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Motiva weighing Gulf Coast petrochemical projects despite hurricane risk

A spokesperson for Saudi Arabian Oil Co. subsidiary Motiva Enterprises LLC contradicted media reports that the company abandoned plans to expand refining capacity at its 600,000 barrel-per-day Port Arthur, Texas, oil refinery because of the risk posed by tropical storms, and clarified the company is still weighing petrochemical projects at the facility.

The facility became Motiva's only refining asset after the dissolution of a Saudi Aramco/Shell joint venture announced in March 2017. The company originally said the refinery would "be the primary focus of an estimated $18 billion growth effort throughout the Americas" that includes increased refining capacity, expansion into petrochemicals, and an expanded commercial presence over the next five years.

Motiva suspended operations at its Port Arthur facility for 10 days due to flooding from Hurricane Harvey.

Reuters reported June 4 that hurricane risk prompted Motiva to abandon refining capacity expansion plans at the facility.

"Hurricane Harvey's timing and our decision to focus on locations outside of Port Arthur are coincidental," Motiva spokeswoman Angela Goodwin said June 5.

Goodwin said several media outlets misrepresented an April video announcement made during an event with the Saudi Crown Prince in Houston that the company is exploring growing its refining capacity to between 1 million barrels per day and 1.5 MMbbl/d.

"Motiva plans to achieve this through additional refinery assets, not through expanding the refining capacity at the Port Arthur refinery," Goodwin said.

Goodwin clarified that the April announcement referred to Motiva's expansion into petrochemicals.

"Two [memoranda of understanding] were signed to study potential petrochemical projects along the U.S. Gulf Coast that could include investments at the Port Arthur refinery," Goodwin said, adding that Motiva is weighing the economics of these projects as well as "competitive incentives" and the regulatory environment.

Final investment decisions on the petrochemical projects are not expected until 2019, Goodwin said.

Motiva's options for refining capacity growth

Tudor Pickering Holt & Co. analysts wrote in a June 5 report that Motiva is unlikely to pursue greenfield development of a refinery due to cost.

They highlighted that the last five U.S. refinery transactions have averaged much lower at just over $1,000 per complexity-adjusted barrel.

By comparison, the last greenfield project to come online was the 20,000 bbl/d Dakota Prairie, N.D., project in May 2015 at a cost of more than $6,000 per complexity-adjusted barrel due to construction delays and cost overruns, the analysts said. In June 2016, Calumet Specialty Products and an MDU Resources subsidiary sold the facility at a loss to Tesoro Corp., which later became Andeavor.

The analysts speculated Motiva could purchase Petroleo Brasileiro SA's 110,000 bbl/d Pasadena refinery, which the Brazilian state-owned company put up for sale in February.

"The refinery would need some work, as the coker has been shut since a fire in 2011 and the plant reportedly cannot make [ultra-low sulfur diesel], but [at] least it would provide a starting point for brownfield expansion," the analysts wrote.

Alternatively, the company could purchase a competitor, which the analyst argued would provide immediate diversification benefits, upside from marine fuel sulfur regulations, and demand for Saudi Aramco's crude.

But the analysts said limited options and "potential challenges" in obtaining the U.S. government's blessing stand in the way.

"A possibility that makes a lot of sense would be [PBF Energy Inc], which offers [884,000 bbl/d] of crude capacity at five US plants," the analysts wrote. "Our $58 target on Buy-rated PBF implies an ~$800 per complexity-[adjusted] barrel metric, lower than recent transactions."