Posted on 09/03/2006 6:35:32 AM PDT by thackney
PORT ARTHUR, Texas — Stark reminders of the damage wrought by last year’s hurricanes emerge while entering this Gulf Coast refinery town about 110 miles east of Houston.
Trees and utility poles are bowed. Blue tarps still cover wrecked houses. Business signs that flew away nearly a year ago still haven’t been replaced.
Even with these humbling reminders of hurricanes Rita and Katrina — which last year temporarily shut down 28 percent of the nation’s refining capacity and helped push pump prices well past $ 3 a gallon — the oil industry is busy expanding along the Gulf Coast.
Refiners expect to boost capacity by 2010 by as much as 1. 9 million barrels, about 11 percent of the current rate, with the most significant changes along the Gulf Coast.
For example, the 3, 600-acre Motiva Enterprises LLC refinery in Port Arthur is planning an expansion that the facility’s general manager says will double its production by 2010 and make it the largest U. S. refinery.
“You could ask, ‘Aren’t you increasing the risk if you’re going to be sticking it in the Gulf Coast area ?’ During two months out of the year, probably,” Todd Monette said. “When you start looking at core infrastructure needed to put a big site like this in place, that’s what the Gulf Coast is all about.”
Despite such confidence, last year’s storms did lead to fundamental changes that could delay or put some expansion plans out of reach. The labor pool is tight.
Orders for materials and parts take longer to fill. Competition from other industry or hurricane-related projects put a drag on resources. Each contributes to increased costs.
San Antonio-based Valero Energy Corp., the nation’s largest independent refiner, is close to completing a 75, 000-barrelper-day capacity expansion in Port Arthur. But labor and ma- terial problems have delayed a September completion by two months.
Richard Marcogliese, Valero’s executive vice president of operations, said project costs have already gone up 20 percent. Material orders that typically take 18 months now take closer to 36, he said.
“The implication for the industry is that in this environment, projects are more expensive, so you have to ask, ‘ Are they all going to get built ?’” Marcogliese said.
This hurricane-related impact reaches outside the Gulf region as well. Last month San Antonio-based refiner Tesoro Corp. canceled a 25, 000-barrel-perday expansion at its Anacortes, Wash., plant.
Bill Haywood, Tesoro’s vice president of refining operations, said that while last year’s storms are pulling resources from one end, projects in booming economies such as China and India are tugging from the other end. Reliance Industries Ltd. is building the world’s largest refinery in India, where it can take advantage of lower costs, while planning to sell the fuel to the U. S. market.
“There are only so many shops who have the ability to fabricate, weld and put those things together for you,” Haywood said. “It’s simple supply and demand, and prices have gone out of sight.”
Undaunted, Motiva, a Houston-based joint operation between Saudi Refining Inc. and Shell Oil Co., is preparing land parcels while it awaits permits and final approval from parent companies on the $ 4. 5 billion expansion proposal.
The project could start in earnest by next year. Motiva has also lined up its contractor and is working with state work force commissions, local economic development authorities and schools to help build a steady labor pool.
Projects along the Texas and Louisiana coasts soon will be competing for as many as 20, 000 workers, said Rick Strouse, a project manager for Motiva. Finding housing remains a problem in a town where blue tarps have covered some houses since after Rita hit last September.
After the hurricanes, refiners supplied emergency shelter by leasing hotels reopened with generator power and buying trailers and modular homes. Similar plans may be needed, Strouse said.
“The planning goes beyond the structural expansion because of the size of project and the work force situation,” Strouse said. “What we are trying to figure out is how many workers will there be during the peak and what housing projects are there going to be, then ask, does all that fit ?”
A successful expansion would take Motiva’s Port Arthur refining capacity from 275, 000 barrels to 600, 000 barrels a day. That would be bigger than the current largest single producer, Exxon Mobil’s Baytown facility, now at 557, 000 barrels per day capacity.
“We are trying to deal with the supply-and-demand issue,” said Monette, a 20-year refining veteran with a chemical engineering and MBA background. “Today we are dependent on crude oil. Do you want to be dependent on finished products as well.”
Nationally, the number of refineries dropped from 324 in 1981 to its current level of 149, and refinery capacity is approximately 1. 5 million barrels per day lower, according to the Energy Department.
Current refinery production of 17. 7 million barrels per day, however, is 3. 7 million barrels per day higher than in 1981 as refineries are producing at 92 percent of their capacity compared with 69 percent in 1981. This comes largely thanks to expansions.
That’s why building new refineries is not practical, industry executives said. So oil and gas companies prefer to boost supplies through expansion.
For example, over the past decade, Exxon Mobil said it has added the equivalent of three average-sized refineries — about 250, 000 barrels of production per day — all through expansion.
More expansions have either been complete or are under consideration.
Last year, Citgo added 105, 000 barrels per day to its Lake Charles, La., plant bringing capacity to 425, 000 barrels a day.
Last fall, Marathon Oil Corp. said it was reviewing plans to expand its Garyville, La., refinery by 180, 000 to 425, 000 barrels per day.
And in March, Chevron Corp. said it was considering a 200, 000-barrel-per-day expansion to its Pascagoula, Miss., refinery whose capacity stands at 325, 000.
A new refinery can cost close to $ 21, 000 per barrel of installed capacity compared with costs ranging from $ 9, 000 to $ 12, 000 per barrel for an expansion, said Charlie Drevna, executive vice president for the National Petrochemical Refiners Association.
Still, a new refinery is not out of the question, Drevna said.
A U. S. House bill designed to convert closed military bases into oil refineries has one Texas town hopeful that it can turn economic misfortune into the first new U. S. facility in 30 years.
In June, the House passed a bill that essentially streamlines permitting and directs the president to identify three or more closed military bases as potential refinery sites.
Last year a federal base closure commission voted to shut down Texarkana’s Lone Star Ammunition Plant, now among 100 base conversions under way nationally after decades of closures.
And the neighboring Lone Star Ammunition Army Ammunition Plant is on track for closure at a cost of about 400 jobs.
“The government should be rewarding people willing to take the risk and put some capital into it,” Drevna said. “We are having enough trouble getting a Wal-Mart permitted in Southern California, so if we can offer some sort of assistance that reward people for being entrepreneurs on someplace like a closed military base, let’s do it.”
Interesting!
Sounds like craftsmen are gonna get another bump in pay. Sounds great!!
nice to see some good news
review
Murphy's Meraux, LA. plant is still not up completely from the storm a year ago. I hear they can't get labor even at top dollar wages.
These don't count as new refineries. Some complain we haven't has a new refinery in twenty years or whatever, but capacity has been growing all along.
Try your math again.
My truck can't tell the difference.
That would be 6.3 billion, not trillion.
The big plants continue to expand but the US is still below the bbls/day capacity that existed in 1970. IE: Amoco Sugar Creek in KCMO, Conoco at Wrenshall, MN and several smaller plants in OK/KS have been shut down.
00ps
thanks for this post. Finally a report that shows "No New Refining in 20 Years" to be less than accurate. Why don't we belive the media? Well stories like these never get much attention and so lies persist. Again thanks for your post.
...Depends on whether you're talking about Texas craftsmen who actually work for a living or those "craftsmen" who are sitting around motel rooms from LA, LOL.
U.S. Gross Inputs to Refineries 1985-2006
http://tonto.eia.doe.gov/dnav/pet/hist/mgirius2m.htm
very nice data page. shows that in 85 12 becomes 16 after twenty years and that is 30% more on the same land...another internet or politcal lie "no new refinery" put to bed by smart guys like you.
We still should do more, but our shortfall in domestic oil production is a much greater problem than refining capacity.
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