* US crude discount to Brent fall to less than $8
* CEO expects volatile spread as US production grows
* Company after Canadian heavy crude for Calif. refineries
By Kristen Hays
HOUSTON, May 8 Phillips 66 Chief
Executive Greg Garland said on Wednesday that the narrowed
spread between U.S crude oil prices and London's Brent won't
prompt any changes in the company's strategy because the U.S.
remains fundamentally oversupplied.
Phillips 66 and other refiners benefit from discounted U.S.
crude to make transporting North Dakota crude to their East and
West coast refineries profitable.
A shrinking spread , which on Wednesday fell
below $8 a barrel for the first time since January 2012,
can erode the advantage of cheap U.S. crude.
In February, U.S. crude benchmark West Texas Intermediate 's
discount to Brent surpassed $23. The cost to move it by rail to
the East and West coasts can range from $12 to $16 a barrel.
Phillips 66 operates or has interests in 15 refineries
worldwide, and 11 in the United States. Seven of the U.S. plants
are on or near the East, West and U.S. Gulf coasts.
Garland, who spoke to reporters before the company's annual
shareholder meeting in Houston, said booming U.S. production
will keep supply ahead of infrastructure projects needed to move
it to markets, so the spread will be volatile. Shareholders
overwhelmingly re-elected him and other directors.
"As long as you have an oversupply of crude, as long as
we're overdrilling our infrastructure, you're going to see a lot
of volatility," Garland said. "So when you look at that whole
infrastructure, look at drilling activity going on, we don't see
any change in the base fundamentals."
Garland also said he sees U.S. gasoline demand flat to
declining in the next five to 10 years while it rises in Latin
America, South America, Asia and Africa. Phillips 66 is
increasing its export capacity to capitalize on that demand.
The company exported 150,000 barrels per day of gasoline and
diesel in the first quarter this year, and can export up to
320,000 bpd. Garland said the company aims to increase that
capability to 500,000 bpd in the coming years - a third of
Phillips 66's domestic output.
Phillips 66 ships North Dakota Bakken crude via rail to its
238,000 barrels-per-day (bpd) Bayway refinery in Linden, New
Jersey, and its 100,000 bpd refinery in Ferndale, Washington.
The company also moves cheap Texas crude to its 247,000 bpd
Alliance refinery in Belle Chasse, Louisiana, and then Bayway
Garland also said Phillips 66 has little interest in tapping
light sweet crude from the Permian Basin in Texas that could be
shipped to southern California on the Kinder Morgan Energy
Partners Freedom Pipeline.
Kinder Morgan is gauging shipper interest in a plan to
convert a natural gas pipeline to move Texas crude to
import-dependent California refineries.
Phillips 66 operates a 139,000 bpd Los Angeles-area refinery
and a 120,200 bpd San Francisco-area plant.
But those plants, like others in California, are configured
to run heavy California crude. They can run light sweet crude,
but can more efficiently process heavy crude.
"I think we're more interested in trying to move heavy
Canadian crude down to California to process in our refineries,"
So far the company has brought small amounts of Canadian
crude via rail to California, Garland said, in addition to
shipping some crude via barge from Washington State.