Michigan refinery project set for spring: Marathon

By Haitham Haddadin

NEW YORK (Reuters) - U.S. oil producer and refiner Marathon Oil Corp (MRO.N: Quote, Profile, Research, Stock Buzz) said on Tuesday its $1.9 billion expansion of its Detroit, Michigan, refinery could start as early as March if all permits are in place.

The project is "aimed at making the crude slate heavy Canadian and significantly reducing the cost of our crude," said Cliff Cook, vice president of supply at Marathon.

However, Marathon has decided not to pursue other projects, such as two heavy oil projects at its oil refineries in Robinson, Illinois, and Catlettsburg, Kentucky, that were deemed too costly, Cook said.

"Basically, as soon as we get the air permit we are going to start construction in Detroit," Cook said in a conference call at the Reuters Global Agriculture and Biofuel Summit.

Once permits are in place, construction could start in March or April this year, Cook said.

The U.S. Environmental Protection Agency (EPA) is responsible for issuing the permit, but Cook said the agency was trying to move permitting authority to the state.

The project, due to be completed in 2010, will boost the refinery's heavy oil processing capacity 80,000 barrels per day (bpd) and its total crude refining capacity by about 15 percent to 115,000 bpd. Marathon recently acquired Canadian producer Western Oil Sands.

Heavy Canadian crude in Canada sells at a $22 per barrel discount to West Texas Intermediate (WTI), the benchmark light sweet U.S. crude, while Light Louisiana Sweet (LLS), a better marker for global crudes, fetches a $3 premium to WTI.

"So today if we had this crude project in Detroit, we could lower our crude costs by about $25 a barrel," Cook said.

SOME PROJECTS ON BACKBURNER

Marathon deemed two other projects -- a 180,000 bpd heavy oil project at its refinery in Robinson, Illinois, and 150,000 bpd heavy oil project at its Catlettsburg, Kentucky, plant-- economically unfeasible, Cook said.

"We really looked at the cost of these projects relative to the value and we decided that these are projects that at the current time we did not want to pursue," he told the summit. "Things are getting fairly expensive."

A new coker being built at the Garyville, Louisiana, refinery was due to be finished in late 2009, he noted. Its cost were estimated at over $3 billion early last year.

"The coker ... will cost us twice what it cost us to build the original coker six years ago," he said. "If we started Garyville today rather than two years ago, we'd probably pay 40-50 percent more in cost."

Cook said profit margins in refining are not very good now but he declined to say whether Marathon was considering economic crude run cuts at its refineries.  Continued...