Today's Top Story In This Issue - Oil and Gas Investor

Volume: 1, Issue: 75 May 31, 2006
In This Issue
Today’s Top Story
• New Refineries Planned
for China, Iran, Oman,
Lebanon
• Senate Approves
Kempthorne for Cabinet
Post
• Lithuanian Government
Approves Refinery Sale
• Flint Hills Opens New
Jet Fuel Terminal
• Rompetrol to Invest $140
Million in Romanian
Refinery
• Kinder Morgan May Go
Private
• Energy Futures Prices
Up Slightly After
Holiday
• Sky-High Ethanol Prices
Further Assert Split
from Crude
Valero: Industry’s Octane Needs Increase with Sulfur Phase-Down,
MTBE Phase-Out
Gasoline sulfur is lower in 2006 than in previous years and
MTBE is now out of the gasoline pool. As a result, highoctane,
clean components are fetching a premium in the market,
according to Valero’s chief executive. Speaking to the UBS
Global Oil and Gas Conference, Bill Kleese said that despite
high pump prices, gasoline demand has been good.
The 2006 forward curve for Gulf Coast gasoline is around
$11/bbl, about the same level for distillate. Sour crude
discounts remain very wide, and the outlook for the summer is
very positive.
Gulf of Mexico producers are bringing production back
online, and residual fuel is widely available as a result of
high crude processing rates around the world. Heavy Canadian
crude production is increasing and “some has made it to the
Gulf Coast,” the Valero CEO noted.
“We just have excellent margins,” Kleese told attendees.
Part of that is due to the elimination of MTBE, which has
reduced U.S. gasoline production by about 140,000 b/d.
“You can actually see the effect in the high price of
ethanol, the high price of alkylate and any high-octane
component, as people are trying to get octane into the motor
gasoline pool. We view this as an excellent stage set for the
summer.
“Imports have been very high, but the market clearly has
needed the imports because the fundamentals here continue to
be strong. A lot of those imports have been blendstocks, which
are consuming that octane.”
Some of the imports are higher sulfur, and “that’s why
you see alkylate 50 ¢ over gasoline and ethanol way more than
gasoline. It’s because of this octane need and this clean
component need,” he continued.
Clean fuels are expanding around the world. Canada,
Mexico, South America “even China” all are trying to get clean
fuels, and that impacts refinery operations. “If you
desulfurize gasoline, you lose octane, depending on your
process, how much.”
To compensate, refiners have the option of building
another reformer or alkylation unit to get some octane back
into the gasoline pool, he said.
While Valero has some Tier 2 and regulatory spending
ahead, economic projects will add about $150 million to the
Copyright 2006. Hart Energy Publishing, LP.

May 31, 2006 World Refining & Fuels Today Page 2
bottom line. Capitol spending will be around $3.5 billion in 2006, Kleese said. While
some projects have been delayed and will slide into 2007, Valero will hold next
year’s capitol program at $3 billion, $1.2 billion of which are economic projects.
-- Carol Cole
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New Refineries Planned for China, Iran, Oman, Lebanon
Kuwait Petroleum may be joined by Dow Chemical and either BP or Shell in setting up a
$5 billion Chinese joint-venture refinery with PetroChina, Reuters reported.
The refinery will likely have a capacity of 200,000-300,000 b/d.
China’s National Development and Reform Commission approved the plan to build
the refinery in China’s Guangdong province in April (see WRFT 04/11/06).
The joint venture between China and Kuwait was announced last December (see
WRFT 12/06/05).
The refinery will process crude oil from Kuwait.
Meanwhile, Iran plans to build a 120,000 b/d refinery by 2009 at the latest.
Construction of the fully private refinery is expected to begin in six months or
less, Reuters said.
Oman is also planning to build a new 200,000 b/d refinery in Duqm, according to
the Times of Oman. It would be the country’s third refinery.
The Oman Refinery Company is also planning to expand its output from 85,000
b/d, to 106,000 b/d, the report said.
Lastly, Qatar is studying the possibility of building an export refinery in
Lebanon, Qatar News Agency reported. The countries recently signed an agreement for a
150,000-200,000 b/d refinery.
Most of the refinery’s output would be exported to Europe.
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Policy Update
Senate Approves Kempthorne for Cabinet Post
The U.S. Senate last week approved former senator and current Idaho Gov. Dirk
Kempthorne (R) to be the new Secretary of the Interior. Kempthorne will replace Gale
Norton who announced her resignation in March (see WRFT 03/13/06).
Kempthorne was approved by a voice vote after the Senate voted 85-8 to invoke
cloture on his nomination.
Meanwhile, the Senate also confirmed Dr. Raymond Orbach to be the Department of
Energy’s (DOE) first-ever Under Secretary of Science. Orbach had been the director of
DOE’s Office of Science.
It also confirmed Thomas Barrett to be the first-ever administrator for the
Department of Transportation’s Pipeline and Hazardous Materials Safety
Administration.
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Lithuanian Government Approves Refinery Sale
The Lithuanian government yesterday approved the sale of part its stake in the
country’s only oil refinery to Polish oil company PKN Orlen, Prime-Tass reported.
Troubled Russian oil company Yukos sold its stake in the refinery to PKN Orlen last
week (see WRFT 05/30/06).
Copyright 2006. Hart Energy Publishing, LP.

May 31, 2006 World Refining & Fuels Today Page 3
The door to complete the sale opened Thursday after a U.S. bankruptcy court
judge declined to extend a temporary order blocking the deal (see WRFT 05/26/06).
PKN will purchase Yukos’ 53.7% stake for $1.5 billion and will pay $852 million
for the additional 30.7% stake that currently belongs to the Lithuanian government.
The Lithuanian government will retain a 10% stake and will have the option of
selling it to PKN during the next five years for $284 million, decreasing to $278
million after three years.
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News From Around The World
Flint Hills Opens New Jet Fuel Terminal
Flint Hills Resources announced yesterday it has started operations at a new fuel
terminal in Bastrop County, Texas, which will supply jet fuel to Austin-Bergstrom
International Airport.
Now that the terminal is operational, the company said it will convert the jet
fuel tanks at its east Austin terminal to store gasoline and diesel fuel, and may
expand the terminal’s rack capacity.
The company previously announced plans to increase the fuel storage capacity at
its Waco, Texas, terminal by 40% this year (see WRFT 12/05/05). It also plans to
expand by 30,000 b/d its pipeline capacity serving Central Texas.
Flint Hills also plans to increase its refining capacity by 50,000 b/d at its
280,000 b/d refinery in Rosemount, Minn.
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Rompetrol to Invest $140 Million in Romanian Refinery
Romanian oil company Rompetrol will invest more than $140 million in its Petromidia
refinery during the next two years, Greek news service Reporter.gr said.
The investment will increase refinery capacity 38% and enable meeting European
fuel quality standards and environmental regulations, the report said. The refinery
currently has a capacity of about 100,000 b/d.
Rompetrol will finance 70% of investment.
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Kinder Morgan May Go Private
Kinder Morgan announced over the weekend that a group of investors led by the
company’s chairman and CEO Richard Kinder have submitted a proposal to acquire all
outstanding shares of the company’s stock for $100 in cash per share.
The company’s board of directors has formed a special committee of independent
directors to consider the group’s proposal.
Meantime, Kinder Morgan has some $670 million in capital expansion projects
targeted for 2006, including:
• A $15 million expansion of its Calnev pipeline system, which transports
gasoline, diesel and jet fuel from Colton, Calif., to Barstow, Calif., and Las Vegas
(see WRFT 04/10/06).
The expansion will increase gasoline, jet fuel and diesel capacity to about
156,000 b/d by the fourth quarter 2007.
Copyright 2006. Hart Energy Publishing, LP.

May 31, 2006 World Refining & Fuels Today Page 4
The project will include installing new, upgraded pumping equipment at the
terminal in Colton, Calif., a new booster station with two pumps at Cajon, Calif.,
and piping upgrades at the Las Vegas terminal.
• Another $10 million for new construction and upgrades at two of its terminals
on its Calnev system (see WRFT 02/06/06).
The project includes constructing two, 80,000 bbl gasoline and diesel storage
tanks at the Las Vegas terminal. The tanks are expected to be operational in the
first quarter of next year. Existing storage tanks will be realigned to provide
additional storage for ethanol and transmix, the company said.
• Replacement of a six-inch delivery line with 12-inch pipe at its Barstow
terminal, increasing the delivery capacity to Las Vegas by 3,000 b/d, to 113,000 b/d.
That expansion is expected to be completed in the third quarter of this year.
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Fuel Economics
Energy Futures Prices Up Slightly After Holiday
The price of the July crude oil futures contract on the New York Mercantile Exchange
(NYMEX) increased Tuesday, the first day the market was open this week after a
holiday weekend in the U.S.
The price climbed 1%, to $72.03/bbl.
NYMEX gasoline went up very slightly to $2.15/gal. during the day. Heating oil
gained 1%, to move back up to $2/gal.
Brent crude oil picked up less than 1%, to $71.10/bbl.
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Sky-High Ethanol Prices Further Assert Split from Crude
Ethanol prices across the country sailed last week, climbing well above the previous
week’s already stratospheric ceiling, with some market players citing the paucity of
Brazilian exports as a factor.
Experienced traders foundered for explanations for the strength of ethanol’s
independent increase. Spot prices shot up by more than 30 ¢/gal in some markets, with
New York, Illinois, Iowa and California posting the brawniest gains.
“Some of the new plants may be coming online late,” one West Coast dealer
offered, who could otherwise point to no overriding force behind the difficulties
buyers bore last week.
U.S. ethanol averaged $3.25/gal. as of May 25. That average was up 0.8% from
the $3/gal. it was May 18 and is more than double the $1.28/gal. price from one year
ago. It was the eighth straight weekly gain.
A break may be around the corner. With the price support apparent to even
producers subjected to the ad valorem tariff, U.S. markets are expected to begin
accepting Brazilian shipments in earnest this week, while domestically, 32 ethanol
refineries and eight expansions are presently under construction with a combined
annual capacity of more than 2 billion gallons.
Currently, 101 ethanol biorefineries nationwide have the capacity to produce
more than 4.7 billion gal/year, according to data compiled by Hart Energy’s
International Fuel Quality Center.
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May 31, 2006 World Refining & Fuels Today Page 5
Meanwhile, the U.S. ethanol industry is doing its best to keep pace, producing
301,000 b/d in February as well as March, the latest month for which data compiled by
the Energy Information Administration is available.
More importantly, ethanol stocks across the U.S. were up more than 1.3 million
barrels, according to EIA, equating to nearly 29 days of ethanol supply. This is the
third straight month ethanol stocks have risen, up more than 56% from the beginning
of the year.
But futures trades expect that buyers will continue assailing supply for at
least the next couple of months. Ethanol futures for June delivery on the Chicago
Board of Trade on Friday reached an all-time high of $3.51 a gallon -- a gain of 37
¢/gal, or 10%, for the week.
The unusually high differential of 53 ¢/gal between July and August suggests
that futures traders anticipate significant new capacity coming online during July.
- Peter Ngo
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In Other Sectors…
·NYMEX crude closed at $72.03/bbl, up $0.66 on the day.
·IPE Brent crude finished the day up $0.54 at $71.10/bbl.
·OPEC crude went up $0.02, to $65.12/bbl.
·NYMEX heating oil closed at $2.00/gal, up 2 cents on the day.
·Unleaded gasoline closed at $2.15/gal on the NYMEX, up 1 cent.
·Ethanol on the Chicago Board of Trade closed at $3.51/gal, up 9 cents.
Copyright 2006. Hart Energy Publishing, LP.

May 31, 2006 World Refining & Fuels Today Page 6
Copyright 2006. Hart Energy Publishing, LP.