Overview

During this reporting period, Louisiana refineries continued to focus primarily on projects to improve profitability. These included process reconfigurations to improve efficiency or alter the product mix to include more higher value products. Since June 1996, these projects have resulted in a total crude capacity increase of almost 70,000 barrels per calendar day (bcd).

Of the twenty refineries that operated during the year ending June 30, 1997, seven produced reformulated gasoline (RFG) for sale in those markets where the U.S. Environmental Protection Agency (EPA) had mandated its use effective January 1, 1995. None of these areas are in Louisiana. RFG accounted for 12.5% of all gasoline production by Louisiana refineries. However, RFG production came at the expense of the other grades as total gasoline production remained virtually the same as the previous twelve month period.

For the twelve month period ending June 30, 1997, total Louisiana refinery operating rates increased slightly. While there were some changes in the product mix of individual refineries, the overall mix remained about the same and the trend to less mid-grade gasoline production continued. Crude capacity, operating rates, and product slate for each operating refinery are shown in Table 1. Tables 2 and 3 provide additional complementary information on downstream charge and production capacity, based on data published by the U.S. Department of Energy (DOE).

Recent Changes

The Krotz Springs facility most recently operated under Basis Petroleum is now operated by Valero Refining Company.

The Lisbon refinery previously operated by Arcadia Refining and Marketing Co. is now operated by Padre Refining Company. This facility has been idle since July 1997.

Canal Refining Company’s facility at Church Point was shut down in May 1997.

TransAmerican Refining Company (Good Hope) did not produce during the reporting period, but will restart in May 1998. The product slate will depend upon the crude supplied, and has not yet been specified.

The Gold Line Company shut down and vacated its Lake Charles facility in March 1997. American International Refinery, Inc., took over the Lake Charles facility, completed an expansion project, and resumed production in January 1998. Gold Line transferred operations to the Jennings refinery and initiated startup in April or May 1997 but reportedly had no measurable production during the reporting period. Gold Line subsequently shut down the Jennings refinery in February 1998. Gold Line production figures for both Lake Charles and Jennings operations were never received.

Operating Refineries

The total operating capacity of 2,543,653 barrels per calendar day (bcd) reported as of June 30, 1997, is essentially unchanged from our October 1996 survey. The overall operating rate improved slightly to 91.4% from 91.2%. This compares with the national rate of 95.0% for calendar year 1996. The graph of Figure 2 plots the overall operating rates of Louisiana refineries as compared to Texas Gulf Coast refineries and U.S. refineries beginning with the first DNR survey in September 1989. Figure 3 shows the trend of Louisiana and U.S. operating capacity from 1947-1996.

The following changes to refinery operating capacities were reported:

Company/Refinery	Previous Operating Capacity (BCD)	Previous Idle Capacity (BCD)	New Operating Capacity (BCD)	New Idle Capacity (BCD)	Net Increase (Decrease) (BCD)
BP Oil - Alliance	250,000	0	250,600	9,400	10,000
Calcasieu - Lake Charles	13,300	0	13,500	0	200
Calumet - Cotton Valley	8,900	0	9,000	0	100
Calumet - Princeton	8,000	300	8,000	1,415	1,115
Canal	8,000	2,000	7,500	2,500	0
Conoco - Lake Charles	195,500	0	236,000	0	40,500
Exxon - Baton Rouge	424,000	0	432,000	0	8,000
Mobil Oil - Chalmette	191,000	0	175,000	10,000	(6,000)
Padre - Lisbon	12,000	0	0	10,000	(2,000)
Placid	47,500	0	48,000	0	500
Shell - Norco	220,000	0	225,000	0	5,000
Shell - St.Rose	32,400	7,600	40,000	0	0
Star - Convent	225,000	0	232,400	0	7,400
TransAmerican	100,000	100,000	70,000	130,000	0
Valero - Krotz Springs	60,000	0	65,000	0	5,000
Net Change					69,815

Louisiana refineries continue to obtain most of their crude supply from outside the state as oil production within the state continues to decline. Only about 16% comes from Louisiana. This trend is depicted in the graph of Figure 4, which shows Louisiana refinery operable capacity and oil production since 1900. Of the outside sources supplying crude to Louisiana refineries, foreign countries provide the most at 58%, the Offshore Continental Shelf (OCS) is next at 21%, and other states at 5%. These percentages are essentially the same as reported in the previous edition of this report. Figure 5 shows the historical sources of crude oil for Louisiana refineries for the period 1981-1997. Generally, the smaller refineries use a greater percentage of Louisiana crude than the large refineries to satisfy their total requirements. Figures 6A and 6B show the percentage crude source for each Louisiana refinery for 1997.

Since the beginning of 1997, the monthly Gulf Coast Refinery Margin has remained positive except for January 1997. The cash operating margin varied from -$0.33/barrel in January to a maximum of +$1.51 per barrel during the first half of the year. Figure 7 shows the yearly average cash margins for the period 1976-1996, and 1997 months for which data is available.

Shell/Texaco/Aramco Refining Merger

The U. S. Federal Trade Commission approved the merger of certain U.S. downstream assets of Texaco, Inc., Shell Oil Co., and Saudi Arabian Oil Co. (Saudi Aramco), pending the divestiture of selected assets. The companies intend to form two limited liability ventures combining major portions of their U.S. refining, marketing, transportation, trading, and lubricants operations.

One company will comprise the eastern U.S. and Gulf Coast refining and marketing businesses of Texaco, Shell, and Saudi Refining, Inc. Ownership in this eastern alliance will be 35% Shell, 32.5% Texaco, and 32.5% Saudi Refining, Inc.

The western alliance ownership will be 56% Shell and 44% Texaco. The alliances will market gasoline under both Texaco and Shell brands.

The eastern alliance is not required to divest any assets. The western alliance must divest Shell’s Anacortes, WA, refinery, interests in Colonial or Plantation Pipelines, selected retail outlets in San Diego, CA, and either Shell’s terminal and stations in Hawaiii or Texaco’s terminal and stations on Oahu, HI.

The Shell Chemical Co. refineries at Saraland, AL, and St. Rose, LA, are excluded from the deal. The resulting merger will include four Shell refineries (including the Norco, LA, refinery), four Texaco refineries, and three Star Enterprise refineries (including the Convent, LA, facility). The western alliance was expected to begin operating in the first quarter of 1998.

Mobil - Lagoven Agreement

Mobil signed an agreement with Lagoven, a unit of Venezuela’s state-owned oil company, and Veba covering the Cerro Negro extra-heavy oil upgrading project in Venezuela’s Orinoco belt. As reported in the last edition, the 50-50 joint venture with Mobil and another Pdvsa subsidiary, PDV Chalmette, resulted in Chalmette Refining LLC as owner and operator of Mobil’s Chalmette refinery where the upgraded crude will be processed.

Cerro Negro production is scheduled to begin in 1999 at 60,000 bpd and increase to 120,000 bpd in 2001. Chalmette Refining’s share of upgraded crude (100,000 bpd) will be processed at the refinery, which requires only minor modifications to enable it to process the heavy crude. The remaining 20,000 bpd of production that is Veba’s share will be processed in German refineries in which Pdvsa also holds interests.

Other Heavy Crude Ventures

Conoco and Pdvsa’s Maraven unit are proceeding with another upgrading project planned in the Orinoco heavy oil belt. Oil will be shipped from the field area, south of Pariaguan in Anzoategui state, to Jose through a 200-km pipeline. Blended first oil is slated in August 1998, and a heavy oil upgrader at the Jose industrial complex on the northern coast will be completed in 2001. From Jose, 63,000 bpd will be shipped to Conoco’s Lake Charles refinery, and Maraven will buy 39,000 bpd from Conoco for processing at its Cardon refinery.

Exxon and Pdvsa unit Corpoven signed a memorandum of understanding to produce, upgrade, and market extra-heavy crude from the Orinoco’s Hamaca area. The Hamaca crude will be upgraded at Jose to a syncrude for processing at Exxon’s Baton Rouge and Baytown, Texas, refineries.

Gasoline Additive: Methylcyclopentadienyl Manganese Tricarbonyl (MMT)

The gasoline additive, Methylcyclopentadienyl Manganese Tricarbonyl (MMT), produced by Ethyl Corporation was approved for sale in the U.S. in 1995. MMT improves the burning efficiency and octane of gasoline. Ethyl claims that the new additive will reduce millions of pounds of smog-related pollutants per year from the environment. The additive will reduce carbon monoxide and nitrogen oxide emissions.

However, the Environmental Protection Agency (EPA) considers MMT a possible health risk because it contains the metal, manganese. EPA points out that exposure to manganese dust has been found to cause neurological and respiratory damage. Ethyl claims that tailpipe emissions are low and would not pose a health hazard. MMT was approved when a federal appeals court ruled in 1995 that the federal government, without evidence of a significant public health risk, had no authority under the Clean Air Act to block the sale of MMT.

Now the EPA has determined that further testing of long-term health effects, as well as the effects of the additive on emissions-control equipment, is required before MMT can be used in the U.S. without restriction.

Ethyl has been supplying MMT to refineries, but refiners are using caution in deciding to use MMT because of the controversy regarding its health risks and other EPA concerns.

Although MMT has been used in Canada for the last nineteen years, Canada’s parliament has approved legislation banning use of MMT. Ethyl Corp. has filed a claim with the U.S. Justice Department against the Canadian government, seeking compensation under the North American Free Trade Agreement. Ethyl Corp. claims that the Canadian legislation bars only the importation of MMT, not its use.

Non-Operating Refineries

Arcadia Refining and Marketing Co. had two plants, one at Lisbon and the other at Dubach. The Lisbon plant had been shut down in January 1996, but was recently acquired by Padre Refining Company and resumed production until July 1997. The Dubach plant stopped taking crude as of July 1, 1993, and was reclassified by DNR as a non-operating refinery. El Paso Field Services now owns the Dubach facility, which consists of a crude oil refinery and a gas liquids fractionating plant. The refinery remains shut down, but the gas plant is operating although the liquids fractionating unit was shut down in January 1998.

The Jennings refinery that was restarted by Gold Line in May 1997, following Gold Line’s departure from their Lake Charles refinery in March 1997, was again shut down in late February 1998. The owner of this facility is attempting to work something out with a bankruptcy court. Meanwhile, the Lake Charles facility was taken over by American International Refinery, Inc., and has resumed operation with naptha, diesel, and asphalt products.

The TransAmerica Refinery is still in active status, but did not produce anything during the 1996-1997 reporting period. The refinery is expected to begin production in May 1998.

The identity and location of each of the non-operating refineries is shown on the map of Figure 1. Mailing addresses and contacts are listed in Table 7. Physical locations, last known crude capacity, date last operated, and present status are described in Table 8.

Conclusion

The resources of the industry continue to be applied toward more potentially profitable ventures in the private marketplace. Restructuring and redeployment of assets continues as each company strives toward maximum efficiency and profits. Foreign imports of both crude oil and products continue to increase on a national (U.S.) basis, and operating refineries continue at high utilization rates across the country. Louisiana refineries exceed U.S. national import rates for crude oil (58% versus about 50% nationally). Given historical low product prices, uncertainty in near term crude oil prices, uncertainty in availability of crude oil supply, and potential Strategic Petroleum Reserve sales for purposes other than originally envisioned, Louisiana refinery operators face some hard decisions. Some small refineries may be forced to shut down because of these uncertainties coupled with the absence of ability to initiate capital improvements and additions which would enable operations with a wider variety of crude input or a wider product slate.

More joint ventures and alliances will likely occur in the coming months. Resulting effects on Louisiana crude oil refinery operations will be reported in the next edition of this report.

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