April 26, 2012 / 4:30 PM / 5 years ago

UPDATE 1-Motiva Port Arthur refinery becomes U.S. largest -Shell

By Jeffrey Kerr

NEW YORK, April 26 (Reuters) - Royal Dutch Shell Plc and Saudi Aramco became co-owners of the largest U.S. refinery on Thursday when a new crude distillation unit at their joint-venture Motiva Enterprises Port Arthur, Texas, plant received oil for the first time, said Shell's Chief Financial Officer.

The 325,000 barrel-per-day (bpd) atmospheric crude distillation unit that started processing on Thursday combines with existing crude units to give Motiva's Port Arthur, Texas, refinery a total crude oil refining capacity of 600,000 bpd, said Shell Chief Financial Officer Simon Henry during the company's first quarter earnings call.

The start-up of the crude unit culminates a 5-year, estimated $7-billion project to expand the refinery and continues the growth of Gulf Coast refining capacity started by Marathon Petroleum Corp, with the doubling of capacity at its 464,000 bpd Garyville, Louisiana, refinery in 2010.

The importance of the Gulf Coast as the nation's refinery row was heightened by the shutdown of Sunoco Inc and ConocoPhillips refineries in Pennsylvania late last year.

Preparing for the expansion is also part of the reason imports of crude oil from Saudi Arabia have jumped by 350,000 bpd to average 1.5 million bpd this year, compared to an 1.15 million bpd in 2011, according to weekly data from the U.S. Energy Information Administration.

Traders and analysts say part of the growth was aimed at building up inventories at the refinery ahead of the expansion coming online.

With the startup of the new Port Arthur crude unit, Exxon Mobil Corp's 560,640 bpd Baytown, Texas, refinery becomes the nation's second-largest refinery.

Work continues on other new units at the Motiva Port Arthur refinery, Henry said, with a new hydrocracker expected to begin production later in the second quarter.

Hydrocracking units use hydrogen to extract more motor fuel from crude oil and boost diesel production.

The refinery is expected to reach full capacity sometime in the third quarter of this year, most likely in September, according to sources familiar with refinery operations.

In the coming weeks, Motiva will to shut a delayed coking unit and an existing vacuum crude distillation unit for planned overhauls.

A crude distillation unit does the initial refining of crude oil and makes feedstock for all other units.

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