This refinery is next door to the chemical plant where I work. (Both plants were once part of Texaco.) It's a huge expansion. The expansion is 3 times the size of an average refinery. But it's going to drag from lack of labor. The labor market is really tight here and there's not housing available for a huge temporary work force. They need 5000 temporary workers, and it's going to be hard to find those. Add to that the twist that much of the rest of industry is also doing expansions, and I wouldn't be surprised for the project to go 2 years over. (The management knows this. It's just that the refinery is so well located that it makes it worth it.)
link A $7 billion gamble on oil refining Motiva approves a plan to double the capacity of its Port Arthur plant By BRETT CLANTON Copyright 2007 Houston Chronicle Largest refineries MAJOR EXPANSION The expansion of Motiva's Port Arthur refinery will make it the largest in the nation: The refinery • Current capacity: 285,000 barrels of crude oil per day • Capacity after: 600,000 barrels per day • Expansion cost: $7 billion • Products: Gasoline, diesel and aviation fuels Source: Shell Oil Co. MOTIVA ENTERPRISES • Headquarters: Houston • Ownership: Shell Oil Co. and Saudi Refining Inc. own 50 percent each • Business: Motiva refines and markets products through about 7,700 Shell-branded stations • Refineries: Port Arthur; Norco, La.; Convent, La. • Combined capacity: 740,000 barrels per day Source: Shell Oil Co. Motiva Enterprises made a huge bet Friday that America's appetite for gasoline will keep growing well into the future, giving final approval to a $7 billion expansion of its Port Arthur refinery that will make it the largest in the nation. The decision came after more than three years of study by Motiva, a joint venture of Royal Dutch Shell and Saudi Arabia's state-owned oil company, and after a jolt in costs doubled the project's price tag. With the move, two of the world's biggest oil companies have signaled their belief that petroleum-based fuels are here to stay despite the growth of biofuels like ethanol and calls to curb U.S. gasoline use. It also suggests the companies see more road ahead for the domestic refining industry's recent profit run, despite its history of boom and bust cycles. "Even at this kind of investment level, this is still a very attractive project," Rob Routs, Shell's top global refining operations executive, said in a conference call with reporters Friday. Recent increases in the cost of building materials and labor, along with concerns about the long-term demand for gasoline, have pushed some refiners to delay or cancel expansion projects. As recently as May, the American Petroleum Institute said refiners planned to boost the nation's refining capacity almost 11 percent through expansion projects representing 1.6 million barrels a day. Now, the trade group says only about 1 million barrels a day in projects will go forward. Material costs rose as a spate of refiners launched expansion projects simultaneously to take advantage of high refining profits, while labor costs spiked because of a shortage of construction workers after the 2005 Gulf Coast hurricanes. The cloudy demand picture, meanwhile, is the result of proposals in Congress that could greatly boost the nation's ethanol output and also create higher fuel economy standards for cars and trucks, both of which could weaken demand for gasoline. President Bush also has set a goal to cut gasoline use 20 percent by 2017. Given those challenges, it is highly significant that Motiva decided to move forward with its Port Arthur expansion, said Mike Wilcox, head of global downstream consulting for Wood MacKenzie in Edinburgh, Scotland. "On balance, I'd say it gives a positive message to other refiners," he said. Most U.S. refineries now run near their peak, and still do not produce enough gasoline to keep up with Americans' demand for gasoline. To make up the shortfall, the U.S. imports about 10 percent of the gasoline it consumes each year. Motiva CEO Bill Welte said those factors helped persuade the company to expand in Port Arthur, even though the partners considered pulling the plug when costs ballooned. "That was always an option," Welte said in an interview. Expected to be complete in 2010, the expansion will more than double the Motiva facility's oil-processing capacity to about 600,000 barrels per day. That will make it the nation's largest refinery, edging out an Exxon Mobil Corp. facility in Baytown that processes nearly 563,000 barrels per day. Exxon Mobil spokeswoman Prem Nair said the world's largest oil company had no plans to match Motiva in order to retain the top spot. Along with the expansion, Motiva is also adding equipment that will allow the Port Arthur plant to process a broader range of crude oils. Prices for light, sweet crude recently have hit records as refiners in the Far East have snatched it up to feed rising energy demands, Routs said. But Port Arthur will now be able to run heavy, sour crudes found in South America and thick tar sands from Canada, which can be produced at roughly $20 per barrel less than lighter crudes, he said. Motiva said the project will create 300 new jobs, produce lower emissions per barrel of oil put through the system and spur more development in the region. Though Port Arthur encouraged the plant expansion with tax incentives, Mayor Deloris "Bobbie" Prince still called the Motiva project a "gift from God." "The quality of life for the people of this town will never be the same as of this morning," Prince said Friday. Hilton Kelley, a community activist, said he will be watching to make sure Motiva makes good on promises to the area, including the installation of more air-monitoring devices at the plant. "They have answered a lot of our concerns," Kelley said. "But we are not totally 100 percent satisfied with the expansion." Motiva has been preparing the Port Arthur site for the expansion for more than a year. Hundreds of construction workers have been coming and going. Recently, they began driving pilings to undergird what essentially will be a new refinery connected to the original one. That's why word of the final investment decision, even if it took awhile, was not totally unexpected Friday. Said Routs: "We haven't been exactly hiding the fact that we wanted to do this." also oil is starting to fall already. there was an interesting article yesterday or friday about how people gambled on the price going up because of the interest rate reduction.
A friend pointed me to this article...it's a few weeks old. Some of you might find it interesting. It's certainly what I've been arguing for a while. Apparently the CEO of Shell followed this up by saying that the price couldn't be supported by physical reality but only by psychological factors. http://uk.reuters.com/article/oilRpt/idUKN0720445120070907 Fundamentals don't justify $70 oil price-Exxon CEO Fri Sep 7, 2007 10:07pm BST Email This Article |Print This Article | Reprints [-] Text [+] (Adds details, quotes, updates oil price; figures in U.S. dollars) CALGARY, Sept 7 (Reuters) - Oil market fundamentals do not justify a crude oil price as high as $70 a barrel, which is below today's level, Exxon Mobil Corp's (XOM.N: Quote, Profile, Research) top executive said on Friday. "I cannot explain why we have $70 oil. The fundamentals behind supply and demand do not support $70 oil. The fundamentals support something much less," Exxon Mobil CEO Rex Tillerson told a business roundtable at the Spruce Meadows equestrian facility on the outskirts of Calgary. Exxon Mobil, the world's largest publicly traded oil company, produces about 2.5 million barrels of oil a day and its refineries use 6 million barrels a day, requiring it to go into global markets to buy the remainder, Tillerson said. The company and others in the industry have little trouble buying the crude they need on a daily basis, he said. Oil prices rose 40 cents on Friday to close at $76.70 a barrel and traders cited tight supplies for the gain. "There's something else going on there that I don't get," Tillerson said, speaking to an audience of business and political leaders about energy security. He said he believes Saudi Arabia has the oil resources and technological ability to boost its daily output capacity to 12.5 million barrels. However, he did not give a timeframe for such an increase. Extracting new crude will be a more expensive proposition than producing oil from the current fields. Development would cost C$1.50 to $2 a barrel versus about 50 cents for today's output, he said. Saudi Arabia, the top OPEC oil source, produced about 8.7 million barrels a day in August. Its capacity has been pegged above 11 million and it has set plans to increase it 12.5 million by 2009.
It's probably what many refer to as a 'fear premium', or the 'uncertainty factor' relating to the shaky geopolitical landscape we're experiencing today, most of which is in the most oil-rich region of the world (not to mention the hostile relationship we now have with Venezuela, and security issues that could threaten supplies from the west African coastline...all of which doesn't help). Instability causes higher prices, in some cases too much of a 'fear premium' that's passed on to the consumer. Of course, the booming Asian economies don't help matters any, nor the fact that refining capacities haven't kept up with rising energy demands in the world.
There may very well be a bubble in oil and commodities. But would you go short oil at this point?? Not me!
absolutely true. it's just funny to me because it's been going on for a couple of years like this. and those in the business, whether at Shell or Exxon or OPEC are saying, "yeah...but this isn't supportable." doesn't that "sound" like a bubble to you??
yeah, i'm certainly interested. but i no they have zero interest in assisting the onset of a recession.
CIBC Economist Forecasts $100/Barrell Oil for 2008 NEW YORK (AP) -- Oil prices could top $100 a barrel by the end of next year and remain above that point for years to come, the chief economist of Canadian investment bank CIBC World Markets said Tuesday. Jeffrey Rubin said rising demand within oil-rich nations, such as Mexico, Venezuela and Saudi Arabia, will put pressure on global oil prices in the coming years. That, combined with the increased cost of pulling petroleum from reserves deep under the sea or wringing it out of oil sands in Canada, will keep oil prices high even if demand in the Western world remains constant. Special Reportfull coverage "We're in a world of triple-digit oil prices for the foreseeable future," Rubin said during a speech to investors here. The debate behind $80 oil Rubin said oil exports from OPEC countries, Russia and Mexico will likely decline by about 3 million barrels per day over the next five years. The biggest drop, he expects, will come from Mexico, a key U.S. supplier. "Of the 3 million barrels, we're probably talking about 2 million barrels are going to come directly out of U.S. supplies," he said. Rubin expects Mexican oil imports to the U.S. will dry up by about 2012. Some of that decline will be made up by imports from other parts of the world, but the lions' share - nearly a third of all U.S. oil imports - will come from Canadian oil sands, he predicted. But replacing relatively easy-to-refine liquid crude with petroleum from oil sands is certain to increase costs, he said. By the end of the decade, Canadian oil sands are likely to represent the world's largest source of new oil supplies, he said. "We're basically replacing low-cost oil with high-cost oil," he said. Looking ahead, Rubin expects crude oil prices to average as much as $90 a barrel next year, rising to around $100 by the end of 2008. That would represent an increase of nearly 25 percent over Tuesday's settlement price of $80.05 a barrel for light, sweet crude on the New York Mercantile Exchange. "Triple-digit prices is not a spike," he said. "Triple-digit oil prices is what is going to be required to maintain, let alone grow, world oil supplies."
