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.

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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.

Motiva has awarded the main construction contract to a Bechtel/Jacobs joint venture.

Shell shares were 0.1 percent higher in London at 20.94 pounds by 7:27 a.m. EDT.

TIGHT BALANCE

U.S. refiners have grown flush on a tight balance between expanding demand for oil products and only a slow growth in supply in recent years that has made the U.S. market more dependent on imports.

Strains in U.S. refining capacity following hurricanes, maintenance and accidents have contributed to the spike in the oil price over $84 a barrel. U.S. WTI crude hit a record high of $84.10 on Thursday.

Shell's move to invest in expanding capacity in the U.S. comes at a time the group has sold some of its European refining operations.

Routs said the refined products markets in both countries were very different, with demand, especially for gasoline in Europe, in decline.

The European refineries put up for sale by Shell were high-cost operations which would have difficulty competing in a low margin environment.

Overall, Shell said it expected oil refining margins in the long term to narrow as new refining capacity came on stream in the Middle East and Asia.

"In the long run there will be quite a lot of new capacity coming online East of Suez that will drive worldwide margins down," Routs said, adding that the expanded Port Arthur refinery would be profitable even if margins were low.

Two students were shot and wounded, one seriously, at Delaware State University early Friday, and the campus was locked down as police searched for a gunman, officials said.

Classes were canceled for the day and students were being kept inside.

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"They've been directed to stay in their dorms," said Carlos Holmes, a university spokesman. "We don't know where the shooter's at."

At the university's main entrance, swing-arm gates were down to prevent people from driving onto campus.

The students were shot near the Memorial Hall gymnasium around 1 a.m., according to a news release on the university's Web site.

Holmes said the female student appeared to have suffered serious wounds. "They could be potentially life-threatening," he said. The male student's wounds were not as serious and he was hospitalized in stable condition, Holmes said.

Police hoped to find out more information once the victims were able to talk.

"We haven't had a chance to talk to them yet, and that's probably a big reason why the suspect is still at large," Holmes told KYW-TV of Philadelphia.

Students were instructed to stay in their residence halls until further notice, and nonessential university employees were told not to report to work.

University officials informed students about the shooting with phone calls, a notice posted on the campus Web site and notifications in each dormitory. Holmes said Delaware State had improved the speed of its notifications following the shootings in April at Virginia Tech.

The Dover campus was surrounded Friday by groups of recreational vehicles belonging to NASCAR fans in town for this weekend's races at the Dover Downs Speedway.

A commuter student who arrived Friday morning was barred from campus. Eduardo Rivera, 25, of Milford, said he hadn't known about the shootings and was surprised by the media gathered outside the main gate.

"I thought it was about racing, or NASCAR, or something like that," he said. "I'm shocked. I don't expect to hear something like this when I'm trying to go to class _ it's weird."

Rivera, a sophomore studying physical education and sports management, said he had felt the campus was safe.

At the start of the fall semester, the campus community held a memorial service for three students and an incoming student shot execution-style Aug. 4 as they hung out at an elementary school in their hometown of Newark, N.J. Natasha Aeriel, 19; her brother, Terrance Aeriel, 18, and Dashon Harvey, 20, were students. Iofemi Hightower, 20, had planned to attend Delaware State this fall. Natasha Aeriel, the only survivor, helped police identify six suspects who have been arrested.

Delaware State was established in 1891 as the State College for Colored Students. It had about 3,690 students last year. The 400-acre campus is in the northern section of Dover, across the street from the racetrack.