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Petroleum Refinery Sector

- - - - - Refinery Sector Petroleum Sector

186 replies to this topic

#1
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    Cut in deemed duty to reduce oil refineries’ revenue

    KARACHI: The recent withdrawal of deemed duty on petroleum products would decrease the sales revenue of oil refineries.

    The Central Board of Revenue (CBR) abolished the five percent custom and one percent surcharge duties on the import of kerosene and Light Diesel Oil (LDO) in the budget 2007-08, which will adversely affect the profit of national refineries processing these petroleum products.

    Under the tariff protection formula, the government had allowed the refineries to charge the same cost ratios as those charged by the oil marketing companies on four petroleum products namely, LDO, Kerosene, JP-4 and JP-8 since 2002. The government had equated the price (sales price) of various products for domestic refineries with the cost of imports by oil marketing companies through imposing duties.

    Hence, this mechanism favored the local refineries as they were getting extra margin on the production of LDO and kerosene oil.

    However, the three refineries - Pakistan Refinery Limited, National Refinery Limited and Attock Refinery Limited produce these two products according to their own capacity. Aftab Hussain, General Manager Commercial, Pakistan Refinery Limited was of the view that the refineries would incur losses owing to the removal of custom duties, but it depended on the quantity of the product they refined. The more company refines the product the more losses it will have to bear. However, he negated that this reduction in duties will ease the prices of petroleum products in the local retail market.

    According to an estimate, the industry (excluding PARCO) on the whole is expected to lose approximately Rs 600 million in sales revenue, which is going to trickle down to gross profitability and translate into a decline in their net profits of almost Rs 400 million.

    Analysts believe that, from 1992 to 2002 the earnings of refineries depended on International Price Parity of petroleum products with a cap of minimum 10 percent and maximum 40 percent limit on the rate of return on their paid-up capital.

    Jawad Haleem, an analyst at Atlas Capital, believes that the government has ‘hit two birds with one stone’. While it literally hit the refineries, it managed to bring down its liabilities payable to the refineries in terms of Price Differential Claims (PDC), which came down from Rs 6.2 per litre to Rs 4.3 per litre on kerosene and Rs 6.6 per litre to Rs 4.8 per litre on LDO. As per OCAC figures, during July-April 2006-07 oil companies produced 162,798 tonnes of kerosene and 121,753 tonnes of LDO. staff report

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    #2
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    Gas refiners' profits being driven to record level
    Houston Chronicle

    Not everyone is complaining about high gas prices.

    The major U.S. refiners of gasoline, from Big Oil companies like Exxon Mobil Corp. and Chevron Corp. to stand-alone refiners like Valero Energy, are seeing some of the strongest profits ever as pump prices reach new peaks.

    In the first quarter, profits for the 11 companies with domestic refining operations shot up 22 percent to $4.7 billion, according to the federal Energy Information Administration.

    For the stand-alone refiners, the jump was a mind-blowing 579 percent to $248 million, as refineries boosted output and the spread widened between what the companies paid for crude oil and what they charged for gasoline, said the agency, part of the Department of Energy.

    And with tight gas supplies and fuel demand expected to rise during the summer travel season, analysts said, refiners are likely to post strong profits again in the second quarter.

    "There's going to be three to four years of a healthy economic environment for companies in the refining business," said Phillip Verleger, an energy industry consultant in Aspen, Colo.

    Higher refining profits this year also reflect a spate of refinery outages, high crude prices and higher-than expected fuel usage by American drivers.

    The difference between what refiners pay for a barrel of oil, and the price they sell the products typically made from that amount of crude, is known as the gross refining margin. This figure, calculated before taxes and expenses are subtracted, is widely used as a rough indicator of the profitability of the refining business.

    This week, that margin hovered around $26 per barrel, up from $21 at the same time a year ago, and $11 in 2004, according to Eitan Bernstein, industry analyst with Friedman, Billings, Ramsey & Co. in Arlington, Va.

    Only after 2005 hurricanes hobbled more than a quarter of the nation's gas-making infrastructure did this margin shoot higher, he said. The record of $34.15 per barrel was set on Aug. 31, 2005, said Peter Beutel, an analyst at Cameron Hanover. For this year, he predicts the U.S. margin will average $18.45.

    In recent weeks, some Washington lawmakers have accused refiners of profiteering, and even intentionally closing refineries to drive up prices by limiting supplies.

    But industry officials say when prices are high there is more incentive, not less, to keep refineries up and running. Every unexpected shutdown forces the companies to buy gasoline on the wholesale, or spot, market to fill orders. Plus, the refineries must continue to pay their workers and sometimes hire extra personnel to fix problems.

    "We're in the business to make money, not to shut our facilities down," Rob Routs, Shell Oil's top executive over refining operations, said in an interview with the Chronicle last month.

    Refiners could conceivably drive up the wholesale price of gasoline by shutting down some gasoline-making units. Wholesale prices are largely based on the futures prices set by traders in New York who try to profit by placing bets on what gasoline will be worth in the future. If a plant goes down during the summer driving season, gasoline prices will rise if those traders see it significantly tightening supplies.

    But closing a plant to rig prices is not only illegal, it would probably only drive up prices by a small amount, said Beutel. With margins where they are today, he said, "You would make more money by running everything you've got."

    The current high profit environment is simply a function of basic economics, said Charlie Drevna, executive vice president of the National Petrochemical and Refiners Association, the industry's main trade group in Washington.

    "Refining margins are high because supply continues to fall below demand," he said. Drevna pointed out the industry invested $50 billion to comply with federal regulations during the '90s when profits were lean.

    Can be hard to explain

    Yet the big gains can be hard to explain to the public at a time when gasoline costs so much. The national average price Wednesday was $3.14 a gallon, according to AAA.

    With refining profits up sharply, some have argued that the industry should expand its refineries or build new ones.

    But industry officials respond that there is less incentive to spend on such projects now that President Bush is pushing a plan to cut gasoline usage 20 percent by 2017, mostly by blending more ethanol into gasoline.

    "You have to say, 'Why would I invest in additional gasoline refining capacity until I understand a little bit more what's happening in the market?'" said Chevron Vice Chairman Peter Robertson in a recent interview.

    A new refinery hasn't been built since 1976, but existing refineries have been slowly expanding their production.

    With better profits in recent years, refiners had planned to add more than 1.5 million barrels a day of new refining capacity, Drevna said. But some refiners have since pulled back because of the cloudy demand picture and rising costs of materials and labor. Now, plans call for less than 1 million barrels-a-day of additions, he said. "And even that's being looked at."

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    Expansion planned for Texas refinery

    More capacity

    Royal Dutch Shell PLC plans to nearly double the size of an oil refinery it operates with a Saudi partner in Port Arthur on the Texas Gulf Coast, making it the biggest in the nation and one of the largest in the world.

    Shell, one of the world’s largest oil companies, said Friday its decision to expand the refinery would increase U.S. supplies of gasoline, diesel and jet fuel. Shell plans to boost the Port Arthur refinery’s capacity to 600,000 barrels of crude oil a day by 2010 from the current 275,000 barrels a day.

    Shell estimated that the expansion, the biggest in more than 30 years, would cost about $7 billion.

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    #4
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    Desulphurising HSD by EU standards: NA body seeks ban on non-complying local refineries

    By Ijaz Kakakhel

    ISLAMABAD: The National Assembly's Standing Committee on Petroleum and Natural Resources on Wednesday recommended the government to ban the sale of those refineries that do not desulphurise diesel according to European standards.

    The committee was of the view that such refineries should not be allowed to sell their products in the country, as human health is more important than everything else. The committee also directed the Ministry of Petroleum and Natural Resources to ensure hydro desulphurisation of diesel by oil refineries, which would help in achieving the Euro-II specification of high-speed diesel (HSD) by 2010.

    It expresses its deep concern over the fact that higher sulphur contents in diesel have worsened the problem of vehicular emissions and is posing a serious threat to public health and environment.

    "The add-ons were allowed to oil refineries a couple of years ago in 2000 to reduce sulphur and this grace period ended in 2003 but these could neither improve their quality nor pass on the benefit to the end users (consumers)," it observed. "Rest of the world had already achieved this target back in 1993 however, we would do so in 2010."

    The Standing Committee on Petroleum and Natural Resources, met on Wednesday under the Chairmanship of Senator Syed Dilawar Abbas, supported the Iran-Pakistan-India (IPI) Gas Pipeline Project and called upon the government to ensure its implementation and final commissioning within the stipulated timeframe by expediting matters nationally at the government level as well as bilaterally.

    It urges fast track approach to settle the remaining outstanding issues hampering this project of vital national importance. The committee also directed the ministry to brief the members on the progress of the project after every 6-8 weeks.

    The NA Committee also expresses its concern over increase in the LPG prices every year during winter and its shortage and directed the ministry to activate OGRA in this connection. It said the authority must monitor the prices regularly so that the gas remained available to the general public at a reasonable price. It also instructed them to make sure that ban on its export remains fully implemented.

    The meeting urged the government to come up with a comprehensive CNG policy and not to allow CNG stations in over-crowded localities and areas. The committee wanted the government to examine the possibility of the use of ethanol as an alternate fuel as it is currently being done in many countries of the world.

    "Why this experiment has failed in Pakistan?" it inquired. It observed that Pakistan being an energy deficient country must explore all avenues to overcome the supply demand gap especially in view of rapid growth in the economy and to maintain competitiveness of our exports in the industrial sector.

    The meeting asked the government to ensure that sub-standard gas heaters are not sold in the market as a lot of people die every year in winter due to suffocation and leakage of gas from these heaters.

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    #5
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    Iran, Essar refinery JV to start work in '08
    Thursday, October 25, 2007
    SINGAPORE/NEW DELHI: Iran's state oil refining firm and Essar Group are expected to start building a 300,000 barrels per day (bpd) refinery in southern Iran early next year, sources close to the deal said.

    The facility, estimated to cost $8-$10 billion and which would be the first foreign-invested downstream project in sanctions-hit Iran, will boost the OPEC member's stagnant refining sector that is struggling with petrol shortages.

    Once finalised, it will be Essar's first overseas refinery development and will provide a foothold to the family-owned Indian business house in Tehran, where it is also trying to build a steel plant and acquire exploration assets.

    The proposed plant at the southern port town of Bandar Abbas, will process heavy crude such as Soroush and Iran Heavy to be allocated by the Iranian authorities.

    "We have completed the feasibility study and now, we are working on the project financing, and we have targeted starting on the construction phase next year," a Tehran-based source from the National Iranian Oil Refining and Distribution Company said.

    The refinery could take three to four years to build, the source added.

    Essar, owned by the Mumbai-based Ruias family, will take a 60 per cent equity stake in the project with Iran taking the rest, said the Tehran-based and India-based sources.

    Iran, the world's fourth-biggest oil exporter, last year launched a multi-billion dollar, five-year plan to expand and upgrade its refineries to three million bpd, from 1.6 million bpd.

    But energy consultancy Wood Mackenzie estimated that Iran's actual refinery capacity additions would more likely come to 700,000-800,000 bpd by 2014 and cost at least $10 billion.

    The country lacks refining capacity and imports massive volumes of costly motor fuel to meet domestic demand. This has become a sensitive issue, as the West considers tougher sanctions against Tehran's nuclear work.

    Last week, Iranian officials were reported to have told local media the country was expected to import $4 billion worth of gasoline during the Iranian year ending in March 2008, suggesting a 20 per cent drop from the previous year. Officials have said Iran spent $5 billion or more on imports last year.

    Iran's access to financing of mega-projects have been hindered by tighter credit from European banks and Western energy firms' reluctance to do business with the Islamic Republic, depriving it of the expertise and technology needed for upstream projects.

    But Iran has found support from companies in energy-hungry Asia, eager to participate in its refinery and energy infrastructure expansion plans in exchange for equity.

    Essar, a diversified, family-owned holdings company with interests from telecoms to construction, also plans to set up three steel plants in the Middle East, including a joint venture to build a 1.5 million tonnes a year steel plant in Iran.

    In January, an Essar official told Reuters the company wanted to strengthen its relations with Iran and was looking to buy into Iranian exploration and production blocks to help meet electricity needs for its planned steel plant.

    India's oil minister Murli Deora said in March that Essar Group is in talks to buy liquefied natural gas from Iran.

    Essar is also discussing with Iran to jointly develop the giant Azadegan field, the Middle East country's biggest oilfield with in-place reserves of 26 billion barrels.

    Japan's INPEX Holdings Inc, which holds a 10 per cent stake in Azadegan, was slated to develop the field but the deal fell through last year.

    Essar has also submitted a bid for three exploration blocks in Iran in the most recent auction round.

    Its oil refining arm Essar Oil Ltd launched India's second private-sector refinery late last year and the group plans to raise its total refining capacity to 680,000 bpd by 2010.

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    #6
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    US $5 billion being invested in private sector for knew three oil refineries

    ISLAMABAD (updated on: October 26, 2007, 01:37 PST): National Assembly Standing Committee on Economic Affairs and Statistics was informed on Thursday that approximately US $ 5 billion are being invested in private sector for setting up new three oil refineries.

    Rasheed Akbar Khan, MNA, Chairman Standing Committee on Economic Affairs and Statistics presided over a meeting of Economic Affairs and Statistics Committee today.

    Director General (Oil), Ministry of Petroleum and Natural resources briefed the Committee about the loans arranged for the Ministry of Petroleum by the Economic affairs Division.

    He apprised the Committee that loans are arranged by Islamic Development Bank annually for financing by the import of Petroleum products and crude oil through PSO and PARCo respectively.

    Normally, the maturity period of these loans is 12 months.

    These loans amounting to around US$ 200-300 million are annually extended by Islamic Development Bank for which Finance Division makes budgetary provision.

    The committee was further informed that approximately US$ 5 billion are invested in private sector for new three oil refineries.

    Briefing the Committee the Additional Secretary, of the Ministry informed that during last three years 14 loans were arranged by EAD for WAPDA, 10 for power projects and four for water projects. Some projects are near to completion while others are under progress.

    The senior officers from Ministry of Economic affairs Division and Representatives of concerned departments were present in the meeting.

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