15 June 2012 19:15 [Source: ICIS news]
HOUSTON (ICIS)--Motiva's expanded Port Arthur refinery in Texas could still turn out to be competitive and profitable despite the rapid and significant changes that took place in the industry during the five years it took to double the refinery's capacity, a consultant said.
“While today’s refining market is different than when the Motiva project was approved, the refined products produced from the Motiva expansion will be competitive in the domestic and global marketplace,” said Susan Starr, principal for the Muse & Stancil consultancy.
In those five years, there has been a global recession, higher fuel demand in developing countries and lower gasoline demand in the US, triggered in part by fewer gas-guzzling vehicles on the road.
In addition, several refineries have closed during this time, which the industry would not have expected when plans for the Motiva refinery expansion were first developed.“Though US product demand has fallen, growing exports of refined products from the Gulf coast have offset those declines and helped to maintain high utilisation rates,” said Starr
Motiva is a 50:50 joint venture made up of Saudi Aramco and Shell. On 31 May, Motiva marked the completion of the five-year construction project to more than double the Port Arthur refinery’s capacity to 600,000 bbl/day.
The expansion made the refinery the largest in the US. It also added more than 4% to US Gulf refining capacity.
“I think much of the buzz five years ago was concern how aging refineries would cope with new regulation at the time, which mainly was ultra low-sulphur diesel,” said Patrick DeHaan with GasBuddy.com.
The last large refinery built the US was in 1976.
Some large multi-year projects are sometimes completed during favourable cycles in the industry while others are not, Purvin & Gertz consultant Stephen Jones said.
“These projects have always been a big risk, [and] this one is no different,” said Anne Keller, president of Midstream Energy Group. “Between the time a project is sanctioned and when it comes on line, the world usually does change.”
DeHaan said the Motiva expansion project came on line at a favourable time for Shell and Saudi Aramco.
However, there is some disagreement on how much of the expanded refinery’s profits and success will depend on approval of the Keystone XL Pipeline for access to cheaper heavy Canadian crude.
Keller and Starr agree the refinery will take advantage of heavy Saudi Arabian crude oils, with other heavy crudes accessed by sea and the Keystone pipeline.
Accordingly, they agree heavy Canadian crude access is not crucial for the refinery's success.
Some of the heavy Canadian crude has begun to make its way to the Gulf coast by the Seaway Pipeline reversal, carrying crude from the Cushing hub in Oklahoma to the US Gulf. The Keystone XL Pipeline would bring heavy Canadian synthetic crude to the US Gulf.
“The Keystone XL would provide access to additional heavy Canadian crude options, but whether it is approved or not will not have a significant impact on the Motiva expansion profitability,” Starr said.
Other refinery projects that could benefit from growing supplies of Canadian syncrude and the Keystone XL Pipeline include Marathon’s 464,000 bbl/day Garyville refinery in Louisiana; Valero’s 290,000 bbl/day Port Arthur refinery; BP’s 405,000 bbl/day Whiting refinery in Indiana; and Phillips 66's 362,000 bbl/day Wood River refinery in Illinois and its 146,000 bbl/day Borger refinery in Texas.
“If the Keystone XL is approved, [Motiva will] have wide possibilities toward accessing cheaper Canadian crude and can export a significant amount of their product, if necessary,” DeHaan said.
Starr said the increase in fuel exports, along with the loss of east coast refining capacity, including the shut down of Hovensa’s 330,000 bbl/day refinery in the US Virgin Islands that served the US east coast, favours higher utilisation of US Gulf refiners, which is expected to remain good and is favourable for Motiva.
US Gulf refineries have been running at an average of 89% in the past month or two, according to the US Energy Information Administration.
Meanwhile, Motiva has more immediate concerns as the start up of the expanded refinery has hit some obstacles.
A crude distillation unit (CDU) at the refinery will be off line for two to five months. The CDU went off line after a failed weekend start-up attempt on 9 June.A refined products trader on the Gulf coast said the unit’s outage took refinery available capacity down by 50%.
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