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CNNMoney.com: Shell Argentina To Up Refinery Output After Government OKs Exports

February 12, 2008: 10:02 AM EST

BUENOS AIRES -(Dow Jones)- The Argentina unit of Royal Dutch Shell PLC (RDSA) has decided to resume full-capacity operations at its Dock Sud refinery after the government authorized renewed exports for surplus fuel and petrochemicals.

The decision, announced in a letter sent by the company to its service station operators Monday night, came after a meeting with the government’s top price controller, Interior Commerce Secretary Guillermo Moreno.

Shell had warned service station operators Friday that refinery output was going to fall because the company had run out of room to store surplus products that would otherwise be exported.

“A dialogue has opened that we believe will be productive for all parties,” Shell said in its Monday night letter. Monday’s meeting was the first in about a year with Moreno, who had excluded Shell from talks with other fuel retailers after the company bucked price controls.

Tension between Shell and the Argentine government boiled to the surface three years ago, when former president Nestor Kirchner called on Argentines to boycott the company after it raised pump prices.

Since then, the government has fined the company several times for allegedly failing to supply the domestic market. Environmental agents also shut down the refinery for alleged violations. Kirchner was replaced by his wife, President Cristina Fernandez, in December.

The government threatened to cut fuel exports for all retailers last month after pump prices began creeping higher across the board. Gasoline exports have given refiners a profit window amid Argentina’s price control scenario, which provides consumers with some of the cheapest fuel prices on the continent.

The nation’s three other main fuel retailers – local units of Repsol YPF SA ( REP), Petroleo Brasileiro SA (PBR), or Petrobras, and ExxonMobil Corp. (XOM) – dropped their prices immediately following the threat, while Shell demurred. A such, the government stopped authorizing fuel exports for Shell, although the company later agreed to drop pump prices some.

Argentine refiners are operating at maximum capacity. The nation faces chronic diesel shortages during key harvest and planting periods, although there remains an excess supply of gasoline.

The Dock Sud refinery, the only one Shell operates in South America, has storage capacity for up to 770,000 cubic meters of crude and refined products.

Shell supplies about 13% of Argentina’s diesel fuel and about 18% of its gasoline.

-By Drew Benson, Dow Jones Newswires; 5411-4311-3127; [email protected] dowjones.com

  (END) Dow Jones Newswires
  02-12-08 1002ET
  Copyright (c) 2008 Dow Jones & Company, Inc.

http://money.cnn.com/news/newsfeeds/articles/djf500/200802121002DOWJONESDJONLINE000505_FORTUNE5.htm

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