Refining boom has some years left: Tesoro

NEW YORK (Reuters) - The refining business will continue to enjoy soaring profit margins until at least 2010, when new refinery expansion projects start to kick in, Tesoro Petroleum Corp.'s chief financial officer said on Wednesday.

"Margins are going to be at a relatively high level for a number of years here," Greg Wright said at the Reuters Global Energy Summit in New York.

San Antonio-based Tesoro produces about 3 percent of U.S. domestic fuel output from its six refineries, most of them located west of the Rocky Mountains.

Oil refiners have raked in record profits in recent years as rising demand triggered a crunch in spare fuel production capacity and sent gasoline prices to new peaks.

Under pressure from politicians irked by rising consumer energy costs, the oil industry has earmarked billions of dollars for expanding refining capacity, with some 1.5 million barrels per day of additional capacity planned by 2010.

"What you see is there's a lot of construction planned and a huge slug of it is scheduled to come on in 2010. If it comes on in 2010 then it is our prediction that margins are going to come back down," Wright said.

He added that the boost in domestic refining capacity, along with massive investments overseas, could lead some refiners to slow down their planned expansions -- delaying the new production.

"This could mean margins remain healthy beyond 2010," Wright said.

U.S. energy demand is also likely to continue to grow unless prices remain "too high" for at least three years, Wright said. He declined to say how high prices would need to be for demand to drop.

"Our studies have shown that it is not one year of high average prices, or two years, but three full years where prices average a very high level before we see significant demand destruction," Wright said.

U.S. gasoline prices are running just below $2.90 a gallon on average, according to the AAA's daily survey of more than 85,000 service stations.

Wright added that high energy prices are not the result of any shortage in crude supplies and said that Tesoro's chief economist was expecting crude prices to eventually fall back to the $40-a-barrel range.

"We have no problems buying crude oil," Wright said, adding that geopolitical turmoil was adding a speculative premium to crude prices.

Tesoro expects to meet Wall Street's 2006 consensus earnings forecast of $8 a share, Wright said. "Eight dollars is certainly doable," he said.

The company also remains interested in buying refineries to expand its business, but wants to keep its debt-to-capital ratio under 50 percent, Wright said. Tesoro is not planning any major expansion projects at existing plants.