25 June 2012 00:00 [Source: ICB]
The largest refinery in the US following its massive expansion could see high operating rates
US-based Motiva's expanded Port Arthur refinery in Texas could still turn out to be competitive and profitable despite the rapid and significant changes that challenged the industry during the five years it took to double the refinery's capacity.
"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 US-based petroleum consultancy Muse & Stancil.
Motiva is confident its Port Arthur refinery expansion will pay off
In addition, several refineries have closed during this time, which the industry would not have anticipated 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 utilization rates," said Starr.
Motiva is a 50:50 joint venture between Saudi Aramco and UK-based Shell. On May 31, 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 makes the refinery the largest in the US. It also adds more than 4% to US Gulf refining capacity.
However, propylene and aromatics production at the Motiva refinery is not likely to double. Motiva added a hydrocracking unit to the refinery to raise the diesel and distillates yield, focusing less on gasoline - and therefore propylene and aromatics - which relies on the catalytic cracking process, noted Starr.
"I think much of the buzz five years ago was concern about how aging refineries would cope with new regulation at the time, which mainly was ultra low-sulfur diesel," said Patrick DeHaan, senior petroleum analyst at the blog GasBuddy.com.
The last large refinery built the US was in 1976.
Some large multi-year projects are sometimes completed during favorable cycles in the industry while others are not, noted Stephen Jones, vice president at US consultancy Purvin & Gertz.
"These projects have always been a big risk, [and] this one is no different," said Anne Keller, president of US consultancy 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 favorable time. However, there is some disagreement on how much of the expanded refinery's profits will depend on approval of the Keystone XL pipeline for access to cheaper heavy Canadian crude oil.
Keller and Starr agree that 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 that 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 US 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 refineries that could benefit from growing supplies of Canadian synthetic crude 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, located 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 US east coast refining capacity, including the shutdown of Hovensa's 330,000 bbl/day refinery in the US Virgin Islands that served the US east coast, favors higher utilization at US Gulf refiners.
US Gulf refineries have been running at an average of 89% in the past month or two, according to data from 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 following a failed weekend start-up attempt on June 9.
A refined products trader on the US Gulf Coast said the unit's outage took refinery available capacity down by 50%.
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