WASHINGTON (Dow Jones)
Motiva Enterprises LLC will later this month ask its board for final investment approval for a 325,000 barrel-a-day expansion at its Port Arthur, Texas, refinery, company officials said Tuesday.
If joint owners Royal Dutch Shell PLC (RDSA) and Saudi Arabian Oil Co. (SOI.YY), or Aramco, decide to move ahead with the long-considered project, it would more than double capacity to 600,000 barrels a day, making it the largest refinery in the country.
"We are going to be seeking final investment decision with our two owners in the upcoming month at our third-quarter meeting," Mike Lewis, executive director at Motiva, told Dow Jones Newswires.
The board is expected to meet in the third week of September.
"We're praying we'll get approval," said Motiva spokeswoman Sue Parsely.
The request for the final decision comes as refining capacity remains tighter than it has been in decades, pressuring gasoline and product prices to record highs. Approval for Motiva would be a sign that refiners believe they can overcome mounting challenges, and invest billions in a project that will takes years to recoup costs. The industry is grappling with issues such as labor shortages, expensive equipment costs, more stringent environmental restrictions and uncertainty over energy policy.
Should the six-person board - three Shell and three Aramco officials - approve a move forward, Lewis was confident the company would still be able to meet a startup target of late 2010.
"What people don't realize is the amount of work we've already done this past year," he said. "A lot of the major pieces of equipment are already on order, and we've got placeholders in major fabrication shops around the world," he added.
Parsely also said engineering and construction work was already underway at the site, preparing it for expansion.
Motiva's Lewis also ruled out incremental expansion, though engineering study plans reviewed piecemeal capacity growth as an alternative to the full, 325,000 barrels-a-day expansion project. "The option we've chosen best balances our network and is the best balance for the refinery," Lewis said.
Don Boumans, executive director of the Golden Triangle Business Roundtable, said he was confident of a 2010 completion date, despite an expected labor shortage seen peaking in 2009. The Roundtable is a trade association whose members include most of the plants and refiners in the East Texas region around Port Arthur, including Motiva.
However, there are questions whether Aramco may be considering a vote against expansion of the refinery - with a current capacity of 275,000 barrels a day - because of new energy policies that would cut gasoline use in years ahead. Approval of the project has been delayed for more than a year.
Congress is considering legislation that would mandate use of 36 billion gallons of biofuels by 2022 to offset gasoline consumption, and law that would reform vehicle fuel economy standards. President George W. Bush has said he wants to cut gasoline consumption 20% over the next 10 years through a similar policy.
Project costs are significantly cheaper in the Middle East, permitting is much easier, and a refinery in the Middle East would give the Aramco greater flexibility in terms of sales to both West and East demand.
A Washington-based Aramco official didn't return calls for comment.
In June, Aramco announced it would build a 400,000-barrels-a-day refinery at Ras Tanura. The plant is the fourth new facility planned in the kingdom; all told, the projects will add as much as 1.6 million barrels a day of refining capacity to the existing 2 million.
If the Motiva Port Arthur plan were to fall through, the million barrels a day of new U.S. capacity would fall to only 732,000 barrels a day, according to an estimate by the federal Energy Information Administration.
Other announced plans have lingered on without a final decision: Chevron Corp. (CVX) is considering enlarging its Pascagoula, Miss., refinery and Valero is mulling the addition of a process unit at its St. Charles plant in Norco, La.
In addition, challenges by environmentalists and public officials to BP Plc's (BP) plans to expand its refinery in Whiting, Ind., recently led the company to suggest it may cancel modification plans. If its pledge to mitigate chemical discharge into Lake Michigan results in a material impact to the project's viability, "we could be forced to cancel it," Chairman and President Bob Malone said last month.
If Motiva decides not to expand in the U.S., it would exacerbate a three-decade trend of no new refineries. While three so-called for new facilities projects in the U.S. and another three in Canada are under consideration, none are definite, and the last new refinery built in the country was in 1976.
The next new major refineries, globally, to come online in addition to the Saudi plants are a 615,000 barrels-a-day refinery in Kuwait, and a 580,000-barrels-a-day refinery in India.
"It will be difficult to build a new refinery in the United States," said Adam Robinson, an energy research analyst at Lehman Brothers. "There are significant investments coming online in the world that will, in addition to this whole ethanol craze, that will continue to de-incentivize building new refineries in the U.S.," he said.
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