Phillips 66 CEO Says Venezuelan Heavy Crude Imports to Gulf Coast Could Reshape Market

Phillips 66 said the return of Venezuelan heavy crude to the U.S. Gulf Coast could reshape North American heavy crude flows and compete with Western Canadian Select oil in the near term.

Speaking at the Goldman Sachs Energy, CleanTech & Utilities Conference on Tuesday, Chief Executive Officer Mark Lashier said the company could benefit from a “rebalancing” of the global heavy crude market following Saturday’s capture of Venezuelan President Nicolás Maduro by U.S. military forces and U.S. plans to increase Venezuelan production.

The company’s Lake Charles, La., and Sweeny, Texas, refineries can process roughly 200,000 b/d of Venezuelan crude, Chief Financial Officer Kevin Mitchell said.

The increase in Venezuelan barrels is expected to displace WCS in the Gulf, Lashier said. The shift will likely be “constructive” across the company’s broader network, which runs about 500,000 b/d of heavy crude, he added.

Changes in Gulf Coast supply tend to have a ripple effect, potentially benefiting Phillips’ Wood River and Borger refineries in the Midcontinent, which are large buyers of Canadian heavy grades, Lashier said. The shift could help keep WCS discounts to West Texas Intermediate in the high teens, even if global crude prices remain flat, he added.

Lashier said the Trans Mountain Expansion pipeline is effectively “maxed out,” and as Venezuelan barrels that had been moving to China are redirected to the U.S. Gulf Coast, the region would be positions to resume heavy crude exports to Asia.

“We could return to the days where we were exporting a few hundred thousand barrels a day out of the Gulf Coast to China to backfill that,” he said.

The situation in Venezuela also presents an opportunity for refined product exports, Lashier said. As Venezuelan upstream operations ramp up, Phillips believes there is a potential to export naphtha and C5s, which serve as diluents in heavy crude blending.

While Venezuela once produced more than 3 million b/d of heavy crude, Lashier cautioned that any meaningful increase in output would require years of investment.

Reporting by Allegra Fradkin, afradkin@opisnet.com; Editing by Jeffrey Barber, jbarber@opisnet.com