Shell to begin Port Arthur refinery expansion

By Lewis Krauskopf and Santosh Menon

LONDON/NEW YORK (Reuters) - Royal Dutch Shell will go ahead with a 325,000 barrel-per-day capacity expansion of its Motiva refinery in Port Arthur, Texas, that will make the plant one of the biggest in the world.

The Anglo-Dutch group said on Friday the project, the first big U.S. refinery expansion in decades, would cost $7 billion (3.5 billion pounds).

The 285,000 bpd Port Arthur refinery is owned by Motiva Enterprises LLC, Shell's U.S. unit Shell Oil Co.'s equal joint venture with Saudi Refining Co.

Shell, the world's second-largest non-government controlled oil group by market value, said the expansion would increase the refinery's crude oil capacity to 600,000 bpd, making it the largest refinery in the U.S.

The expansion is equivalent to building the first new refinery in more than 30 years in the United States, where there are no approvals for new refineries, leaving expansion as the main option to increase capacity.

Shell said it was confident it could finish the expansion, which is expected to include additions to the refinery's crude distillation capacity along with hydro cracking and coking capacity, within the budgeted $7 billion and on time.

"We are now confident that we can deliver this project at the $7 billion level and in the time frame -- by 2010," Rob Routs, head of Shell's downstream operations, told reporters on a conference call.

Routs said the group had delayed a decision on the refinery's expansion so that it could have a "firm grip on the capital estimate and timing" of the project.