EXHIBIT 10.2

                                WAIVER AGREEMENT

         THIS WAIVER AGREEMENT is entered into by Blue Dolphin Energy Company, a
Delaware corporation (the "Company"),  and Western Gulf Pipeline Partners, LP, a
Texas  limited  partnership  ("Western  Gulf").  Certain  capitalized  terms not
defined herein have the meanings assigned to them in the Purchase  Agreement (as
defined below).

                                    RECITALS:
                  In Section 5.10 of Article 5 of the Note and Warrant  Purchase
         Agreement  dated September 8, 2004 (the "Purchase  Agreement")  between
         the  Company  and certain  investors  named in Schedule I thereto  (the
         "Investors"),  each  Investor,  including  Western  Gulf,  agreed that,
         during the nine (9) month period following the Additional Closing Date,
         it will not sell, transfer or assign any of the Warrants or the Warrant
         Shares without the prior written consent of the Company.

                  Western Gulf has requested  that the Company waive  compliance
         with the Section 5.10 of the Purchase Agreement.

                  Western  Gulf has advised the Company  that Western Gulf plans
         to distribute and assign (the "Assignment") the Warrants represented by
         Warrant  Certificates  1 and  1A (an  aggregate  of  916,667  Warrants)
         pursuant  to,  and  in  compliance  with,  Section  5.5(a)(iii)  of the
         Purchase  Agreement  to the  partners  of Western  Gulf  identified  on
         Schedule I hereto (each a "Partner" and  collectively,  the "Partners")
         on a pro rata basis.

                  Western Gulf has requested the Company to acknowledge  (i) the
         anticipated  Assignment  of Warrants by Western Gulf and (ii) that upon
         the  Assignment  of the  Warrants to the  partners of Western  Gulf the
         Partners  will  succeed to the rights and  obligations  of Western Gulf
         under the Purchase Agreement, including, but not limited to, the rights
         of Investors pursuant to Section 5.12 of the Purchase Agreement.

                  Concurrently   herewith  the  Company  and  Western  Gulf  are
         entering into the Note Modification Agreement (as defined below).

         NOW, THEREFORE, in consideration of the promises herein contained,  the
mutual benefits to be derived herefrom and other good and valuable consideration
received by each party,  and each  intending  to be legally  bound  hereby,  the
Company and Western Gulf hereby agree as follows:

         The Company waives any further  compliance by Western Gulf with Section
5.10 of the Purchase Agreement.

         Western Gulf represents and warrants that each Partner is an affiliate,
as such term is defined in Section 5.5(a)(iii)(A) of the Purchase Agreement,  of
Western  Gulf and  agrees to cause  each  Partner  to enter  into an  assignment
agreement  substantially in the form of Exhibit A (the  "Assignment  Agreement")
attached hereto as soon as reasonably practicable.


<PAGE>

         The Company  agrees that upon  execution  and delivery of an Assignment
Agreement the Assignment of the Warrants by Western Gulf to the Partners will be
in  compliance  with  Section  5.5(a)(iii)  of the Purchase  Agreement  will not
violate the  transfer  restrictions  contained  in Section  5.5 of the  Purchase
Agreement.

         The Company  agrees  that upon the  Assignment  of the  Warrants to the
Partners,  the Partners  will succeed to the rights and  obligations  of Western
Gulf under the Purchase Agreement;, including, but not limited to, the rights of
Investors pursuant to Section 5.12 of the Purchase Agreement.

         The  Company  agrees  that,  pursuant to Section  10.3 of the  Purchase
Agreement, the Assignment of the Warrants to the Partners is a proper assignment
of the rights,  interests and  obligations  of Western Gulf in  accordance  with
Section 10.3 of the Purchase Agreement.

         The Company agrees to use its  commercially  reasonable best efforts to
(i) file a  registration  statement  on Form  S-3 or such  other  form  that the
Company is then eligible to use (the  "Registration  Statement") by May 15, 2005
registering the resale of the Warrant Shares  beneficially owned by Western Gulf
and (ii) cause such  Registration  Statement to be declared  effective under the
Securities Act as soon as reasonably practicable thereafter.

         Concurrently with the execution of this Waiver Agreement,  Western Gulf
agrees to enter into that certain Note  Modification  Agreement dated April ___,
2005 between the Company and Western Gulf (the "Note Modification Agreement").

         Except as modified by this  Agreement all other  obligations of Western
Gulf and the Company pursuant to the Purchase Agreement remain in full force and
effect.



<PAGE>

         IN WITNESS WHEREOF, the parties have caused this Agreement which may be
executed in  multiple  counterparts,  to be  executed  by their duly  authorized
representatives, all as of the ____ day of April, 2005.

                                          THE COMPANY:

                                          BLUE DOLPHIN ENERGY COMPANY

                                          By:___________________________________
                                          Name: Michael J. Jacobson
                                          Title: President



                                          WESTERN GULF PIPELINE PARTNERS, LP

                                          By: PEREGRINE MANAGEMENT, LLC,
                                              Its General Partner


                                              By:_______________________________
                                                 Barrett L. Webster, its Manager





<PAGE>

                                   SCHEDULE I
                      DISTRIBUTION OF BLUE DOLPHIN WARRANTS
                            TO WESTERN GULF PARTNERS


                                 Number of              Number of
                                  Warrants               Warrants
       Partner               Certificate No. 1      Certificate No. 2     Total
       -------               -----------------      -----------------     -----

Peregrine Management, LLC          4,584                  4,583            9,167

Steven A. Webster                206,250                206,250          412,500

Kestrel Capital, LP              122,500                122,500          245,000

William A. Lang                   41,667                 41,667           83,334

William R. Ziegler                83,333                 83,333          166,666
                                                                         -------

Total                                                                    916,667
                                                                         =======





<PAGE>

                                    EXHIBIT A


                              ASSIGNMENT AGREEMENT


         THIS  ASSIGNMENT  AGREEMENT  (this  "Agreement")  is  entered  into and
effective  as of the _____ day of April,  2005 (the  "Effective  Time"),  by and
among  Western  Gulf  Pipeline  Partners,   LP,  a  Texas  limited   partnership
("Assignor"), ___________________, a ____________ ("Assignee"), and is joined in
by Blue Dolphin Energy Company, a Delaware corporation ("Blue Dolphin"), for the
purposes of Article III.

                                    RECITALS:

         A.  Assignor  owns  warrants,  issued by Blue  Dolphin,  to  acquire an
aggregate of 916,667 shares of Common Stock (the "Warrants").

         B. Assignor  desires to distribute and assign,  and Assignee desires to
acquire,  all of  Assignor's  right,  title and  interest  in and to Warrants to
acquire ____ shares of Common Stock currently held by Assignor (the "Transferred
Warrants").

         NOW, THEREFORE,  the parties hereto,  intending to be legally bound, do
hereby represent, warrant, covenant and agree as follows:

ARTICLE I
                                   DEFINITIONS

         1.1 Defined  Terms.  Capitalized  terms used but not defined herein and
defined in the Note and Warrant Purchase Agreement dated as of September 8, 2004
(the "Purchase  Agreement"),  shall have the meanings described to such terms in
the Purchase Agreement.

ARTICLE II
                                   ASSIGNMENT

         2.1 Assignment.

                  (a)  Assignor  hereby  distributes,  transfers  and assigns to
Assignee,  and Assignee hereby acquires from Assignor,  all of Assignor's right,
title, and interest in and to the Transferred  Warrants, it being understood and
agreed that the Transferred  Warrants  thereby shall remain subject to the terms
of the Purchase Agreement.

                  (b) From and after the Effective  Time,  Assignee shall be the
sole and exclusive owner of the Transferred  Warrants,  and Assignor shall cease
to have any right, title or interest in or to the Transferred Warrants.

                  (c)  Assignor  hereby  assigns  all of  Assignor's  rights and
interests under the Purchase Agreement with respect to the Transferred Warrants,
and Assignee  hereby  accepts such  assignment and assumes and agrees to perform
and  discharge  all of  Assignor's  duties and  obligations  under the  Purchase
Agreement.


<PAGE>

                  (d) The  assignment of the  Transferred  Warrants  pursuant to
this  Agreement  is being  effected  pursuant  to, and  subject to the terms and
conditions of, Section 5.5(a)(iii) of the Purchase Agreement.

                  (e) The assignment of the  Transferred  Warrants  hereby shall
not create any rights,  duties or  obligations  of Assignee  with respect to the
Note owned by Assignor

                                   ARTICLE III
                               CERTAIN AGREEMENTS

         3.1 Representations and Warranties of Assignee. Assignee represents and
warrants as follows:

                  (a) Assignee  understands that (i) none of the Warrants or the
Warrant  Shares  have  been  registered  under the  Securities  Act and (ii) the
Warrants and the Warrant  Shares were offered and sold  pursuant to an exemption
from registration  contained in the Securities Act based in part upon Assignor's
representations contained in the Purchase Agreement.

                  (b) Assignee has  substantial  experience  in  evaluating  and
investing in private  placement  transactions of securities in companies similar
to Blue Dolphin so that it is capable of evaluating  the merits and risks of its
investment  in Blue Dolphin and has the  capacity to protect its own  interests.
Without  limiting  the  generality  of  the  foregoing,  such  Assignee  further
represents that it has such knowledge regarding the pipeline and the oil and gas
industries  and the  business  of Blue  Dolphin  and the  current  circumstances
surrounding  such  industries  and business that it is capable of evaluating the
merits and risks of the  acquisition  of the  Warrants  and the Warrant  Shares.
Assignee must bear the economic risk of this investment  indefinitely unless the
Warrants or the Warrant Shares are registered pursuant to the Securities Act, or
an exemption from registration is available.  Assignee  understands that, except
as provided  in Section  5.12 of the  Purchase  Agreement,  Blue  Dolphin has no
present  intention of registering the Warrants or the Warrant  Shares.  Assignee
also understands that there is no assurance that any exemption from registration
under the  Securities  Act will be available and that,  even if available,  such
exemption may not allow  Assignee to transfer all or any portion of the Warrants
or the Warrant  Shares under the  circumstances,  in the amounts or at the times
Assignee might propose.

                  (c)  Acquisition  for Own Account.  Assignee is acquiring  the
Warrants and the Warrant Shares for Assignee's own account for investment  only,
and not with a view towards their distribution.

                  (d) Assignee  Can Protect Its  Interest.  Assignee  represents
that by reason of its, or of its management's, business or financial experience,
Assignee has the capacity to protect its own  interests in  connection  with the
transactions  contemplated in this Agreement.  Further, Assignee is not aware of
any  publication  of any  advertisement  in  connection  with  the  transactions
consummated by the Purchase Agreement.

                  (e)  Accredited  Investor.   Assignee  is  (i)  an  accredited
investor  within the meaning of Regulation D under the  Securities Act and, (ii)
if Assignee is an entity all of its equity owners are accredited investors.



<PAGE>

                  (f)  Company  Information.  Assignee  has had  access  to Blue
Dolphin's  SEC  Filings and has had an  opportunity  to discuss  Blue  Dolphin's
business,   management  and  financial  affairs  with  directors,  officers  and
management of Blue Dolphin and has had the  opportunity to review Blue Dolphin's
operations  and  facilities.  Assignee  has  also  had  the  opportunity  to ask
questions  of,  and  receive  answers  from,  Blue  Dolphin  and its  management
regarding  the  terms  and  conditions  of  this  investment.   Assignee  hereby
acknowledges   and  affirms   that  it  has   completed   its  own   independent
investigation,  analysis,  and evaluation of Blue Dolphin and its  subsidiaries,
that it has made all such  reviews  and  inspections  of the  business,  assets,
results of operations, condition (financial or otherwise), and prospects of Blue
Dolphin and its subsidiaries as it has deemed necessary or appropriate, and that
it has  relied  solely  on its  own  independent  investigation,  analysis,  and
evaluation of Blue Dolphin and its subsidiaries,  or that of its own independent
advisers in evaluating its investment in the Warrants and the Warrant Shares.

                  (g)  Rule  144.  Assignee  acknowledges  and  agrees  that the
Warrants,  and, if issued, the Warrant Shares,  must be held indefinitely unless
they are  subsequently  registered under the Securities Act or an exemption from
such  registration  is  available.  Assignee has been advised or is aware of the
provisions of Rule 144, which permits  limited  resale of shares  purchased in a
private placement subject to the satisfaction of certain conditions,  including,
among other things: the availability of certain current public information about
Blue Dolphin,  the resale occurring  following the required holding period under
Rule 144 and the number of shares being sold during any  three-month  period not
exceeding specified limitations.

                  (h) Transfer  Restrictions.  Assignee  acknowledges and agrees
that the Warrants and the Warrant Shares are subject to restrictions on transfer
as set forth in Section 5.5 of the Purchase  Agreement,  and further understands
that the Warrants and the Warrant  Shares have not been  registered  pursuant to
the Securities Act or any applicable  state  securities  laws, that the Warrants
and the Warrant Shares will be  characterized as "restricted  securities"  under
federal securities laws, and that under such laws and applicable regulations the
Warrants and the Warrant Shares cannot be sold or otherwise  disposed of without
registration  under  the  Securities  Act or an  exemption  therefrom.  In  this
connection,  Assignee  represents  that it is familiar with Rule 144 promulgated
under the Securities  Act, as currently in effect,  and  understands  the resale
limitations imposed thereby and by the Securities Act. Appropriate stop transfer
instructions  may be issued to the transfer agent for securities of Blue Dolphin
(or a  notation  may be made in the  appropriate  records  of Blue  Dolphin)  in
connection with the Warrants or the Warrant Shares.

                  (i) Affiliate Status.  Assignee is an affiliate,  as such term
is defined in Section 5.5(a)(iii)(A) of the Purchase Agreement, of Assignor.

         3.2 Agreement of Assignee. Assignee agrees to be bound by the terms and
provisions of the Purchase Agreement.

         3.3 Waiver of Lockup.  Blue Dolphin  waives any further  compliance  by
Assignee with Section 5.10 of the Purchase Agreement.

                                   ARTICLE IV
                            MISCELLANEOUS PROVISIONS

         4.1 Multiple  Counterparts.  This  Agreement  may be executed in one or
more  counterparts  for the  convenience  of the  parties  hereto,  all of which
together shall constitute one and the same instrument.

         4.2 Entire Agreement.  This Agreement contains the entire understanding
of the parties  relating to the subject matter  contained  herein and supersedes
all prior agreements and understandings, either written or oral, relating to the
subject  matter  hereof.  This  Agreement  shall  not be  modified,  amended  or
terminated  except in a writing signed by the party against whom  enforcement is
sought.

         4.3 Governing Law. This Agreement shall be governed by and construed in
accordance  with the laws of the State of Texas without  regard to principles of
conflict of laws.

         4.4  Headings.  The headings of the  articles  and sections  herein are
inserted  for  convenience  only and shall not affect in any way the  meaning or
interpretation of this Agreement.

                  [Remainder of page intentionally left blank]







<PAGE>

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.

                                            ASSIGNOR:

                                            WESTERN GULF PIPELINE PARTNERS, L.P.

                                            By: PEREGRINE MANAGEMENT, LLC,
                                                its General Partner


                                                By:_____________________________
                                                Name:___________________________
                                                Title:__________________________


                                            ASSIGNEE:


                                            By:_________________________________
                                            Name:_______________________________
                                            Title:______________________________



                                            Blue Dolphin Energy Company

                                            By:_________________________________
                                            Name:_______________________________
                                            Title:______________________________