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Published: Thursday, 7/24/2008

Upgrade at Lima refinery up in air

Husky Energy is still studying how to modify the facility. Husky Energy is still studying how to modify the facility.

A year after Husky Energy Corp. purchased a Lima, Ohio refinery, it is still studying how to upgrade the plant to process heavier crude oil.

The company, of Calgary, Alberta, said in a quarterly financial report last evening that its conceptual study is completed but more planning is needed before a specific project and dollar cost are known.

"No one's talking dollars yet," spokesman Graham White said. "We are working on how to do it."

The firm bought the refinery for $1.9 billion from Valero Inc. with the possibility of processing heavier crude from oil sands formations near Alberta in western Canada. Possible investment was $2 billion to $3 billion.

But its initial plan to send bitumen in a pipeline to Lima was altered when Husky struck a $6 billion deal in December with BP PLC to process that even heavier crude at BP's suburban Toledo refinery. Bitumen is a form of crude oil mixed with sand, water, and other impurities.

Husky engineers said Lima can be modified to process heavy crude, which then would be sent to another facility to be refined into gasoline and other fuels. The heavier crude is between bitumen and the crude Lima currently processes.

The company, however, needs both Lima and the BP refinery in Oregon for its goal, Mr. White said.

"At this point, our production of heavy oil is tremendously greater and our requirement for heavy oil refining is much greater," Mr. White said.

Heavy crude stocks are somewhat nearer the surface and slightly easier to extract from Husky's eastern and central Alberta oil sands fields, he said. But the refining process is more complicated and expensive.

In the December deal, BP agreed to spend $2.5 billion to upgrade its local refinery, with Husky kicking in $3.5 billion. Processing of the new oil would begin in 2015. The work would bump the refinery's capacity to 170,000 barrels a day.

Mr. White has said the Lima investment is likely to exceed $2 billion.

It was not clear how soon a decision would be made on doing the upgrade, or when the cost would be revealed. The refinery processes 160,000 barrels a day.

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