Spanish energy companies say that plans to upgrade refineries and reduce the country's yawning deficit in diesel are on track despite the credit crunch.
Earmarked for investment by 2011 are more than 6 billion euros ($7.57 billion) to upgrade six of Spain's nine refineries run by Repsol, Cepsa and BP.
Privately held Grupo Gallardo plans to open a new 110,000 barrel-per-day refinery in 2011, at a cost of 2.5 billion euros. Along with other planned expansions, it would add 260,000 bpd in crude distillation capacity to a current total of 1.37 million bpd.
"The plans are to finance (upgrades) from cash flow. We weren't thinking of going to the debt markets anyway," said a spokesman from Repsol, which is Spain's biggest refiner and operates five plants.
"The idea is to refine more, lower grade crude and produce more middle distillates," he added.
In the 12 months to September, the latest date for which data is available, net diesel imports were 12 million tonnes, or 33.7 percent of consumption logged by Spain's energy reserves body CORES.
The only oil product in which Spain had a surplus was gasoline, for which net exports were 2.57 million tonnes, equivalent to 40 percent of consumption.
GASOLINE PRODUCTION TO CONTINUE
But no one was thinking of cutting back gasoline production just yet.
"The problem with closing gasoline units is that you would also lose propane and butane," said a spokesman from Cepsa, which runs three refineries totalling 430,000 bpd.
Cepsa will spend 1.65 billion euros by 2010 to boost output of middle distillates, including diesel and kerosene, by 39 percent and up its total refining capacity by 17 percent.
Repsol has the lion's share of planned investment, including 3.2 billion euros aimed at raising crude distillation capacity at its Cartagena plant to 220,000 bpd from 100,000 by 2011.
Repsol, in which Lukoil has been trying to acquire a 20 percent stake, expects its upgrades to cut Spain's diesel imports by 30-40 percent.
Gallardo predicts its Balboa refinery, when built, will cover 20 percent of Spain's diesel imports and half those of kerosene.
The main hurdle faced by the Balboa project is an environmental impact study, which the company hopes will be ready by next spring.
Environmental groups have objected that the proposed site for the plant in the southwestern Extremadura region is close to a national park and could contaminate ground water.
Even if Spain's planned upgrades can dodge credit and environmental obstacles, analysts say European refining margins face a dull outlook in the next 18 months due to increasing downstream capacity, particularly in Asia.
In India, Reliance Industries recently opened a 660,000-bpd refinery -- the world's biggest -- and is ready to commission a 580,000-bpd plant.
Copyright 2008 AFX News Limited. All Rights Reserved.