UPDATE 2-Shell sees refining margins under pressure

(Adds company comments)

By Janet McGurty

LONDON, April 29 (Reuters) - Royal Dutch Shell (RDSa.L) sees refinery margins under pressure for the next two to three years as new refining capacity comes onstream, but more modern plants will add value, the company said on Tuesday.

Peter Voser, chief financial officer of the Anglo-Dutch oil giant, said after the company announced its first quarter results that he expected a more volatile refining environment over the next few years.

He said that even though the company had seen a slight improvement in profit margins during the first few weeks of April, pressures would continue to push down margins.

"The market is well supplied," Voser said, adding that while there are still question marks about how strong demand is, Shell is well-positioned to operate in that enviroment.

Shell is expanding capacity and complexity at its refineries in Port Arthur, Texas; Pernis, The Netherlands; and Singapore.

Its refinery margins for the first quarter have fallen compared with the same period last year, as oil product prices have not kept up the soaring price of crude oil.

Light sweet crude oil prices have shot up, holding just under $120 a barrel mark on the NYMEX futures exchange, sending refiners to increase refinery complexity to allow them to process cheaper, sour crudes.

In the United States, Shell has said it will double the capacity of Port Arthur to create the nation's largest refinery.

EXPANSION

The 285,000 barrel per day refinery, one of the three U.S. Gulf Coast refineries owned by Motiva Enterprises, a joint venture with Saudi Aramco, will be expanded by 325,000 bpd.

The expansion will give the refinery flexibility to be able process the cheaper, lower quality crudes.

It will increase naphtha processing capacity, which will include a catalytic reformer which will convert 85,000 bpd into high octane gasoline for blending.

A further Shell U.S. Gulf Coast joint venture refinery in Deer Park, Texas, owned with Mexico's state-owned oil company, Pemex, is already capable of processing sour crude.

In the first quarter of 2008, Shell reported refining margins of $8.70 a barrel, compared with the $12.87 seen the year earlier for running West Texas Sour.

In Pernis, the company has said it would spend over about $1.42 billion at the 412,000 bpd refinery -- Europe's largest -- to focus on exporting products in Europe as well as gasoline to the United States.

For the quarter, Rotterdam Brent complex margins slipped to $3.55 a barrel compared with the $3.70 seen last year.

Shell's largest refinery, the 500,000 bpd Bukom plant offshore Singapore, is in the process of getting a new ethylene cracker.

Shell reported first quarter 2008 earnings for its oil products segment rose to $2.4 million compared with $1.8 million in the same quarter of last year, despite lower profit margins, as refinery utilization increased to 92 percent from 85 percent. (Reporting by Janet McGurty; editing by James Jukwey)