UPDATE 1-Marathon board approves Detroit refinery expansion

(Updates throughout)

NEW YORK, Oct 31 (Reuters) - Marathon Oil Corp (MRO.N) will go ahead with a $1.9 billion expansion of its Detroit, Michigan, refinery that will boost the refinery's total capacity and its ability to process heavy oil, the company said on Wednesday.

"The Detroit refinery expansion and upgrade will enable us to link our recently acquired Canadian oil sands production, along with its significant growth potential, with a lower cost, higher value refining option," Clarence P. Cazalot, Jr., president and CEO of Marathon, said in a press release.

The company said the project, which is expected to be completed by 2010, will increase the refinery's heavy oil processing capacity by about 80,000 barrels per day (bpd), and will increase its total crude oil refining capacity by about 15 percent to 115,000 bpd.

Marathon Oil, the fifth-largest refiner in the U.S., currently has a crude processing capacity of 974,000 bpd. Construction on the Marathon expansion is projected to begin in late 2007 or 2008.

Marathon's decision comes close on the heels of Motiva Enterprise LLC's approval of a $7 billion project to more than double the size of its Port Arthur, Texas, refinery, which would make it the biggest oil refinery in the country.

Tight oil refining capacity worldwide has made refining hugely profitable for the first time in decades, spurring large expansions globally and the construction of new refineries in the Middle East and Asia.

Fuel production capacity shortages, particularly in the aging U.S. refining sector, have also increased the vulnerability of oil markets to sudden price spikes on plant outages.