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Poor market delays completion of refinery expansion

By BRETT CLANTON Houston Chronicle Copyright 2009

March 17, 2009, 12:19PM

Motiva Enterprises is delaying by more than a year the target date for completing a $7 billion expansion of its Port Arthur refinery due to poor market conditions, a company spokesman said today.

Motiva, a joint venture between Shell Oil and Saudi Refining Inc., had planned to finish the project by late 2010, but now is aiming for the first quarter of 2012, Motiva spokesman Stan Mays said today. 

The expansion will double the facility’s crude oil processing capacity to 600,000 barrels per day, making the refinery the largest in the United States and among the biggest in the world. 

The delay comes after the company said in January it would perform a cost review of the project, and the update came after Royal Dutch Shell, the European parent of Houson-based Shell, outlined to investors its plans for the future. 

But Motiva remains committed to the expansion despite current market challenges, Mays said, adding that all major equipment for the project has been purchased. 

“Demand for gasoline, diesel, and aviation fuels is expected to rise over the coming decades and be an important part of the energy mix, he said. “Our goal remains to be the supplier of choice in our key markets.” 

Other major U.S. refiners, including Valero Energy, Marathon Oil and ConocoPhillips, have also recently announced plans to delay or indefinitely suspend plans to expand or upgrade refineries. 

Refiners are rethinking such investments as a global recession weakens demand for gasoline, diesel and other petroleum products and access to capital remains tight. 

Motiva broke ground on the Port Arthur expansion in December 2007 and had been working around the clock with some 4,500 construction workers to finish the project on time. The extended timeline means slower work and fewer workers on site, Mays said. 

At an annual analyst meeting today in The Netherlands, Royal Dutch Shell CEO Jeroen van der Veer noted the company has slowed down some projects to capture savings as costs slowly fall amid the recession. He didn’t specify that the Port Arthur project was among them. 

Mark Williams, downstream director for Shell, told analysts that the company has cut wages in the Port Arthur project by eliminating overtime. 

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