October 30, 2013 / 6:37 PM / 6 years ago

UPDATE 1-Phillips 66 may buy more railcars to move crude to U.S. refineries-CEO

* Aims to rail more crude to East, West coast refineries

* Ramping East Coast crude by rail as US prices have fallen

* Refined products exports increasing

By Kristen Hays

HOUSTON, Oct 30 (Reuters) - Independent U.S. refiner Phillips 66 may buy more railcars to move inland U.S. and Canadian crude to its refineries on top of the 2,000 expected for delivery this year, Chief Executive Greg Garland told analysts on Wednesday.

The company has received 1,270 of those railcars so far in 2013, and Garland said the company was “thinking about buying some more railcars.”

Rail opens access to cheaper crudes that refiners can run instead of more expensive imports, bolstering profits, when pipeline infrastructure is lacking.

Garland also said as Phillips 66 and other refiners with plants on the U.S. West Coast rail in more inland U.S. as well as heavy and light Canadian crude, Alaskan North Slope crude prices will fall, turning it into a so-called “advantaged crude” as well.

“I do think between what ourselves and others are doing on the West Coast, we’re going to pressure ANS prices,” he said during the company’s third-quarter earnings conference call.

The company’s third-quarter profits fell more than expected on weak global margins that dragged on refining profits.

Part of that problem stemmed from higher U.S. crude prices, which eroded the cost benefit of replacing imports with domestic oil transported via rail, barge or tanker to the company’s coastal refineries, executives said.

Phillips 66’s 238,000 barrels-per-day (bpd) Bayway refinery in New Jersey had been running about 100,000 barrels per day of U.S. crudes in place of imports - from Texas via tanker and North Dakota’s Bakken via rail and barge.

The company cut rail shipments to 30,000 bpd day when the discount of U.S. crude benchmark West Texas Intermediate to London’s Brent all but dried up during the quarter. The discount of North Dakota Bakken crude to WTI also narrowed.

Garland said the company started importing more West African crude.


However, Phillips 66 is ramping rail shipments back up and running less imported crude now that the spread has widened to more than $10 a barrel, executives said.

“The spreads now incent us to run Bakken at Bayway today,” Tim Taylor, executive vice president for commercial, marketing, transportation and business development, told Reuters in a post-call interview.

He said the relatively swift pullback and later resumption of rail shipments exemplifies the flexibility of rail as a way to tap the cheapest crudes of the moment.

“That’s exactly why we like that delivery method for that particular movement,” he said.

Phillips 66 is building a new rail offloading facility at Bayway to further increase shipments by 75,000 bpd by the second half of 2014. The company also received all necessary permits to build a similar facility at its 100,000 bpd refinery in Ferndale, Washington, to handle 30,000 bpd also by the second half of next year.

Executives also told analysts that the company further increased refined product exports during the third quarter to 190,000 barrels per day from 181,000 barrels per day in the second quarter this year.

Phillips 66 has the capability to export up to 340,000 bpd of refined products, and aims to increase that to 500,000 bpd “in the next several years,” Garland told analysts.

He said as U.S. demand declines, increasing export capability “is going to be important to keep our refineries running at high utilization rates.”

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