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Financial Post (Canada): More refineries needed for oilsands: Shell; Environmental Flak

Published: Sep 11, 2007

CHICAGO – U.S. refineries must be expanded to handle a rising tide of crude-oil imports from Canada’s oilsands, the world’s second-biggest oil deposit, said John Hofmeister, Royal Dutch Shell PLC’s U.S. chairman.

Shell, Saudi Aramco, Conoco-Phillips, BP PLC and Marathon Oil Corp. plan to spend a combined US$15-billion to expand refineries from Michigan to Texas to process more low-grade oil from northern Alberta. Environmental opposition stalled a BP expansion in Indiana and may hinder a ConocoPhillips project in Illinois.

U.S. gasoline prices have doubled in the past five years as demand rose faster than domestic output and imports, Energy Department figures showed. Refinery expansions are key to minimizing reliance on imported supplies from unstable regimes, Mr. Hofmeister said yesterday in an interview at an energy conference in the Chicago suburb of Oak Brook.

“This nation would suffer immeasurably if it’s unable to expand refining capacity,” Mr. Hofmeister said. “We just have to have more supply.”

The Hague-based Shell and Saudi Arabia’s state-owned oil company are working on designs to double the size of their jointly owned refinery in Port Arthur, Tex.,Mr. Hofmeister said.

The US$3-billion project would enable the plant to refine Canadian crude as output wanes from nearby sources including Mexico, he said.

London-based BP, the world’s third-biggest refiner after Exxon Mobil Corp. and Shell, last month said it may shelve a planned US$3.8-billion expansion of its Whiting, Ind., plant, the biggest in the U.S. Midwest.

BP has been under fire from legislators and environmental activists for the past two months after winning permission to boost ammonia discharges into Lake Michigan by 54%.

BP said it needs the higher limit because processing crude from Alberta’s oilsands creates twice the ammonia produced from the oil currently processed at the refinery.

Indiana and federal regulators said the ammonia increase poses no threat to the lake, the source of drinking water for 10 million people. Those assurances weren’t enough for Chicago Mayor Richard M. Daley, U.S. Senator Richard Durbin and tens of thousands of residents of states bordering the lake who signed anti-BP petitions.

U.S. Representative Rahm Emanuel, the No. 4 Democratic leader in the House, called for a Congressional investigation into whether BP won special favours from environmental regulators.

Robert Malone, president of BP’s U.S. unit, said on Aug. 23 that opposition from local environmental groups created “an unacceptable level of business risk.” The project would allow BP to triple the amount of Canadian crude processed at the Whiting plant, 20 miles southeast of downtown Chicago, and increase gasoline output by 15%.

The National Resources Defense Council and the Sierra Club on Aug. 22 asked federal regulators to scrap a permit granted to ConocoPhillips for a US$3.9-billion expansion of its Wood River, Ill., refinery. The project 25 miles east of St. Louis would be the costliest U.S. refinery expansion.

“By not taking care of domestic production capacity, we are at risk,” said Mr. Hofmeister.

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