Donald C. Templin is executive vice president of Marathon Petroleum Corp. (MPC), and president of MPLX, the company's midstream master limited partnership (MLP) that was vaulted to the top tier as a result of Marathon's merger with MarkWest. He took a moment recently to speak with Downstream Today about the MarkWest combination, fuels export markets and retail strategy.
Downstream Today: Several weeks ago Marathon announced its participation in a new Bakken pipeline system. Is that move more a matter of getting crude for your refineries or an investment in midstream growth as a business unto itself?
Executive Vice President, Marathon Petroleum Corp. President, MPLX
Donald Templin: Rail was a great answer at the time when Bakken production was growing faster than infrastructure. Pipelines just cannot grow overnight, even with committed shippers, and in some cases it was difficult for producers to make a long-term commitment to pipe. Bakken shippers just did not have the balance sheets to commit to 10 to 15 years. So rail ways the easy button, but pipelines were inevitable. It is just the most efficient way to move crude. The majority will be pipe with incremental rail. We are excited about the project for the business potential today and also because it is the asset type and EBITDA (earnings before interest, taxes, depreciation and amortization) stream that will be able to find its way into MPLX over time.
Downstream Today: On the processing side, MarkWest had an ambitious growth program. Has that been completed and have changes in gas and liquids demand modified those plans?
Templin: We were a small MLP, mostly working with assets dropped in from the parent company. Now we are one of the largest. We do expect cost synergies from the scale, especially from more efficient use of assets, contractors and service providers. Yes, MPC gets lower feedstock costs, but so do all the other customers. And the producers get better sales. Randy Nickerson (formerly senior vice president, corporate development and chief commercial officer for MarkWest and now executive vice president for corporate strategy at MPC) is an incredibly creative guy coming up with ideas that benefit producers and customers, and we are committed to participating in the midstream build out.
Downstream Today: In March MPC shifted its barge operation to MPLX. It is interesting that the Marathon group has retained its inland marine business, rather than selling it to a barge operator under a long-term service agreement. What is the advantage to keeping the barge business in house?
Templin: The barge fleet is critical to MPC, and is integral to our refining business. In particular the Catlettsburg refinery sends two-thirds of its (273,000 barrels per day [bpd]) output by barge; only one-third by pipe. Given how important the marine fleet is, we like to control the bulk of that ourselves. Our fleet only handles our own business, no outside customers, and accounts for about 60 to 65 percent of all MPC marine movement. The other 35 to 40 percent is handled by outside contractors. We like having that base load reliability, and easily see that going to a higher percentage. We never want to get to 100 percent, though; having third parties gives us added flexibility.
Downstream Today: In that core refining business, are there any expansions or upgrades recently completed or soon to be started around the system?
Templin: We are much more focused on enhancing margins than on expanding capacity. Most projects, even upgrades, also tend to add capacity. And we have several projects underway but again the focus is on safety, efficiency, and margins.
The projects are managed by area. The first is in Texas. We acquired the (460,000-bpd) Galveston Bay refinery (from BP) in 2013. It is close to our (86,000-bpd) Texas City refinery and we embarked on a multi-year integration program we call South Texas Asset Repositioning, or STAR. That includes increased residual processing, increased production of distillate, which has a higher growth outlook than gasoline, and optimization of process units, pipes and tanks between the two refineries. All of that will result in a slight overall increase in crude capacity, but what is exciting is the improvement in margin.
Downstream Today: Refinery rearrangement continues in the industry, with PBF recently completing its acquisition of the Torrance, Calif., refinery from ExxonMobil. Are we likely to see any major changes at Marathon?
Templin: We are very happy with the asset base we have at the moment. There is a strong Midwestern group and a strong Gulf Coast group. We have a fiduciary responsibility to look at everything that might be available, but for us to add another refinery it would have to be a very good fit.
The Midwestern group is very well placed to supply important domestic markets and the Gulf Coast group has a strong advantage in the export market. Our refineries are very efficient. Garyville is best in class. And we have access to attractive crudes. Differentials are not as great as they were but are still good.
Part of the export advantage is access to natural gas. Every dollar differential in what we pay for gas under what refiners in Europe pay is $140 million after-tax benefit. That is my advantage.
Downstream Today: Marathon was an early player in alternative fuels. Biodiesel seems like a good use for old cooking oil, but ethanol seems like a terrible waste of bourbon. Would Marathon be involved in those sectors if there were not government incentives?
Templin: We were a blender of ethanol before it was ever mandated. If the mandate ended, we would still blend. We are not opposed to alternative fuels. We are opposed to mandates. We have asked for an end to mandates. The Renewable Fuel Standard (RFS) is broken. Everyone knows that. We have been asking people to do what they can to reform RFS short of a repeal of the mandate.
Downstream Today: In retail, Marathon has a dual system of franchise and owned stations. What is the advantage of that?
Templin: The retail network is a great strategic advantage. We have about 5,400 Marathon-branded franchise outlets in the Midwest and Southeast, and growing in the Northeast. They are owned by a strong group of entrepreneurs. We also have about 2,800 company-owned and-operated Speedway-branded locations. Our chairman [President and CEO] Gary Heminger likes to refer to them as "assured sales." The retail system is a great cash flow business.
Some of MPC's assets. SOURCE: Marathon Petroleum