructure in order to do away with some inefficiencies. Pertamina believes that the restructuring will lead to even higher earnings. Also, the government is in the process of doing away with the company’s monopoly in the domestic oil business. (ACN/Oct 16/p 6)

Petronas (Malaysia) and Pertamina (Indonesia) expand their cooperation agreement. The two oil companies recently signed a processing agreement involving oil and natural. The neighbors will further cooperate in E&P efforts but gave no specific details. The fact that Indonesia is an OPEC member

November 2000 36 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINER BUSINESS, STRATEGY & FINANCE

OIL COMPANY STOCK INDEX TRENDS

Worldwide 265 255 245 S 235 t 225 215 k 205 195 185 I 175 n 165 155 d 145 e 135 125 x 115 105 95 05/00 06/00 07/00 08/00 09/00 10/00 11/00 World Majors World Sec. Co.

United States/Americas 300 S t 250 k 200 I 150 n d 100 e x 50

0 05/00 06/00 07/00 08/00 09/00 10/00 11/00

US Majors US Sec. Co. Amer. Majors Amer. Sec. Co.

Europe/Asia-Pacific 295 S 275 t 255 235 k 215 195 I 175 n 155 135 d 115 e 95 x 75 55 35 05/00 06/00 07/00 08/00 09/00 10/00 11/00

Europe Majors Europe Sec. Co. A/P Sec. Co.

Source: WSJ

November 2000 37 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected REFINER BUSINESS, STRATEGY & FINANCE

Month's End Stock Prices of Oil Companies Traded on New York and American Stock Exchanges (U.S.)

Company 09/29/00 10/31/00 % Change Price/Earning % Yield Amerada Hess 66.94 62.0 -7.38 7 1.0 Ashland 33.69 32.75 -2.79 8 3.4 BP Amoco ADS 53.00 50.94 -3.89 14 2.6 Chevron 85.25 82.13 -3.66 14 3.2 Coastal 74.13 74.44 0.42 27 0.3 Conoco A 26.13 25.81 -1.22 10 2.9 Elf Aquitaine 102.88 102.88 0.00 na 1.3 E.ON 51.63 50.81 -1.59 na 2.2 ExxonMobil 89.11 89.19 0.09 21 2.0 Holly 12.38 12.50 0.97 9 5.8 Imperial Oil 26.07 25.24 -3.18 19 2.1 Lyondell Chemical 11.81 14.38 21.76 4 6.3 Murphy Oil 64.81 57.94 -10.60 9 2.6 Petrobras ADS 30.06 29.06 -3.33 NA __ PetroChina ADS 19.75 21.19 7.29 9 3.4 Petro-Canada 22.31 21.00 -5.87 13 1.3 Phillips Petroleum 62.75 61.75 -1.59 12 2.2 Repsol 18.31 15.94 -12.94 9 3.1 Royal Dutch/Shell 59.94 59.34 -1.00 19 2.0 Sinopec ADS — 19.81 na na — Suncor Energy 22.13 19.69 -11.03 22 1.2 Sunoco 26.94 29.94 11.14 9 3.3 Tesoro 9.94 10.38 4.43 25 — Texaco 52.50 59.06 12.50 14 3.1 Tosco 31.19 28.63 -8.21 8 1.0 Total Fina 73.44 71.63 -2.46 20 1.6 Ultramar Diamond Shamrock 25.34 26.25 3.59 7 4.2 USX-Marathon 28.38 27.19 -4.19 9 3.4 Valero Energy 35.19 33.06 -6.05 8 1.0 Williams 42.25 41.81 -1.04 29 1.4 YPF 31.75 30.75 -3.15 23 2.9

Source: Newswire and WSJ

November 2000 38 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected THIRD QUARTER 2000 EARNINGS SUMMARY

Company Earnings/ Year-to-Year Positive Factors Negative Factors R&M Revenues Earnings Results vs Change Last Year Amerada $257mm/ Up 394% from • Revenues up 57.2% from $1.8bn Up nearly Hess (U.S.) $2.83bn $52mm • E&P earnings up 235% from 200% to $71mm to $238mm $62mm Ashland $96mm/ Down 15.8% • Revenues up 11.2% from • An early debt payment charge of Operating (U.S.) $2.28bn from $114mm $2.05bn $1mm income was • Increased volume of sales with $98mm better margins Chevron $1.53bn/ Up 163% from • Revenues up 33.3% from • High prices increased costs for oil Up 165% (U.S.) $13.6bn $582mm $10.2bn recovery related to some foreign from • E&P earnings up 119% from production sharing agreements $117mm to $586mm to $1.285bn $311mm Coastal $144.8mm§/ Up 41.8% from • Revenues up 52.4% from $2.1bn • $110mm in hedging losses (U.S.) $3.2bn $102.1mm • Performance improved for all segments Conoco $497mm/ Up 122% from • Revenues up 42.8% from • Declining production of gas and Up 62.5% (U.S.) $10.7bn $223mm $7.49mm oil: down 4% to 619K boe. from $96mm • E&P operating earnings up 81% to $156mm to $457mm • Record throughput levels at a time of higher margins • Major discoveries, property acquisitions and a new 20-year Malaysian supply contract for gas from Indonesia are responsible Crown $5.47mm Up from a • Revenues up 33% from • Write-off related to failed merger Retail profits Central loss/ $6.02mm loss $359.9mm expenses up 657% Petroleum $478.9mm • Substantially increased gasoline from $700K (U.S.) gross margins to $5.3mm ExxonMobil $4.29bn/ Up 95% • U.S. West Coast margins up by • High prices increased costs for oil Up 154% to (U.S.) N.A. $3/bbl recovery related to some foreign $893mm production sharing agreements, reducing oil and gas production by 35K b/d and 100mm cf/d, respectively Giant $5mm/ Up 42.8% from • Revenues up 40.4% from • Low retail fuel margins Refining Industries $301.2mm $3.5mm $214.5mm operating (U.S.) • Cash flow up 22.7% from income up $11.9mm to $14.6mm 6.37% from $13.8mm to $14.69mm Huntway $3.331mm/$ Up 60.9% from • Revenues up 61.8% from Refining 67.217mm 2.07mm $41.527mm (U.S.) • Better margins on light-end products • 27% increased volume of asphalt sales

November 2000 39 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected THIRD QUARTER 2000 EARNINGS SUMMARY

Company Earnings/ Year-to-Year Positive Factors Negative Factors R&M Revenues Earnings Results vs Change Last Year Imperial Oil C$374mm/ Up 95.8% from • Revenues up 31.4% from (Canada) C$4.6bn C$191mm C$3.5bn • Rising prices on oil and gas and better refinery margins Lyondell $133mm/ Up from a • Diverse business portfolio • Revenues down 0.1% from Chemical $975mm $2mm loss $976mm (U.S.) • Volatile energy prices Lyondell- $110mm#/ Up 89.6% from • Better operational reliability as Citgo N.A. $58mm well as a higher rate of Refining processing Venezuela’s extra- (U.S.) heavy crude Marathon $356mm*/ Up 100% form • Revenues up 43% from $6.5bn Up 26.7% (U.S.) $9.3bn $178mm • NG and crude prices remained from high and product margins were $236mm to strong $299mm • E&P earnings up 131% from $201mm to $465mm Murphy Oil $85.59mm/ Up 67.1% from • Revenues up 47.3% from Up 31.6% (U.S.) $933.5mm $51.2mm $633.6mm from • Increased U.S. marketing with its $9.8mm to new Wal-Mart stations $12.9mm • E&P earnings up 77% from $43.8mm to $77.5mm Petro- C$229mm/ Up 141% from • Revenues up 41.2% from Canada C$2.4bn C$95mm C$1.7bn • Healthy oil and NG prices • Cash flow up 73% from C$260mm to C$450mm Phillips $505mm†/ Up 128% from • Revenues up 36.8% from $3.8bn • Refineries were down for an Down almost Petroleum $5.2bn $221mm • Higher oil and gas production extended time for turnarounds, 10% from (U.S.) while prices were high costing R&M earnings around last year’s • E&P operating income was up $30mm $43mm 248% from $158mm to $551mm • Chemicals earnings down 64.3% from $42mm to $15mm Royal $3.25bn‡/ Up 79.5% from • Higher crude prices and refining • Falling retail margins $642mm— Dutch/Shell N.A. $1.81bn margins up 50% (Netherland • E&P earnings up nearly 100% to s/U.K.) $2.31bn Shell C$226mm/ Up 55.8% from • Revenues up 43.3% from Canada C$2.15bn C$145mm C$1.5bn • Cash flow up 64% from C$182mm to C$298mm

November 2000 40 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected THIRD QUARTER 2000 EARNINGS SUMMARY

Company Earnings/ Year-to-Year Positive Factors Negative Factors R&M Revenues Earnings Results vs Change Last Year Suncor C$50mm/ Down 28.6% • Cash flow was up 55.8% from • Oilsands expansion costs rose (Canada) N.A. from C$70mm C$147mm to C$229mm 14.3% from the projected C$2.45bn to C$2.8bn • Oil-shale project in Australia saw a large value write-down Sunoco $25mm loss/ Down from • Vastly improved East Coast • Write-down on lube assets Northeast (U.S.) N.A. $14mm in net refining margins and better retail refining earnings gasoline margins brought in • Operating income up 700% from $62mm $13mm to $104mm Texaco $815mm†/ Up 80% • Oil production fell 10% to 785K Down 25% (U.S.) N.A. b/d; NG production fell 6% to to $143mm 1.8bn cf/d • Motiva and Equilon are still struggling Tosco $133.6mm‡/ Up 17.3% from • Recent refinery acquisitions • Retail margins were down with (U.S.) N.A. $113.9mm allowed for greater leverage, retail operating income down resulting in better refining margins 56.9% from $88.3mm to an all- time low of $38mm Ultramar $132.9mm†/ Up 59.3% from • Revenues up 18.4% from $3.8bn Diamond $4.5bn $83.4mm • Avon refinery acquisition Shamrock • Product margins up 91.8% from (U.S.) $4.53/bbl to $8.69/bbl Valero $127.4mm/ Up 463% from • Revenues up 96.7% from (U.S.) $4.25bn $22.6mm $2.16bn • Entered the West Coast market with its purchase of the 160K b/d refinery at Benicia, CA • Debt-to-capitalization ratio is down to 43.5% after paying down $172mm in debt during 3Q *including special items †excluding special items àoperating income (not net) §earnings available to common ‡income from operations #Earnings before interest, tax, depreciation, and amortization Dresults based on fiscal 4Q (Jun-Jul-Aug) rather than calendar 3Q (Jul-Aug-Sept)

November 2000 41 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SUPPLIER & CONTRACTOR NEWS

U.S.-AMERICAS Foster Wheeler forms a strategic alliance with Intergraph Building Solutions. CheMatch.com adds 10 products to the Global The global j.v. will provide integrated tools to increase Trading NetworkTM exchange. productivity and project execution for engineering and construction teams at Foster Wheeler. (PTQ/Autumn/p 146) The company says that customers were asking for more offerings of petroleum derivatives and refining feedstocks. It has been estimated that feedstock demand U.S. petroleum refining catalyst demand is for refining and primary petroleum is over 40mm b/d, projected to grow. which is over half the world’s total oil demand. Demand is expected to see 1.9% in annualized growth Condensate, diesel, iso-butane, LCO, naphtha, natural between 1998 and 2003. Factors such as lowering gasoline, propane, pygas, residual fuels, and VGO are gasoline and diesel sulfur limits, declining crude quality, among the new products being offered. CheMatch.com and increasing demand for higher value products are said has also improved its on-line, global analytics and to the primary forces behind the growth according to information services. (NW/Oct 3) Freedonia Group. On the other hand, catalyst suppliers are facing downward pricing pressure as the refining DownstreamEnergy joins forces with industry in the U.S. continues to consolidate resulting in Intuitive Design. fewer customers, but with bigger buying power. This scenario has led to dedicated efforts by the catalyst The partners plan to increase the usability of industry to develop high-performance and cost effective PriceEnerChange™. DownstreamEnergy provides supply catalysts, e.g. Akzo Nobel’s high-activity hydropro- chain management for the refined petroleum industry, cessing catalysts and Engelhard’s FACT technology to while Intuitive is a design firm specializing in user- control the porosity of aluminosilicate zeolite catalysts centered methodology. The two have teamed to develop for better liquid product yield and reduction of CO, CO , an interface that will make PriceEnerChange easier for 2 and NO2 emissions. The following table summarizes the customers to use. (NW/Oct 10) growth prospects of FCC, alkylation, hydroprocessing, and catalytic reforming catalysts.

Catalyst 1998 Demand, 1998-2003 Remarks Type mm lb Annualized (mm mt) Growth, % FCC 481 (0.22) 1.1 The sector faces excess inventory and lack of price-increasing power; but escalated use of heavier crudes and strong demand for propylene will provide bright opportunities. Alkylation 5,900 (2.68) 2.0 The pending MTBE ban and increasing thirst for octane will raise demand for alkylates. There will be a continued battle between H2SO4 and HF catalysts in the market while solid acid catalysts start to get refiners’ attention. Hydro- 77 (0.035) 3.6 There are opportunities created by clean fuel legislation. Catalysts with improved proces- activity and selectivity offer better margins for hydrotreating catalysts. Meanwhile, new sing hydrocracking catalysts will be introduced. Cat. 22 (0.01) 1.8 Consumption of reformer and isomerization catalysts will be benefited by rising Refor- demand for premium gasoline and commercialization of highly-active and selective ming and catalysts. New platinum-supported, H2SO4-treated zirconia catalyst developed by other Cosmo Oil and Mitsubishi Heavy Industries is expected to efficiently convert light- naphtha into a high-octane gasoline. Fuel sulfur reductions will also boost the use of sulfur-recovery and oxidation catalysts. Biocatalysts to desulfurize fuel will be demonstrated at Petro Star’s Anchorage, AK refinery.

(OGJ/Oct 9/p 66)

November 2000 42 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SUPPLIER & CONTRACTOR NEWS

W.R. Grace seeks investors for its new catalyst UOP wants to expand its business alliance with website. refiners beyond BP. The company has petitioned other catalyst manufacturers Several months ago, the companies formed a unique to join forces to form an exchange with Aspen partnership where BP technologists joined UOP to Technology VerticalNet to be called e-Catalysts. The expand and provide technical support to BP facilities exchange will provide information for on-line worldwide. UOP CEO Humberto Vainieri recently transactions for a wide variety of catalyst users. The commented on its success and said UOP is looking for companies plan to start up the e-Catalysts.com website in similar arrangements with other refining companies. UOP Dec. VerticalNet owns and operates 57 portals related to services the facilities at three levels. 1) Technical advice specific industries for e-commerce. is provided continually, with certain people responsible On a related note, Grace Davison and Chevron for three or four refineries so they are familiar with the Products will form a catalyst venture. Named Advanced processes, workers, and problems. 2) Programs are Refining Technologies, the business will research and implemented network-wide to be used throughout BP’s produce hydroprocessing catalysts for sulfur removal, entire system, such as clean fuels adaptations. 3) UOP hydrotreating catalysts for fixed-bed, onstream catalyst provides specific support for grassroots projects or replacement and ebullating-bed residuum operations, and revamps for technological processes, using proprietary distillate hydrotreating catalysts for vacuum gas oil. technology and other developers’ technologies. (WR/Oct /p 64) Operations are scheduled to begin in early 2001. (NW/Oct 10; OD/Oct 13/p 8 & CW/Oct 18/p 5, p 14) Honeywell and Syncrude Canada extend their Shell reorganizes its catalyst business. alliance. Back in July, Shell Chemical unit, CRI International, The companies have signed a $117mm, 10-year paid $60mm for Criterion Catalysts, its former 50:50 agreement in which Honeywell will provide maintenance j.v. with Cytec Industries. Criterion, the global leader in and advanced controls services to the refiner for hydroprocessing catalyst production, has a market share expansion and modernization projects. Syncrude believes of about 30% and annual revenues of $200mm and that its relationship with the supplier will help it reach its produces styrene catalysts, as well. (Please see related cost reduction and production efficiency goals, including article on p. 41 of Aug. Digest.) Now, Shell’s catalyst a production expansion to 400K b/d by 2008. This new business has been divided between Criterion Catalyst agreement falls under Honeywell Industrial Control’s and Technology (for service technologies and regenera- “ManageAbility” program, which provides a full range of ted catalysts as well as R&D, manufacturing, technical solutions for clients. (NW/Oct 10) service, and sales related to reforming and hydro- processing catalysts) and CRI Catalyst (for catalyst Lubrizol and Imperial Oil settle their patent supply to styrene and ethylene oxide producers, dispute. environmental catalysts programs, and hydrogenation It was announced that Lubrizol Canada will receive a catalysts). (CW/Oct 25/p 12) $25mm settlement, and sign a 10-year, $490mm agreement with Imperial for supply of fuel additives and Fuel sulfur reductions will demand better lubricants. All patent litigation involving ExxonMobil hydrogen management. and all of its affiliates was settled last year with the U.S. refiners will add hydrotreaters to meet changing fuel exception of Imperial. (NW/Oct 13) standards. This increase in plant H2 demand will re-emphasize the balance of H2 consumers and producers EUROPE/MIDDLE EAST/AFRICA through individual refineries. Air Liquide and AspenTech are available to aid refineries in changing KBC forms an alliance with Clockwork. hydrogen requirements and overall management, and will work together with facilities for evaluation of options, Clockwork’s quantitative modeling technology, SPAR, reconfigurations, and hydrogen network design to comply will be used with KBC’s RAM consulting program in the with changing fuel standards. (TR/Oct/p 20) refining industry. The j.v will be called KBC-Clockwork Solutions. (KBC Press Release)

November 2000 43 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SUPPLIER & CONTRACTOR NEWS

Technip acquires French E&C firm Krebs- Speichem. The European construction giant will purchase a 50% stake in Krebs for $18.9mm and be absorbed into its chemicals-fertilizers and life sciences divisions. Separately, Technip sold its 3.2% stake in Cogema to Caisse Des Depots et Consignations for 151.6mm euros. (CW/Oct 4/p 43)

ASIA-PACIFIC

Caltex joins PetroCosm. The electronic marketplace (based in Houston, TX) welcomes this new member and its 65 years of Asian operating experience. An MOU has been signed by the companies related to the alliance, which Caltex believes will enhance its commerce potential and overall liquidity. (NW/Oct 25)

Merichem (U.S.) and Toyo (Japan) form a j.v. to market hydrogen purification systems. Merichem has licensed the Toyo RSA process and will fabricate the modularized systems using its own engineering services. Merichem-Toyo will handle marketing worldwide except in Japan, where Toyo will retain exclusive rights. (PTQ/Autumn/p 146)

November 2000 44 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected ALTERNATIVE FUELS NEWS

U.S.-AMERICAS tax plan, saying that it could give credit to drivers for buying a vehicle with greater horsepower but little or no fuel-economy benefits. The debate follows Daimler- Ethanol production is expected to rise. Chrysler’s announcement that it plans to release a hybrid German analysts F.O. Licht project global ethanol Durango in 2003; the advanced vehicle would get about production will jump from 8.19bn gal in 1999 to 8.30bn 18 mpg. Meanwhile, Honda and Toyota plan to release gal in 2000. Brazil is the world’s largest producer of new hybrids in addition to their respective Prius and ethanol at 3.4bn gal projected for 2000, with U.S. and Insight, which are both seeing far higher sales than either Canadian production to increase, as well. (OD/Oct 16/p 10) company expected. While they are actually losing money on the two models, the companies expect to more than A U.S. garbage company will retrofit trucks to make up for it by using more advanced and economical run on biodiesel. technology in upcoming models. Toyota does expect to profit from Prius sales before its planned phase-out GreenTeam of California will reconfigure all of its within 6 years. (Please see related article on p. 43 of vehicles to use biodiesel produced form vegetable oils, Sept. Digest.) (WSJ/Oct 24/p B4) used cooking oils, and sewage plant grease. The firm has a fleet of 95 trucks used for recycling and garbage An Arizona clean fuel program faces costly removal. (OD/Oct 10/p 7) loopholes. Rentech Inc. performs feasibility testing for a The state enacted a clean fuel/energy efficiency new GTL plant. incentives program that gives a large rebate for motorists to purchase a new vehicle and convert it to use The firm, along with an unidentified chemical company, alternative fuels. In addition, those motorists could is jointly studying its GTL process to convert industrial receive huge tax breaks (close to the initial new car pur- offgas into GTL products which would be free of chase price) on income returns. The program was aromatics and sulfur. If the process proves feasible, designed to cost $3-10mm, but authorities now figure it commercial production could begin in 2002. Rentech can will cost close to $420mm, as some 20,000 residents use offgas as an inexpensive feedstock for its flexible have applied for the incentive program. Many critics feel iron-based catalyst technology. Retrofitting at some the plan is overly generous and full of loopholes. Gov. plants can be accomplished at a cost of $8-10K/daily Jan Hull has called for an immediate meeting to postpone barrel versus $20-30K for a grassroots facility. or change the details of the program. Meanwhile, new developments will expand Rentech’s (NW/Oct 20) alternative energy growth. The company owns an interest in ITN Energy Systems Inc., which has just been The U.S. will invest $100mm in fuel cells. awarded a $2mm contract, along with UniSource The D.O.E. will receive $52.7mm for stationery fuel cell Energy Corp., for “Integrated Planar Solid Oxide Fuel programs, $41.5mm for transportation research, and Cell (SOFC) Stack Development.” Another $2mm is $5mm for building applications. President Clinton signed expected to be invested before the 3-year project ends. the Interior Dept.’s appropriations bill, which includes The technologies to be explored under the contract this alternative fuel initiative. Advocates say it is $10mm include thin-film batteries, thin-film photovoltaics, and more than was requested and is the first time that fuel cells. The SOFCs which ITN is developing will Congress has fully funded any fuel cell research. The withstand lower temperatures than other FCs and will be D.O.E. hopes to have some type of commercial fuel cell able to use fuels other than H2 (such as diesel, gasoline, power system operating within three years. (NW/Oct 12) kerosene, liquid propane, and NG). The program is also expected to develop an SOFC sealed stack which would Honda invests in NG refueling. produce 1 kW. (NW/Oct 2, 4, 26 & ECN/Oct 9-15/p 41) Honda Motor’s U.S. division has purchased a 20% A proposed tax break for hybrids engenders share of Toronto’s FuelMaker Corp., which is developing a product which would allow owners of NG- debate. powered vehicles to fill up using their home NG lines. The auto industry wants to see a $3K credit for hybrid Customers would still be able to use public refueling users, but some automakers are looking to hybrid stations, but the units are expected to be inexpensive technology for increased power more than for better fuel enough that many vehicle owners would prefer the efficiency. Therefore, environmentalists are against the convenience of filling up at home. Most NGVs are part

November 2000 45 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected ALTERNATIVE FUELS NEWS of government and corporate fleets; those organizations Sasol and Chevron finalize their GTL j.v. often have their own facilities for fueling. Honda wants The formation of Sasol Chevron Holdings (SCH) will to make life easier for buyers of its NGV, the Civic GX, allow the 50:50 partners to implement worldwide GTL which it has been marketing for about 3 years. (OD/Oct 25/p 9) ventures as a team. The table below details some of the benefits the companies will bring to each other.

EUROPE/MIDDLE EAST/AFRICA Chevron Global upstream resources related to gas production and development. A London researcher recommends diversifying Isocracking process. Waxy syncrudes can be fuel sources. upgraded through the separation of heavier mole- At an energy conference in the U.A.E., David Hart of cules. At room temperature, the molecules are Imperial College suggests using a variety of renewable normally solid. In the process, they are rearranged to become liquid with little CO or nitrogen and energy sources, such as fuel cells and H2 so that shortages will not be problematic in times of oil crisis. virtually no sulfur. Energy suppliers will have a stronger foothold if they Sasol Slurry Phase Distillate Process. Haldor Topsøe diversify as well. Hart did note, however, that whenever technology allows methane, oxygen, and a catalyst technologies such as fuel cells establish a market in the to be mixed, producing syngas. The syngas is then U.S. and Europe, it will likely be a few years longer heated (240°C) and another catalyst is added in a before that market stretches to the Middle East. (NW/Oct 10) slurry phase reactor. Then F-T technology is used to convert the syngas/catalyst mixture into waxy Statoil claims to have a superior GTL process syncrudes, condensates, and liquid hydrocarbons. for diesel production. Their first project involves Chevron Nigeria’s j.v. with Rather than flaring gas, refineries could produce diesel of Nigerian National Petroleum Co. The 33K b/d plant is a greater purity than that which is produced today by expected to begin operation by 2005 and is called the using the Statoil process (NW/Oct 2) Escravos GTL Project. NNPC and Chevron will invest $2bn in the GTL project and the Escravos Gas Project. Shell expands its GTL activity. The latter is expected to process gas on the order of Shell said it may construct four 75K b/d GTL conversion 400mm cf/d, producing 15K b/d of NGL, which will feed plants producing diesel, kerosene, and gas oil. 1) In the GTL project. The technology used in this project is Africa, Egyptian Petroleum Corp., the national oil held by SCH and the product will principally be sent to ministry and Shell have decided to develop a GTL European markets. (ECN/Oct 23-29/p 45, p 50) conversion plant as well as one or more LNG trains. The plant would use Shell’s middle distillate syntheses ASIA-PACIFIC (SMDS) process to produce 75K b/d. Petroleum liquids produced through the Shell process are colorless, Ivanhoe Energy will participate in odorless, sulfur-free, and much cleaner than crude oil- Syntroleum’s Sweetwater project. based products. The LNG project is expected to start up in mid-2004 with the GTL plant coming on-stream just Ivanhoe will acquire a 13% equity stake in the GTL over a year later. 2) In the Middle East, National project on the Burrup Peninsula in Western Australia. Iranian Oil and National Petroleum Corp. (also of The firm has invested $2mm for front-end engineering, Iran) have signed an MOU with Shell regarding the study which will result in the construction of a 10K b/d plant to of GTL capacity development in the nation. 3) In Asia- convert natural gas into clean, synthetic products such as Pacific, Shell is conducting a feasibility study. 4) In Latin lubricants, paraffins, and synthetic fuels. Syntroleum America, a feasibility study is underway related to a 75K recently completed a $90mm public offering to fund the b/d GTL plant to be located in Trinidad and Tobago. The Sweetwater project. It will be Syntroleum’s first unit would likely start up by 2006 and would essentially commercial-scale GTL plant and is slated for operation double the country’s middle distillates exports. in late 2003. Other partners include Enron Corp. and (ECN/Oct 16-22/p 28) Silvertop Project Partners. (NW/Oct 5, 10)

November 2000 46 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected ENVIRONMENT & REGULATORY LEGISLATION

U.S.-AMERICAS Refining companies argue that diesel sulfur regulations will be too strict. Heating oil legislation passes the U.S. Senate The U.S. EPA has proposed a 97% reduction in diesel and awaits passage from the House. sulfur levels from 500 ppmw to 15 ppmw by 2006. Oil The law outlines details concerning a heating oil reserve companies are pleading that a 90% reduction (30 ppmw) that will be established in the northeastern U.S., would be more feasible, cost-efficient, and achieve very including the release trigger mechanism. It authorizes a similar air quality benefits. Sen. James Inhofe argued last withdrawal from the reserve if a “supply interruption” week that the new regulations will create price spikes and occurs, which is dependent on the price differential diesel shortages worse than any other fuel regulation in (between crude and heating oil) increasing by more than the past decade. The NPRA cited a recent study by 60% over the five-year rolling average for seven Charles River Assoc. that calculates a 12% shortfall in consecutive days. The language of the bill was changed diesel fuel supplies if the EPA finalizes its rule as to read that only companies that regularly deal with oil written. Many groups are seeking to delay any distribution will be allowed to bid on the product. This finalization of the proposal until next year after the U.S. stems from the recent poor decisions made by the D.O.E. Presidential election. regarding crude releases from the SPR. The royalty-in- The D.O.E. has partially sided with the oil industry and kind provision was removed by the Senate after much believes that 2006 should be when refiners are required opposition about an oil valuation rule that became to begin producing the product, pushing back the effective in June of this year. The heating oil bill must deadline for retailing. The Dept. would like to see a limit now go back to the House for approval, which is on the retail sulfur level by 2006, but wants further expected soon. (OD/Oct 23/p 1) research to be done to establish a feasible level and to determine when 15 ppmw should be required at the retail A U.S. Senate panel approves the MTBE ban. level. Most refiners would like to see a 50 ppmw rule The Senate Environment and Public Works Committee instead of the 15 ppmw, saying that the cost is too great voted to pass a legislative bill that bans MTBE and supply disruptions will occur. The EPA determined throughout the nation by 2005. Now, the ethanol industry the cost of 10-ppmw-S diesel to be 4¢/gal, but D.O.E. is pushing for Congress to pass the bill before the current research concluded the cost would be closer to 7¢/gal. session ends. The bill contains language that 1) requires Meanwhile, the U.S. EPA has accused Congress of the EPA to develop a clean alternative fuels program tactics to delay the diesel sulfur rule. The government promoting ethanol as a replacement oxygenate, 2) allows may delay all current environmental legislation that is on the EPA to immediately phase out the ether is it is found the table by postponing the approval of the EPA’s 2001 to threaten human health, and 3) allows individual states spending bill. With the EPA’s Clean Air Science to waive the oxygenate requirement and ban MTBE Advisory Committee having recently concluded that sooner than the 2005 deadline. diesel exhaust is likely a human carcinogen, it endorsed Industry and Congressional sources say the bill will not the EPA’s proposal for the tough new limits on diesel pass as written and further consideration will be put off engines and fuels. Interestingly, the Committee is headed until next year. 31 governors, however, have endorsed by Joe Mauderly, who also chairs the National the bill, so there is some support for it and many are Environmental Respiratory Center, which is partly pleased with the requirement for renewable fuels. The funded by oil companies, diesel engine makers, and proposal has been denounced by the API, NPRA, and oil trucking associations. Tosco also supports the lower companies. Chemical Strategies believes that, although sulfur proposal and BP is presently making 15 ppmw S this bill may not be passed or it may be compromised, an fuel for the California market. MTBE ban is inevitable. Apparently a letter drafted by the API, NPRA, and Domestic ethanol producers say that, despite Brazil’s PMAA was sent to members of Congress urging them to poor sugarcane crop and the possibility of exporting stall the diesel rule because it could create fuel shortages ethanol there, they would be able to sufficiently increase and create serious economic consequences. However, a production if demand were to surge in light of an early coalition of state environmental regulators and diesel MTBE ban. (TR/Oct/p 5, CMR/Oct 16/p 1 & OD/Oct 20/p 7) truck engine manufacturers called for no further delay in clean diesel fuel standards. They attack the calls by the API and refiners to put off the implementation of low- sulfur diesel legislation. The joint announcement said the

November 2000 47 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected ENVIRONMENT & REGULATORY LEGISLATION state-by-state patchwork approach—or regional fuel lower diesel fuel sulfur levels. CARB will further lower markets—would hurt consumers and postpone the use of PM emissions by 85% by 2020. (CW/Oct 18/p 57 & NW/Oct 24) cleaner diesel trucks. The 50 ppmw specification advocated by oil companies could cause failure of The U.S. D.O.E. and the Air Force proceed emissions control after-treatment devices and require with their clean fuels program. additional additives to diesel fuel. The two governmental branches will collaborate to While it does not seem to have affected the legislative develop cleaner aviation fuels, additives, and lubricants. arguments yet, diesel advocates are displeased with a The five-year program will study the effects of sulfur on recent report from the Union of Concerned Scientists aviation fuels and emissions systems. A spokesperson (UCS). The Diesel Technology Forum (DTF) claims that said that since the EPA will reduce sulfur levels in “Rolling Smokestacks,” a UCS report on emissions from gasoline and diesel, it will most likely move to lower diesel engines, is overly biased. The DTF believes that sulfur in jet fuels as well. (NW/Oct 10) the report unfairly compares emissions from best-case- scenario alternative fuels and engines to worst-case- The U.S. Senate votes down a recent funding scenario diesels. The report also compares passenger bill for Clean Air regulations. vehicle emissions to commercial diesel emissions without noting that emissions from today’s diesel trucks are one The legislation would have provided funding for the EPA eighth the amount from trucks built in 1988. Since then, to collect data for the designation of nonattainment areas under clean air rules. The opposition’s argument was NOX emissions have fallen by 63% (with another 50% expected by 2004), PM has fallen by 83%, and further that, until the Supreme Court makes a ruling next June on emissions reductions are expected to be required in 2007. the EPA’s National Ambient Air Quality Standards, the The many clean vehicles on the road are not as noticeable Agency should not proceed with implementation efforts to the general public as the few trucks that emit excessive at all, including the nonattainment designations. (OD/Oct 13/p 4) black smoke, which the DTF says is a sign of tampering or poor maintenance. The Forum also points out that The U.S. General Accounting Office reveals diesel usage has grown significantly over the past 3 decades while pollution has diminished by more than big tax breaks for oil. 30%. NG use only accounts for 1-2% of purchased Sen. Tom Harkin, an ethanol advocate, says that the oil engines and other alternative fuels have yet to make and gas industries have received well over ten times more major inroads into the market. With the steadily growing tax breaks than the ethanol industry and other alternative market for diesel in the U.S. and around the world, the fuel businesses. Over the past 30 years, the GAO shows DTF believes that organizations such as the UCS should that oil and gas received $82bn in percentage depletion focus more on working toward solutions rather than deductions and some $50bn for other tax credits, while publishing unrealistic reports. the ethanol industry received $11.2bn in exemptions and (CMR/Oct 2/p 31; OD/Oct 4/p 1, 18/p 6, 28/p 1 & NW/Oct 6, 13) only $200mm in tax credits. Sen. Harkin wanted to, “...speak up to set the record straight.” However, the $70mm in incentives is being offered to CA GAO pointed out that adding together the costs of truckers. various incentives—percentage vs. cost of depletion, The Sacramento Emergency Clean Air and Transpor- expensing of certain exploration and development costs tation program is designed to aid truckers in retrofitting and credit for production of non-conventional fuels— or replacing older diesel engines so that the Sacramento does not result in meaningful comparisons. In reality, Valley will see newer, cleaner, and more fuel-efficient these incentives amount to slightly higher than 3¢/gal trucks on the road. A spokesperson for the Diesel versus 54¢/gal for ethanol. (OD/Oct 17/p 5 & OGJ/Oct 23/p 19) Technology Forum said that programs like this add to the economic lead that clean diesels have over alternative Emissions trading website begins operation. fuels, especially considering the recent and expected CO2e.com is a business-to-business on-line trading advancements in clean diesel technology. marketplace that will specialize in greenhouse gas Meanwhile, CARB has approved a 14-step, statewide emissions trading. The site will include a daily news program to lower PM emissions from diesel vehicles by service and access to international consultants and 75% by 2010. It includes regulations to be phased-in experts. (OD/Oct 18/p 8) over the next few years including a mandatory 90% emission reduction in new diesel vehicles as well as

November 2000 48 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected ENVIRONMENT & REGULATORY LEGISLATION

3 Is the Kyoto Protocol dead? European public be informed when 180µg/m O3 is reached, but the “alert” level was decreased to 240µg/m3. A meeting is scheduled for early Nov. to convince world (ECN/Oct 16-22/p 24) governments to finally ratify the Kyoto Protocol outlined in 1997, but disagreement over several key issues will France may stifle the oil/chemical industry with likely prevent it from becoming law. The largest point of contention is between the EU and the U.S. Umbrella a new energy tax. Group (UG) about emissions trading, carbon sinks, and The European Chemical Industry Council is critical of methods by which emissions at home can be offset the plan that will apply to all companies that consume through environmental projects implemented elsewhere. more than 100 mt/y of oil or oil equivalent. The rate will The UG wants no limits placed on a country’s credits for vary with the carbon intensity of fuel used, but discounts investments which reduce emissions abroad, while the will be available to firms who voluntarily cut carbon EU is fighting for more direct emissions cuts at home. A emissions. Many feel the already “overtaxed” businesses compromise is expected to be proposed, but any will suffer and this is a poor way to deal with greenhouse agreement is uncertain. China and India, considered gas reduction. The tax rate will be based on 39.64 “developing countries,” want industrialized nations to be euros/mt of carbon equivalent emissions. responsible for most of the emissions reductions within (CW/Oct 18/p 21 & OGJ/Oct 16/p 7) their own borders. ASIA-PACIFIC Germany’s Environment Minister Trittin announced new measures to ensure that Germany would fulfill its obligation to reduce greenhouse gas emissions by 21% The Philippines may postpone diesel sulfur by 2010, as spelled out in the 1997 Kyoto Protocol. regulations. However, a new study states that most members of the Oil companies have petitioned the government to delay European Union will fall short of the emission cuts the implementation date for 0.2%-sulfur-max. diesel from needed to satisfy Kyoto. The German plan will adhere Jan. 2001 to Jan. 2003. Currently, the diesel sulfur limit and includes incentives for energy-saving cars, a national is 0.5%, and was scheduled to be lowered in two steps— building insulation plan, voluntary reduction incentives, to 0.2% in 2001 then to 0.05% in 2004. Refiners claim and promotion of renewable fuels. (OD/Oct 18/p 1, 19/p 8) that in order to achieve the first step, the end-user cost will increase prohibitively. Analysts projected that diesel Research findings indicate that ocean algae may prices would jump 6.8¢/gal to meet the 2001 deadline, be able to consume CO2 as a “carbon sink.” but oil firms say it would be much higher. Unleaded gasoline aromatics are scheduled to be reduced to 35% A small amount of iron was added to a test area off of and benzene to 2% by 2003, which analysts figure will Antarctica which increased the amount of algae that can increase the price of unleaded by 18¢/gal. (WR/Oct/p 14) remove CO2 from the atmosphere. Researchers are hopeful that this process could help calm global warming. Critics, however, say it is not a large, long-term solution to global warming and it may even be harmful to the marine ecosystem. Clearly, the process must be investigated further. (NW/Oct 12)

EUROPE/MIDDLE EAST/AFRICA

EU ministers have set an ozone limit. The World Health Organisation recommends that ambient ozone (O3) concentrations should not exceed 120µg/m3 and the EU environment ministers unani- mously agreed that member nations will not be permitted to exceed that level for more than 25 days/year beginning in 2010. In 2020, the level may not be exceeded at all. The action was in response to the discovery that the ozone hole has exposed Punta Arenas (Chilé) to UV radiation at a rather high level. It is still required that the

November 2000 49 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SPOT MARKET MONITOR & TRENDS

CRUDE OIL PRICES

United States 38 P 37 r 36 35 i 34 c 33 32 e 31 , 30 29 28 $ 27 26 / 25 b 24 23 b 22 l 21 20 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month WTI(Csh) WTI(Md) WTS(Md) ANS(CA)

International 36 35 P 34 r 33 i 32 c 31 e 30 29 , 28 27 U 26 S 25 $ 24 / 23 b 22 21 b 20 l 19 18 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month Brent Dubai Oman Indonesian Minas Russian Urals

Source: OD

November 2000 50 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SPOT MARKET MONITOR & TRENDS

U.S. REFINED PRODUCTS PRICES

US Gulf 120 115 110 C 105 t 100 95 s 90 / 85 80 g 75 a 70 65 l 60 55 50 45 40 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month

Regular Unleaded Regular RFG Heating Oil - #2 Low S Diesel Jet Fuel

New York 120 115 110 C 105 100 t 95 s 90 / 85 g 80 75 a 70 l 65 60 55 50 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month Regular Unleaded Regular RFG Heating Oil - #2 Low S Diesel Jet Fuel

Los Angeles 150 145 140 C 135 130 t 125 s 120 115 / 110 105 g 100 a 95 90 l 85 80 75 70 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month Regular Unleaded Regular RFG Low S Diesel Jet Fuel

Source: OD

November 2000 51 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SPOT MARKET MONITOR & TRENDS

U.S. #6 Resid Fuel Prices 39 38 P 37 36 r 35 34 i 33 32 c 31 e 30 29 , 28 27 26 25 $ 24 23 / 22 21 b 20 b 19 18 l 17 16 15 05/00 06/00 07/00 08/00 09/00 10/00 11/00 Month US Gulf Low S New York Low S New York 3% S L.A. 3% S US Gulf 3% S

Amsterdam-Rotterdam-Antwerp & Singapore Spot Market Product Prices 108

P 98 r i c 88 e , 78

U S 68 ¢ / g 58 a l 48

38 4/7/00 4/28/00 5/12/00 5/26/00 6/9/00 6/23/00 7/7/00 7/21/00 8/4/00 8/18/00 9/1/00 9/15/00 9/29/00 10/13/00 Month ARA/CG-regular ARA/gasoil ARA/resid FO Sing./CG-regular Sing./gasoil Sing./resid FO

Source: OD and OGJ

November 2000 52 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected SPOT MARKET MONITOR & TRENDS

GLOBAL PETROCHEMICAL SPOT PRICES

U.S.A. 175 31 155 29 27 135 25 115 23 ¢/gal, fob 21 95 propylene ¢/lb, cif 19 75 17 5/17/00 5/24/00 6/7/00 6/21/00 7/5/00 7/19/00 8/9/00 8/23/00 9/13/00 9/27/00 10/11/00 10/25/00 Date

MTBE ¢/gal, fob Benzene ¢/gal, fob Toluene ¢/gal, fob Propylene - polymer grade ¢/lb, cif

W. Europe 600 700

550 650

500 600

450 550

400 500 $/tonne, fob

350 450 Propylene $/tonne, cif

300 400 5/15/00 5/29/00 6/15/00 6/28/00 7/10/00 7/24/00 8/7/00 8/21/00 9/11/00 9/25/00 10/9/00 10/23/00 Date

MTBE $/tonne, fob Benzene $/tonne, fob Toluene $/tonne, fob Propylene - polymer grade $/tonne, cif

Southeast Asia

600 550 500 450 400

$/tonne, cfr 350 300 250 5/15/00 5/22/00 6/5/00 6/19/00 7/3/00 7/17/00 8/7/00 8/21/00 9/4/00 9/18/00 9/25/00 10/9/00 10/23/00 Date

MTBE Benzene Toluene Propylene - polymer grade

Source: CW, ECN and ACN

November 2000 53 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected RECENTLY ANNOUNCED REFINERY CONSTRUCTION PROJECTS

Process/ Company Plant Unit Capacity Licenser/ Details Project Location Contractor U.S.-Americas Steam and BP Chocolate Combined capacity of Cinergy Solutions The new facilities will allow for the closure of power Bayou and old and new units at (construction, but the deal older units, reducing NOX emissions by 34% cogeneration Texas City, both sites: 3.5mm lb./h has not been finalized yet) at Chocolate Bayou and 53% at Texas City. TX, U.S. steam and 805 MW CO2 emissions from both sites will be electricity. The 450K reduced by 727K t/y. Excess electricity will b/d Texas City refinery marketed in the region. BP is the only local is BP’s largest U.S. company supporting the tough pollution facility. reductions set out in TX’s SIP. (NW/Oct 20) Refinery refit Pemex Cadereyta, Consortium of Siemens, Work on the refinery is part of Mexico’s Mexico Sunkyong (South Korea) nationwide refinery renovation program, and Tribasa (Mexico) which began back in 1997. Work is expected to be finished this week, but an inauguration ceremony already took place on Oct. 26. Trial operation will begin shortly, with gasoline production at the refinery increasing, resulting in a reduction in imports. A crude pipeline has still not been completed; the refinery is likely not to see full operation until the supply line is in place. (NW/Oct 25 & OD/Oct 28/p 9) Computerized Petroecuad Universal 10K b/d diesel, fuel oil The refinery will be closed for approximately optimization or plant at the and gasoline from the 15 days while the system is installed and system La Libertad Universal plant connected, but fuel supply will not be refinery, affected because of planned surplus Ecuador production in advance of the shut-down. The new system will enable greater efficiency related to valve closing and opening, temperature readings, and process flow control. (OD/Oct 11/p 9) Europe/Middle East/Africa Process Bayernoil Ingolstadt, One unit will be BP (OATS, a new process BP’s refining technology division, RTG, is demonstration Germany converted to use the technology for FCC gasoline hoping that the demonstration will pique the technology with <10 ppm sulfur; the interest of refiners seeking out desulfuri- process requires no extra H2 zation processes in light of upcoming and maintains octane levels) legislation. (WR/Oct/p 36) Propylene Scanraff Lysekil, 75 m3/h feed; total Technip (design, Start-up of this $44.2mm (50mm euros) recovery/ Sweden refinery capacity is engineering, project project is set for April 2002. The FCCU will storage unit 210K b/d management, procurement, provide feedstock for the unit, which will and commissioning recovery polymer-grade propylene. assistance) (ECN/Oct 9-15/p 42, CW/Oct 11/p 23 & OGJ/Oct 16/p 9) Refinery Saudi Ras Tanura Capacity will be The project will help the refinery produce upgrade Aramco refinery, boosted to 310K b/d more low-sulfur fuels, like those soon to be eastern Saudi mandated in the U.S., Europe and Asia. (The Arabia company also has a 490-mile, 285K b/d pipeline in the works in the eastern part of the country and has already bumped up production at its Shiba refinery to almost 500K b/d.) (WR/Oct/p 14)

November 2000 54 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected LIST OF IMPORTANT LITERATURE ARTICLES

Article Title Key Words Author/Company Source Business 1) Industry Faces a Power Struggle Energy deregulation in individual states, cogeneration Staff CW/Oct 11/ opportunities p 41 2) Securing an agenda Fuel markets and refinery projects in Singapore, Staff HA/Sept/p 10 Malaysia, Thailand, the Philippines and Vietnam; Shell MDS technology-Heavy Paraffin Synthesis 3) MOL gains strength downstream Regional downstream player, Bratislava refinery, Staff OGJ/Sept with Slovnaft consolidation refinery revamp, retail strategy, plastics and 11/p 30 petrochemicals 4) Brazil’s Petroleum Sector Evolves Market potential, demonopolization of Petrobras, J.-P. Prates, et al./Prates & OGJ/Sept product flows and supply-demand balance, midstream Carneiro 11/p 78 and downstream restructuring, refinery status 5) Recovery prospects for Asia- Oil demand changes from 1996 to 2000, refinery Staff PTQ/Autumn/ Pacific oil additions p 7 6) Retaining know-how with Turnaround experiences, capturing and converting L.M. Myers/RWD PTQ/Autumn/ Knowledge Management knowledge Technologies p 63 7) A View Into The Future: Closing In Commercial technologies recommended by Bechtel, Staff WR/Oct/p 39 On Key Processing Issues Engelhard, Grace Davison, Phillips Petroleum, and UOP 8) Convert Data to Knowledge Information technologies, distributed control system, J. Kelley/Foster Wheeler WR/Oct/p 44 Foster Wheeler Delayed Coker Online Advisor, U.S.A. Corp. Technology 9) Fueling Up on Ethanol MTBE ban, ethanol-from-cellulose technologies, Staff CE/Oct/p 30 biomass conversion under development 10) Gasification plant control Disposal of bottom-of-the-barrel products, world W. Barrett/Dresser HA/Sept/p 50 gasification capacity by primary feedstock, Black Water System 11) Flow simulations give refiner Computational fluid dynamics to improve the G. Muldowney/Mobil OGJ/Oct 2/ capacity, product-quality gains performance of reactors, separators, and extractors; Technology Co. p 68 increase catalyst capacity and blower efficiency, FCC regenerator performance 12) Underdog Rentech furthers gas- Sand Creek plant, GTL cooperative efforts Staff OGJ/Oct 9/ to-liquids plans p 55 13) Process, catalyst choices key to Impact of sulfur species, gasoline and diesel B. M. Moyse/Haldor Topsøe OGJ/Oct 9/ producing 30-ppm sulfur fuels desulfurization, HDS of dibenzothiophene, NiMo for Inc. p 72 heavy sulfur compounds 14) Catalysts to play a large part in HDS and HDN, STAR catalysts, MAKFining Premium L.A. Gerritsen, et al./Akzo OGJ/Oct 9/ ultra-low sulfur fuel Distillate Technology Nobel Catalysts and p 76 Nippon Ketjen 15) Gas oil desalting reduces New atmospheric gas oil electrical-desalting process, X. Ye/Sinopec OGJ/Oct 16/ chlorides in crude Sinopec Luoyang refinery, FCCU operation, salt p 76 accumulation 16) Refinery completes revamp to Phillips Petroleum’s Sweeny, TX refinery, Staff OGJ/Oct 23/ accommodate Venezuelan crude Bechtel/Conoco’s delayed coker p 50 17) Alliance updates performance of Pennzoil-Quaker State refinery, MAKFining Staff OGJ/Oct 23/ new dewaxing technology in isomerization dewaxing technology p 52 Louisiana refinery

November 2000 55 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected LIST OF IMPORTANT LITERATURE ARTICLES

Article Title Key Words Author/Company Source 18) Escravos project adds GTL to Nigeria-Chevron j.v. to use flare gas as feedstock Staff OGJ/Oct 23/ Phase 3; nears Phase 2 start-up p 62 19) Upgrading heavy oil using Restrict asphaltene formation, suppress coke-make, S. Terai, et al./Toyo PTQ/Autumn/ iron/active carbon catalyst hydrocracking Engineering Corp. and p 31 University of Tokyo 20) Solvent deasphalting and Lowest cost feedstock, Kellogg’s ROSE, integrated A. Bernetti, et al./ERG PTQ/Autumn/ gasification: a synergy gasification combined cycle, ISAB projects, comparison Petroli SpA and Kellogg p 39 of refinery bottoms processing options Brown & Root 21) Processing feedstock having high Denitrogenate catalytic cracking for better FCC R. Zhang/RIPP, Sinopec PTQ/Autumn/ nitrogen content conversion and octane number p 47

22) Hydrogen: innovative business Refinery CO2 emissions abatement, hydrogen pinch, G. Phillips/Foster Wheeler PTQ/Autumn/ solutions steam reformer radiant module Energy Ltd. p 53 23) Troubleshooting FCC standpipe Diagnostic tools and corrective actions, stabilization of J.W. Wilson/Barnes and PTQ/Autumn/ operations standpipe flow Click Inc. p 71 24) Distributed distillation with heat Side reboiler or pump-around loop to increase J.A. Reid/Stone & Webster PTQ/Autumn/ integration throughput and save energy Engineering Corp. p 85 25) Divided-wall columns—a novel Divided-wall versus conventional two-column systems F. Ennenback, et al./Krupp PTQ/Autumn/ distillation concept for fractionation, benzene removal, selective Uhde p 97 hydrogenation 26) Improved reactor internals for Syncrude Canada’s Mildred Lake upgrader, Topsøe’s F.E. Bingham, et al./Haldor PTQ/Autumn/ HGO hydrotreaters Vapor-Lift distributed trays and Vortex mixing Topsøe and Syncrude p 105 chambers Canada 27) Construction of Smaller Bulk Citgo Asphalt’s Savannah (GA) Refinery Staff TR/Sept/p 14 Loading System Doubles Refinery’s Distribution Efficiency 28) Increase FCC Propylene Key factors: converter, gas compressor, product S. Golden, et al./Process WR/Oct/p 16 Production and Recovery recovery, process flow schemes, equipment designs, Consulting Services and temperature, C/O ratio, catalyst management Refining Process Services 29) New Advances in Third-Stage FCCU, Shell TSS units, fourth-stage separator H. Dries, et al./Shell Global WR/Oct/p 30 Separators Solutions International Petrochemicals 30) Global LPG markets Growth in Asia and eastern Europe, auto-LPG vehicles Staff PTQ/Autumn/ p 12 31) Integrating a refinery and Planning and organization of a 540K b/d project at P. Maitra, et al./Reliance PTQ/Autumn/ petrochemical complex Reliance’s Jamnagar refinery Petroleum, UOP, and p 21 Bechtel Environment, Safety, Maintenance & Reliability 32) Boosting profitability and efficiency Turnaround activities, longer run lengths between Staff HA/Sept/p 28 major outages, decontamination model 33) Cost effective and innovative Clean fuels production, market drivers, market Staff HA/Sept/p 34 revamps solutions, hydrogen management 34) Refinery upgrade meeting Ireland’s Whitegate refinery, desulfurization, new G. Downing/Irish Refining PTQ/Autumn/ environment standards naphtha splitter plc p 139 35) Designing for External Threats Safety and environmental threats from weather D.W. Taylor/Bechtel Corp. TR/Sept/p 8 extremes 36) Protecting Refinery Vessels from Corrosion control C.J. Pieper, et al./CB&I TR/Sept/p 11 Natural Disasters

November 2000 56 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected COMPANY INDEX

Ecopetrol, 34 Lyondell-Citgo Refining, 40 Sadaf, 18 · A Egyptian Petroleum, 46 Sadiq Petroleum, 22 A.T. Williams, 10 EIG, 29 · M Sargeant, 20 Advanced Refining Technologies, 43 El Paso Refining, 20 Marathon, 40 Sasol, 4, 15, 21, 23, 46 African Petroleum, 22 Emerald Capital, 22 Marathon Ashland, 8, 9, 38 Sasol Chevron Holdings, 21, 46 Air Liquide, 43 ENAP, 20 Mazeikiu Nafta, 21 Saudi Aramco, 3, 7, 35, 54 Akmaya, 21 Energy Conversion Devices, 33 Merichem, 44 Scanraff, 54 Akzo Nobel Catalysts, 55 Engelhard, 23, 55 Merichem-Toyo, 44 Shell, 17, 18, 20, 34, 35, 36, 43, 46, 55, 56 Al-Banader International, 17 Engen, 22 Mitsubishi Heavy Industries, 42 Shell Canada, 40 Alberta Energy, 12 ENI, 35 Mobil, 22, 55 Shell Oil., 3 Alfax International Fund, 17 Enron, 46 MOL, 21 Siemens, 54 Alon Israel Oil, 15 Equilon Enterprises, 2, 3, 10, 20, 41 Motiva Enterprises, 2, 3, 7, 20, 41 Silvertop Project Partners, 46 Amerada Hess, 7, 10, 38, 39 Equilon-Martinez Refining, 33 Murphy Oil, 38, 40 Singapore Refining, 17 American International, 20 Equiva Trading, 7 Sinopec, 35, 55 Amoco, 2 ERG Petroli, 56 · N Sipetrol, 20 Apache, 22 Essar Oil, 16 National Iranian Oil, 46 SK Corp., 16 Arcadia Petroleum, 9 Euell Energy Resources, 8 National Oil and Chemicals Marketing, 21 Slavneft, 14 Arco, 2 ExxonMobil, 2, 3, 4, 7, 8, 11, 16, 17, 23, 30, National Petroleum, 46 Slovnaft, 21 Ashland, 39 33, 34, 35, 38, 39, 43 Netherlands Refining, 2 Société Ivoirienne de Raffinage, 35 AspenTech, 43 New England Fuels Institute, 7 S-Oil, 16 · F New Zealand Refining, 3, 22 Solgas Petroleum, 22 · B F.O. Licht, 45 Nigerian National Petroleum, 15, 21, 22, 46 Somo, 15 BA Asia, 17 Fletcher Challenge Energy, 22 Nippon Ketjen, 55 Sonangol, 35 Banque Nationale de Paris-Paribas, 15 Flying J, 20 Nippon Mitsubishi Oil, 16 Southern Petrochemical Industries, 17 Barnes and Click, 56 Formosa, 16, 18 Nuvera Fuel Cells, 23 Spolana, 21, 35 Bayernoil, 54 Foster Wheeler, 42, 55, 56 Ssangyong, 35 O Bayford Thrust, 14 Freedonia, 18, 42 · Statoil, 23, 24, 46 Bechtel, 55, 56 FuelMaker, 45 OMV, 21 Stone & Webster Engineering, 56 Bharat Petroleum, 16, 17 Suncor, 38, 41 · P Boeing, 8 · G Sunkyong, 54 BP, 2, 3, 7, 8, 9, 10, 14, 19, 21, 22, 23, 30, Gas Authority of India, 35 Pakistan Refinery, 3 Sunoco, 9, 10, 30, 38, 41 34, 35, 38, 43, 47, 54 General Motors, 10 Paramo, 21, 35 Syncrude Canada, 5, 11, 43, 56 BR Distribuidora, 34 Giant Industries, 20, 39 PDVSA, 7, 12, 13, 22, 33, 34 Syntroleum, 4, 46 Burhany Energy Enterprises, 8 Grace Davison, 43, 55 Pemex, 12, 54 GreenTeam, 45 Pennzoil-Quaker State, 30, 55 · T · C Gulf Coast Petroleum Trading, 20 Pertamina, 17, 36 Technip, 44, 54 Caisse Des Depots et Consignations, 44 Petrobras, 12, 13, 20, 34, 55 Tema Oil Refinery, 15 Caltex, 2, 17, 44 · H Petro-Canada, 11, 38, 40 Tesoro, 38 Caltex Australia, 3 Haldor Topsøe, 23, 24, 55, 56 Petrochem Carless, 21 Texaco, 2, 7, 15, 20, 23, 33, 35, 38, 41 Caltex Oil SA, 3 Hindustan Petroleum, 16 Petrochem UK, 21 Tosco, 7, 9, 11, 38, 41, 47 Caltex Philippines, 3 Hitech International Group, 17 Petrochemical Corp. of Asia, 19 Total Fina Elf, 1, 2, 3, 14, 15, 30, 35, 38 Calumet Lubricants, 30 Holly, 38 PetroCosm, 44 Toyo, 44, 56 Canadian Natural Resources, 12 Honda, 45 Petroecuador, 13, 54 Toyota, 45 Carl H. Pforzheimer & Co., 33 Honeywell, 43 Petrokemya, 18 Tribasa, 54 Carless Refining & Marketing., 21 Hovensa, 7 Petroleum India International, 21 Trinmar, 20 CB&I, 56 hte, 35 Petrologistics, 31 C-Clockwork Solutions, 43 Huntsman Chemicals, 4 Petromidia, 21 · U Cepro, 35 Huntway Refining, 39 Petron, 19, 36 UBS Warburg, 33 Charles River Assoc., 47 Hyundai Oil Refinery, 16 Petronas, 17, 19, 22, 36 Ultramar Diamond Shamrock, 20, 38, 41 Chem System, 18 Petronet, 16 Unipetrol, 35 CheMatch.com, 42 · I Petrotrin, 20 UniPure, 23 Chemical Strategies, 47 Imperial Oil, 11, 38, 40, 43 PetroVietnam, 17 UniSource Energy, 45 Chevron, 2, 20, 21, 30, 35, 38, 39, 43, 46, INA, 14 Petrox, 20 University of Tokyo, 56 56 Inchon Oil Refinery, 16 Petrozuata, 12 Unocal, 1, 11 Chevron Texaco, 2, 3 Indian Oil, 16, 17, 19, 35 Peugeot, 24 UOP, 16, 23, 43, 55, 56 China National Electrical Equipment, 17 Indian Oil Petronas, 19 Philip K. Verleger, 8 USX-Marathon, 38 China Resources, 22 Inland Resources, 20 Philippine National Oil, 19 Chinese Petroleum, 19, 35 Intergraph Building Solutions, 42 Phillips Petroleum, 1, 4, 20, 23, 38, 40, 55 · V Cinergy Solutions, 54 International Truck and Engine, 23 Phoenix Fuel, 20 Valero, 8, 9, 33, 38, 41 Citgo, 29, 33, 34, 56 Intuitive Design, 42 Pira Energy Group, 7 Valley Shamrock, 20 Coastal, 38, 39 Iran-Pakistan Oil Refinery, 17 Power Play and Alternative Energy, 4 Veba Oel, 21 Cogema, 44 Irish Refining, 56 Prates & Carneiro, 55 VerticalNet, 43 Colonial Pipeline, 10 Irving Oil, 1, 33 Praxair, 23 VietRoss, 17 Condea, 21 ISAB, 56 Premcor, 10 Vitol, 8 Conoco, 8, 12, 14, 33, 38, 39, 55 ITN Energy Systems, 45 Process Consulting Services, 56 Conpetrol, 21 Ivanhoe Energy, 46 PSA, 24 · W Cosmo Oil, 16, 42 PT Intan Jaya Agro Megah Abadi, 17 W.R. Grace, 43 Credit Agricole Indosuez, 35 · J PT Kilang Minyak Intan Nusantara, 17 Wakayama Petroleum Refining, 16 CRI, 43 JG Summit Petrochemical, 19 PT Minyak Pola Permai, 17 Wal-Mart, 40 Criterion Catalyst/CRI, 23, 43 John S. Herold, 22 Purvin & Gertz, 11 Walnut Creek Mining, 20 Crompton, 30 WilcoHess, 10 K Crown Central Petroleum, 9, 11, 39 · · R Williams International, 21 Cummins, 24 KBC, 43 Refining Process Services, 56 Wood MacKenzie, 33 Cytec Industries, 43 Kellogg Brown & Root, 56 Reliance Petroleum, 16, 56 Woodside Petroleum, 22 Kenya Petroleum Refineries, 3 Rentech, 4, 45 Worldwide Fuel Refinery Capacity ( · D Koch, 10, 12 Repsol YPF, 21, 38 Thousand b/d), 2 DaimlerChrysler, 45 Krebs-Speichem, 44 RIPP, Sinopec, 56 Dan Gødning, 24 Krupp Uhde, 56 Rix Petroleum, 14 · Y DEA, 21 Rompetrol, 21 Yaroslavl, 14 L Delphi, 24 · Royal Dutch/Shell, 2, 3, 7, 21, 22, 35, 38, 40 DownstreamEnergy, 42 Lance Stroud Enterprises, 8 RPC, 20 · Z Dresser, 55 Lehman Brothers, 33 RTG, 54 Zarubezhneft, 17 Dry Fork, 20 LG-Caltex, 3, 16 RWD Technologies, 55 Dynegy, 4 Lubrizol, 43 RWE, 21 LUKoil, 21 · E Lundberg, 6 · S E.ON, 21 Lyondell Chemical, 13, 38, 40 SABIC, 18 November 2000 57 Back to Table of Contents Hydrocarbon Publishing Co./Copyright Protected