HOUSTON (Dow Jones)
A $7 billion project to double the capacity of Motiva Enterprises LLC's Port Arthur, Texas, oil refinery will position the plant to weather the industry's cyclical margins, Chief Executive William Welte said Friday.
"The only way you're going to survive the bad times is with large, high-conversion refineries," he said in an interview with Dow Jones.
The expansion underscores Motiva's sense that long-term refining margins will be cyclical. Welte said the company looked far beyond two- to three-year forecasts in making the decision to expand. During margin downturns, he said, refineries with the flexibility to process cheaper heavy, sour grades of crude will be the most successful.
Still, he said, Motiva doesn't plan to sell its two smaller refineries in Louisiana. Motiva will continue to make improvements on those facilities, and allow their capacity to creep higher, without a major expansion, Welte said. While the other refineries, which each can process more than 200,000 barrels a day, are "not small," Welte said, the Port Arthur refinery will be of a much bigger magnitude. The 325,000-barrel-a-day expansion will make the refinery the largest in the U.S. and one of the largest in the world.
The heavy crude to supply the behemoth will come from Motiva's joint owners, Royal Dutch Shell PLC (RDSB.LN) and Saudi Arabia's state oil company, known as Saudi Aramco. The expanded refinery, expected to come online in 2010, will process roughly half of its crude from each of the owners. The crude from Shell is expected to come from production in Canada's tar sands, the Gulf of Mexico and South America. Shell has several new projects that will be online by 2010 and could serve the expansion, Welte said.
Although crude prices have skyrocketed, setting a record for four consecutive days, Welte said today's prices were "not a factor" in Motiva's expansion decision. While the company's owners are large crude producers who may benefit from the price increases, Motiva must buy all of its crude on the open market, and will therefore need to pay higher rates per barrel.
Both owners were supportive of the decision to go forward, Welte said, though both parties had questions that emerged between Welte's initial proposal in 2004 and the approval late Thursday.
"I think what we had was a series of legitimate challenges and questions as to why you would do this in this environment, with these costs, with the government doing what it's trying to do," he said. However, he said government plans to diminish transportation fuels weren't of a great concern, ultimately because Motiva projects that the U.S. will continue to rely on conventional gasoline and diesel.
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