Exxon eyes expanding Texas refinery

Exxon Mobil Corp is considering a multi-billion-dollar plan to expand its Beaumont, Texas, refinery into the country's largest, the first major refining investment of the U.S. shale oil boom, people with knowledge of the deliberations said.

The expansion of the 344,600 barrel-per-day (bpd) Beaumont refinery, if carried out, would be completed by 2020 and potentially double its size with the addition of a third crude distillation unit (CDU), the sources said. More modest near-term projects to renew and expand so-called coking units to help refine more heavy crude already are under way, they said.

If Exxon presses ahead, the investment would be a further indication that the American oil giant is breaking ranks with many of its big global rivals, who have been looking to sell off refining assets across the world. Just weeks ago Exxon unveiled a $1 billion investment in its Antwerp plant.

An Exxon spokesman, while declining to discuss possible plans for the Beaumont refinery, said the company was always evaluating growth options.

"We regularly evaluate our global portfolio of businesses and opportunities for growth, depending upon the fit with its strategic business objectives," Exxon spokesmanTodd Spitler said. "We take a disciplined long-term approach to investing, regardless of the economic cycle."

A bigger Beaumont would bolster the U. S. Gulf Coast's position as a top global supplier of gasoline and diesel at a time when domestic demand is falling. Profits for Gulf Coast refiners have swollen as cheaper North American crude allows them to capture big margins when exporting refined products.

U.S. oil production has embarked on an unprecedented 50 percent rise over the past four years as new drilling techniques allowed oil to flow from vast shale reserves in North Dakota and Texas  - this after two decades of seemingly irreversible decline.

The sources said Exxon already was moving forward on plans to replace four coking unit drums in 2015 and add two new coker drums in 2017 at the Beaumont refinery. The drums turn residual crude oil into petroleum coke, a coal substitute.

Exxon announced plans on July 2 to invest $1 billion to build a delayed coking unit at its 320,000 bpd Antwerp, Belgium, refinery so the plant could refine cheaper high-density, high-sulfur crude oils. That was on top of a previous $1 billion in upgrades to the Antwerp refinery.

Exxon's Antwerp investments in some ways bucked a trend in recent years that has seen major integrated oil companies cut refining capacity with BP selling plants in Texas and California  and 
Royal Dutch Shell (RYDAF) shutting a refinery in Australia.

THIRD CDU

The Beaumont refinery has two CDUs that do the initial refining of crude oil coming into the refinery and provide feedstock for all other units.

Exxon officials are considering boosting the Beaumont refinery's size to at least 500,000 bpd, which is close to the capacity of the company's Baton Rouge, Louisiana, refinery.

The country's biggest refinery is Motiva Enterprises LLC's 600,250 bpd Port Arthur, Texas, plant. Exxon is considering making the Beaumont plant bigger than Motiva's Port Arthur refinery.

"They've talked between 700,000 and 800,000 bpd in total refinery capacity," one of the sources said.

Andy Liplow, president of Lipow Oil Associates LLC,a Houston consultancy, said an Exxon expansion could boost profits.

"Given the increase in North American oil production and in conjunction with the low operating cost due to the price of natural gas, it seems increasing the capacity of oil refining facilities makes a lot of sense," Lipow said.

Beaumont Mayor Becky Ames said she had not been informed of any plans by Exxon to expand the  Beaumont refinery.

But she said the expansion would lead to more direct and indirect jobs for the area, which she said benefits from regional oil refining and petrochemical plants.

"When they do an expansion anywhere in the area it not only means more jobs from the work itself, but it creates spin-off businesses in the community," Ames said.

The two other most recent major expansions of Gulf Coast refining capacity - at Motiva's Port Arthur refinery and Marathon Petroleum Corp's Garyville, Louisiana, plant -were planned before the sudden rise in shale output started about seven years ago.

Motiva, a joint venture between Shell and Saudi Aramco, invested $10 billion to expand its Port Arthur refinery from 285,000 bpd. In addition to a 325,000 bpd CDU, the project added multiple units and was completed in 2012.

Marathon invested $3.9 billion to boost its Garyville, Louisiana, refinery from 256,000 bpd to 436,000 bpd in 2009. The refinery has optimized performance of its units to increase production to 522,000 bpd.

(Reporting by Erwin Seba; Editing by Terry Wade, Jan Paschal and Howard Goller)