HOUSTON (Dow Jones)
Hunton Energy is betting that touting a green refinery will make it the first company to build one in the U.S. in three decades.
The Houston-based energy group is looking for investors to build a refinery as part of a $30 billion project. The group says the refinery would be more environmentally friendly than the traditional plant because it would emit far less greenhouse gases, which have been shown to cause global warming. The refinery also would recycle water and byproducts.
"We want to make it green," said Alma Rodarte, vice president of project development for Hunton Energy, a subsidiary of Houston-based Hunton Group, which specializes in heating and air conditioning for building systems.
Refineries, which process crude oil into products such as gasoline, diesel and jet fuel, are the second-biggest source of carbon emissions in the U.S., behind power plants. Refiners who are permitting large-scale expansion projects across the Midwest say they're using the best available technology to curtail emissions of a variety of pollutants, but others say they aren't doing enough.
While some plants have been expanding to accommodate the increase in demand for oil products seen earlier in the decade, no new refinery has been built since 1976 due to companies' reluctance to invest billions as environmental regulations become more stringent.
To be sure, Hunton Energy and other investors who are attempting to build new refineries have their skeptics. While new refinery construction looked like a profitable undertaking when margins were high, those margins have since crashed and have dipped into negative territory this month. In addition, the pool of money available for such investments has shrunk as banks and other financial institutions have reined in lending as the current financial crisis deepened.
Despite the hurdles, Hunton Energy is seeking investors actively and said it believes it can secure environmental permits because the refinery's emissions would be low, Rodarte said.
The main feature of the refinery would be a gasification unit, Rodarte said. Gasification is a technology that has been around since the 1930s but typically is found in power plants, she said. However, some refineries, including Valero Energy Corp.'s (VLO) Port Arthur and ConocoPhillips' (COP) Sweeney, Texas, are in the process of constructing gasification units at their facilities.
'No Waste Streams'
When oil is boiled, cooled and processed into diesel, gasoline and other products, pollutants including sulfur, nitrous oxide, carbon dioxide and volatile organic compounds are produced.
Carbon "has the evil name these days," Rodarte said.
Hunton's goal always has been to make the refinery environmentally friendly, Rodarte said.
"We want to be sure...we did everything possible to minimize emissions," she said. "We definitely have distinguished ourselves to be very environmentally set up since day one."
Carbon dioxide, produced as a byproduct from the Hunton Energy refinery, would be separated out and sold for enhanced oil refinery projects, which use carbon to extract more oil from existing wells. Rodarte said Hunton Energy already has worked out deals with companies who need the CO2, but she declined to name them.
The 340,000-barrel-a-day refinery also would recycle water and sell other byproducts to chemical plants.
"We have no waste streams," she said.
Hunton Energy has partnered with Dow Chemical Co. (DOW) to build a $2.8 billion gasification unit in Freeport, Texas, that would provide steam and power for the plant. Construction on the facility should start in the third or fourth quarter of 2009, Rodarte said.
Once the facility is finished, Hunton could begin construction on the refinery either at the Freeport site or in Texas City. The refinery construction, which would involve putting in a second gasification unit, could start in 2011, Rodarte said.
The refinery would import bitumen produced in Canada's oil sands. This oil province has come under fire from environmentalists, who are critical of the amount of pollution released in the mining and upgrading of the tar-like material.
"We recognize the environmental challenges associated with the oil sands," Rodarte said, noting Hunton has plans to try to reduce the negative effects.
Hunton Energy plans on building a facility in Canada to dilute the bitumen so it can be piped to the Gulf Coast.
At the Texas refinery, Hunton proposes feeding either petroleum coke or coal into a gasifier and mixing in steam and oxygen in order to produce a synthetic gas, which then would produce steam to power the refinery. The hydrogen also would be used to crack the slurry, or diluted bitumen, turning it into fuel.
Rodarte said the refinery would have a higher yield than a traditional refinery would.
Refinery analysts have said Hunton's project is a lofty undertaking.
Malcolm Turner, chairman of Turner, Mason & Co. in Dallas, said labeling the Hunton refinery green was a mere "gimmick."
Turner said he didn't believe that gasification was an environmentally friendly process and that he didn't know how Hunton would be able to raise the funding.
Gasification units would be more prudently used in power plants where they would have the greatest impact at reducing carbon emissions, said Paul Ruwe, a refinery analyst at the Muse, Stancil & Co. office in Houston
"I'll never say it can't happen," he said.
(Susan Daker covers the U.S. oil refining sector)
Copyright (c) 2008 Dow Jones & Company, Inc.