Energy Sector Update for 03/13/2018: XOM

Exxon Mobil Corp.'s ( XOM ) Gulf Coast refinery expansion plans are aimed at leveraging the booming U.S. shale oil growth to take advantage of growing downstream Latin American markets.

Exxon Mobil's top U.S. refining executive, Jack P. Williams, told investors last week the company was close to a final investment decision on a $1.5 billion expansion at its Beaumont, Tex. plant, to roughly double capacity and make it the largest refinery in the country, overtaking Saudi Aramco's Motiva plant at Port Arthur, Tx. Exxon also is planning new units at other plants along the Gulf Coast.

IHS Markit's downstream analyst, Rob Smith, says the expansion plans aim to reconfigure plants to enablethem to take more of the light/ultra-light shale crude, the output of which is growing rapidly, including from Exxon's recently acquired acreage in the Permian Basin.

"Effectively, the Gulf Coast refinery system as currently configured is at maximum absorption for that light or ultra light crude...that is why the US is now exporting well over 1m bpd, at the same time as big refineries like Beaumont are still importing lots of heavy crude," Smith says.

"Whether integrating with their own growing equity crude [from fast-growing shale plays, including the acquired XTO subsidiary and Bass assets], or from other shale sources, if they want to process [the light shale crude] they will have to invest."

It's not all about the shale supply though, as Valero, the country's largest independent refiner, is adding a coking unit at its Port Arthur facility to process heavy crude, which is also growing in supply form Canada and elsewhere.

The broader strategic aim for large refiners is to be more complex so as to run a wider slate of crudes and create a wider slate of products -- integrating refining with petro-chemicals operations -- particularly to take advantage of growing middle distillates (diesel, eg.) and petchems markets in Latin America.

"Gasoline probably hit the high mark last year," in North America, "and middle distillates will probably turn in the US in the next few years," says Smith. "The rationale is to look south. Latam is growing already, a third of U.S. diesel production is going there and an increasing chunk of gasoline."

(First Oil reports are produced by MT Newswires' global team of oil reporters. This story is also disseminated in real time to energy industry professionals via the First Oil Chat service on the ICE Instant Message application.(Tony McAuley, firstoil@mtnewswires.com) )

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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