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New pipelines won’t end Midwest oil glut: Marathon
News Articles Featured | Reuters | June 13, 2011
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By Kristen Hays
HOUSTON | Mon Jun 13, 2011 3:36pm EDT
(Reuters) – The glut of crude in the U.S. Midwest that has benefited the region’s refiners over the past year will not disappear completely when new pipelines are built to send crude south to the Gulf Coast, the CEO of Marathon Petroleum Company said on Monday.
If pipelines aimed at sending crude from the Cushing, Oklahoma, delivery point of the New York Mercantile Exchange’s futures contract come online in 2013 as expected, Midcontinent refiners should still enjoy healthy supplies from increased onshore North American crude production, said CEO Gary Heminger. Marathon, soon to be the newest independent refiner in the United States, will officially split from Marathon Oil Corp (MRO.N) on June 30.
“If you look at Midwest refineries, we already have plenty of pipeline capacity into our plants,” Heminger said at the Reuters Global Energy and Climate Summit. “It really comes back to (West Texas Intermediate) and lighter-type crudes that are in and around Cushing. They’re looking for a home.”
That increased crude flow into Cushing coupled with lack of infrastructure to move it to the U.S. Gulf Coast, home to 40 percent of the nation’s refining capacity, have kept West Texas Intermediate at double-digit discounts to Europe’s Brent and other global crudes for months. On Monday, the spread hit a record over $21 a barrel.
Hot oil-shale plays are raising production, such as the Bakken in North Dakota and the Eagle Ford in South Texas. Canadian crude flows into the region are rising as well.
Oil companies have been ramping up storage capacity at Cushing to accommodate the higher flows. Heminger estimated that capacity should rise to more than 70 million barrels from the current 58.6 million barrels.
He said marketing of pipeline space will be at a premium as Midwest refineries run WTI-based and Canadian-based crudes. And crude can still be moved south to north if needed.
“So I still think we’re going to be well-positioned,” he said.
Analysts agree, as four of Marathon’s six refineries are in the Midwest. Its 106,000 barrel-per-day (bpd) refinery in Detroit will wrap up a $2.2 billion overhaul next year that will increase its ability to process heavy Canadian crude, which trades at a discount to already-cheap WTI.
Analysts see advantages at Marathon’s two Gulf Coast refineries as well. Eagle Ford crude is priced against WTI, and Marathon’s 76,000 barrel-per-day (bpd) refinery in Texas City is primed to run it.
“Eagle Ford is right outside Texas City’s back door,” he said. “We have great logistics into Texas City with its crude, so it’s a great fit and Texas City has the appetite for that very light-sweet crude.”
Marathon’s expanded 464,000 bpd Garyville, Louisiana, refinery is not connected by pipeline to Eagle Ford crude.
However, the plant’s $3.9 billion expansion finished last year positions it to feed export needs to Europe, Latin America and South America, he said.
He said the plant was exporting about 60,000 to 62,000 barrels per day of gasoline and diesel to those markets.
“We are a big player in the export market and it’s working out very well for us,” he said.
Garyville’s expansion has helped fuel talk among analysts that the United States has too much refining capacity at 17.6 million barrels per day. Motiva Enterprises’ 285,000 bpd refinery in Port Arthur, Texas, is slated to finish a $5 billion expansion to increase capacity to 600,000 bpd next year, surpassing Exxon Mobil Corp’s (XOM.N) 560,640 bpd refinery in Baytown, Texas, as the nation’s largest.
Heminger said the Motiva expansion, when finished, will put pressure on smaller Gulf Coast refineries that do not have a niche advantage — such as easy access to Eagle Ford crude for Marathon’s Texas City plant. East Coast refineries, already under pressure because they depend on more expensive Brent crude, also will feel some pain, he said.
“I think there will be some pressure on some of those refineries because incremental throughput can come through the Colonial and Plantation pipelines up to the eastern seaboard,” he said.
Heminger said the new independent refiner is not interested in buying refineries on the West Coast, East Coast or Europe. He said the company aims to maintain its structure with refineries, pipelines, terminals and its retail network.
“Having access to that total supply chain is what we do best,” he said. “I won’t say ‘never.’ We look at everything. We analyze, we understand what’s available, but it’s not something that we would go change our model for today to jump into a different market.”
(Reporting by Kristen Hays, editing by Matthew Lewis)
Tagged with: keystone xl, pipeline, oil industry
