May 22 (Bloomberg) -- Royal Dutch Shell Plc, Europe's biggest oil company, is proceeding with plans to possibly double the size of a refinery in Texas, amid concern that ethanol mandates may erode the U.S. gasoline market, a spokeswoman said.

Shell and Saudi Arabia's state oil company, its joint venture partner in Motiva Enterprises LLC, said in late 2005 that they were considering an expansion of their Port Arthur plant to a capacity of 600,000 barrels of crude a day. The project would cost $3 billion and make Port Arthur the largest U.S. refinery, ahead of Exxon Mobil Corp.'s Baytown, Texas, facility.

``The process is moving forward,'' said Darci Sinclair, a spokeswoman for Shell in Houston. ``Nothing has changed.'' Motiva has regulatory approvals and is conducting design and engineering work, aiming to make a final decision this fall, she said.

Shell's top U.S. executive, John Hofmeister, said yesterday that President George W. Bush's call for reducing gasoline use by boosting supplies of alternative fuels such as ethanol or biodiesel poses an unresolved ``dilemma'' in the context of the Port Arthur expansion. Bush in January said the U.S. should cut gasoline use 20 percent over 10 years.

Hofmeister intended to make the point that policy decisions in Washington ``help shape the parameters by which investment decisions are made,'' Sinclair said. The comments were not meant to imply that the company had changed its mind on expanding the Port Arthur plant.

Speaking at a conference yesterday in Santa Clara, California, Hofmeister said he hopes that Shell, based in The Hague, completes the Port Arthur expansion and that others go through with projects to add capacity because the U.S. needs more refinery capacity.

The national average price for regular gasoline rose 1.3 cents to a record $3.209 a gallon yesterday, AAA said on its Web site. U.S. gasoline futures have jumped 50 percent this year.

Shell and Saudi Aramco's Motiva venture has three U.S. plants, including two in Louisiana.

To contact the reporter on this story: Greg Chang in San Francisco at Gchang1@bloomberg.net.

Last Updated: May 22, 2007 11:52 EDT