May 31, 2012 / 5:55 PM / 7 years ago

UPDATE 2-Motiva completes $10 bln Gulf Coast JV refinery expansion

* Motiva eclipses Exxon Baytown as largest U.S. refinery
    * Refinery can process wide variety of crude
    * Gulf Coast refiners could get boost from Keystone XL

    By Kristen Hays and Erwin Seba	
    PORT ARTHUR, Texas, May 31 (Reuters) - Royal Dutch Shell
 and Saudi Aramco unveiled the $10 billion expansion of
their joint-venture Motiva Enterprises Texas Gulf Coast refinery
on Thursday as it neared its top capacity, taking the crown as
the largest in the U.S.	
    "This ambitious expansion creates this country's largest
refinery and one of the most advanced anywhere," said Shell
Chief Executive Peter Voser under a huge party tent next to the
churning plant.	
    With the completion of a new crude distillation unit (CDU)
and associated units, the refinery's newly minted 600,000 bpd
capacity eclipses Exxon Mobil Corp's 560,640 bpd
Baytown, Texas, refinery, as the largest in the country. The
refinery's pre-expansion capacity was 285,000 bpd.	
    Motiva also aims to increase fuel exports to up to 100,000
barrels per day once pipeline infrastructure from the plant to
its docks is completed, said Bob Pease, Motiva president and
CEO. He didn't say how much the refinery currently exports.	
    Last year the U.S. became a net exporter for the first time
since 1949, having shipped out 439,000 bpd more fuel than was
    The Motiva project was launched in 2007, when U.S. fuel
demand was up and refinery capacity was seen as inadequate. That
changed when the global financial crisis hit, slashing demand
and prompting closures of several unprofitable refineries,
particularly in the U.S. Northeast.	
    Motiva suspended work on the project for about a year in
late 2008 to rein in costs, but did not intend to abandon it,
said Khalid Al-Falih, president and chief executive of Saudi
Aramco, the state-owned oil company of OPEC member Saudi Arabia.
What had been estimated by analysts to be a $7 billion project
was, in the end, a $10 billion project.	
    "Rather than cut and run, we pressed ahead with our
long-term commitment," he said. "We're confident in the return
on investment, despite the cost, will be very healthy."	
    Motiva Enterprises is a joint venture between Shell Oil, the
U.S. unit of Royal Dutch Shell and Saudi Aramco. The Port Arthur
refinery is one of three Motiva plants in the U.S., the other
two being in Louisiana.	
    Tom Purves, vice president of manufacturing of the expansion
project, told Reuters on Thursday the plant was "closing in" on
its 600,000 bpd capacity sooner than expected. He said it would
reach that capacity in the current quarter rather than the third
quarter this year as previously expected.	
    "It's all in place," he said.	
    The expansion gives Motiva the flexibility to run lower-cost
heavy oil from South America, Latin America and potentially from
Canada, if the delayed Keystone XL pipeline is built.	
    Other Gulf Coast refiners like Marathon Petroleum Corp
 have completed similar expansions, while excess refining
capacity in the distressed East Coast market has shut down.	
    Profit margins at Gulf Coast refineries have lagged those in
the Midwest, which have benefited more from cheap supplies of
heavy Canadian crude as well as cheaper inland U.S crude output.	
    Several Gulf Coast refiners with plants able to process that
kind of heavy crude -- like Marathon and Valero Energy Corp
 -- are vocal proponents of Keystone and its ability to
bring more Canadian crude to the Gulf market.	
    However, Voser said Motiva doesn't need Canadian crude to be
profitable. Pre-expansion, the refinery had processed mostly
medium-sour crude. Now it can run heavier crudes from South
America, Latin America, Saudi Arabia and elsewhere as well as
light-sweet domestic crude, including supply from U.S. shale oil
reservoirs like North Dakota's Bakken where supply is booming.	
    Running Canadian crude "is always a possibility, but the
refinery will not depend on that," Voser said. "We are not
dependent on that crude, but we have the flexibility to take
    Refineries that have closed lack that flexibility.	
    Delta Air Lines has agreed to buy Phillips 66's
 shut 185,000 bpd Trainer, Pennsylvania refinery for $180
million, while talks are ongoing between Sunoco Inc and
Carlyle Group about a joint venture of the two with
Carlyle running Sunoco's 335,000 bpd Philadelphia refinery.	
    Both run light-sweet crude, and lack of large-scale
infrastructure to transport Bakken and other cheap Midwest crude
to those plants left them dependent on more expensive
Brent-priced crude.	
    However, Sunoco's 178,000 bpd Marcus Hook, Pennsylvania,
refinery is permanently shut, as is Hess Corp and
Venezuelan state oil company PDVSA's joint-venture 350,000 bpd
Hovensa refinery in the U.S. Virgin Islands.	
    "Some refineries are unsuitable for processing more
difficult crude on which supply increasingly depends," Voser
said. "They are in the wrong places making the wrong products."	
    Valero CEO Bill Klesse said at a refining conference in
March that he didn't expect Motiva's startup to cut into Gulf
Coast exports because it offsets the loss of production from
Hovensa's closed refinery in the Virgin Islands.	
    Voser also told Reuters in March that its partner would be a
supplier for the Motiva plant. Pease said Motiva would run heavy
Saudi crude from Saudi Aramco for about two months, then branch
out to other crudes as well.	
    Not everyone is expanding. Valero shelved a $500 million new
coker unit at its 292,000 bpd Port Arthur refinery because that
heavy-light differential has narrowed with more light-sweet
crude coming into the market. 	
    Klesse said differentials are adequate for existing coking
capacity along the Gulf Coast at Motiva and other plants. But
Valero didn't see differentials staying wide enough to justify
another new coker.	
    Yet Mark Routt, a senior consultant with KBC in Houston,
told Reuters on Wednesday that Gulf Coast refiners are expected
to add primary and conversion units over the next decade, though
at a slower pace.	
    The advent of North American shale natural gas output, which
has kept prices hovering near $2.50 per million British thermal
units, gives the U.S. a strategic advantage over other potential
refined product exporters, such as those in Latin America and
Europe, Routt said. 	
    As of 2011, the last year figures were avalable, 137
refineries were operating in the United States, according to the
U.S. Energy Information Administration.
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