Shell, Saudis to Spend $7 Billion on Texas Refinery (Update5)

Now this IS of note.

Look what little George Dubya has done! Took him the Presidency to pull this off for his oil industry buddies, but he's done the leg work for them! (the scumbag). Bechtel IS the Bushes, George W.H. Bush must be proud of Junior now!!

Obviously, the US cannot depend on stability in the Middle East, and IF they want to ensure that they adequate supplies of oil, it's about HIGH TIME they started fixing the aging refineries and drilling equipment. God knows they have the money NOW after massive profit$ rolling in all through the BuZh administration.

However, details below show how this came about and we can be assured that environmental damage is about to become a new paradigm wherever oil can be refined ....

By Christian Schmollinger and Sophie Tan

Sept. 21 (Bloomberg) -- Royal Dutch Shell Plc and Saudi Arabia will spend $7 billion to more than double the size of their Texas oil refinery, the biggest U.S. expansion in fuel production in three decades.

The joint venture, Motiva Enterprises LLC, will boost capacity at the Port Arthur oil refinery by 325,000 barrels a day, making it the largest in the U.S., by 2010. The facility will process 600,000 barrels a day of crude oil, Motiva said today in a statement. In April last year, the cost was estimated at more than $3 billion.

Refinery investment has lagged behind fuel demand growth because of strict environmental regulations and complaints from residents living near plants. President George W. Bush has pledged measures including tax breaks to spur construction and ease reliance on gasoline imports. Shell is betting that refining profit will surpass the escalation in costs.

``We have had strong refining margins in recent years,'' said Ivor Pether, who helps oversee about $17 billion at Royal London Asset Management, including around 30 million Shell shares. ``It's probably very sensible for Shell to raise its capacity in America.''

Record Prices

Oil prices have surged to a record above $82 a barrel, even after the Organization of Petroleum Exporting Countries pledged last week to pump more crude. Saudi Arabian Oil Minister Ali al- Naimi and other group officials have frequently blamed higher prices on a shortage of refining capacity.

The refinery expansion will cost $21,000 per barrel-a-day of capacity. That's ``consistent with recent industry estimates of refinery replacement costs,'' London-based Citigroup Inc. analyst James Neale wrote in a note today.

Shell invests about $25 billion a year in projects, Malcolm Brinded, the company's head of exploration and production, said Sept. 4.

Both Shell and Saudi Arabia will supply heavy-grade crude oil to the refinery to be processd when the additional capacity is in place, Rob Routs, head of refining at Shell, said today on a conference call with reporters.

The price difference between a barrel of crude and a barrel of gasoline, a rough measure of refining profitability, rose to a record $37.477 a barrel on May 17 in the U.S.

Fallen Behind

Oil product supply has failed to keep pace with the growth in demand for transportation fuels. The International Monetary Fund forecasts global economic growth of 5.2 percent in 2007 after 5.5 percent expansion last year, extending the longest period that growth rates have held above 4 percent since the early 1970s.

The Port Arthur expansion is

"equivalent to building the first new refinery in more than 30 years,''

Motiva said in the statement. Marathon Oil Corp.'s 285,000 barrels-a-day Garyville, Louisiana, plant was the last new facility built in the U.S., starting up in 1976.

Refiners have been reluctant to commit to building new U.S. plants because of cost inflation and environmental objections, prompting Bush to offer disused military bases as potential sites. The Motiva investment will take place at an existing refinery, making permitting easier.

``They must expect margins to stay strong,'' said Anthony Nunan, an assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``They don't have a problem of getting a new site; it's an expansion from the present site.''

New Jobs

Motiva in April 2006 said it planned to begin the Port Arthur expansion in 2007 and to complete the project in 2010. Routs said today the total cost would be $7 billion and more than 4,500 construction jobs and about 300 new full-time jobs would be created.

``They've been talking about it for a while and the reason it's so expensive is that you're building all of the upgrading equipment to make higher-quality fuels from lower-quality crudes,'' said Alex Brooks, an analyst with UBS AG in London. ``The returns will be higher than with a new build. The number they're looking for is a 15 percent return.''

The existing Port Arthur refinery is about 90 miles (145 kilometers) east of Houston and can process 275,000 barrels a day. The expansion will vault the Port Arthur refinery past Exxon Mobil Corp.'s Baytown, Texas, plant, currently the largest in the U.S. with capacity of 562,500 barrels of oil a day.

The engineering contract for the enlargement project was awarded to a joint venture of Bechtel Corp. and Jacobs Engineering Group Inc.

Overcome Objections

Oil processors are expanding existing facilities rather than building wholly new units as a way to avoid environmental objections.

Marathon Oil will add 180,000 barrels a day of capacity to the Garyville refinery for $3.2 billion, it said in November. The project is scheduled to being in mid-2007 and to be completed in the fourth quarter of 2009.

Chevron Corp. plans to expand a gasoline production unit at its Pascagoula, Mississippi, facility that will boost output by 10 percent. The unit currently refines 330,000 barrels a day.