Exxon Mobil Corp (XOM.N) in coming days will sharply ramp up diesel and gasoline production at its Beaumont, Texas, refinery, people with knowledge of the matter said, winding up a $2 billion expansion first considered nine years ago.
Initial startup of a 250,000 barrels per day (bpd) crude distillation unit (CDU) at the 369,000 bpd refinery is expected by Jan. 31, the sources said, making the Beaumont refinery the second biggest in the United States.
It is the first big expansion to U.S. oil processing in almost 10 years, adding the equivalent of a mid-sized refinery, and beginning operations as scheduled at a time when U.S. President Joe Biden has been encouraging refiners to produce more fuels, or face fines.
An Exxon spokesperson refused to discuss the date of the unit’s initial startup. Exxon has earlier said the unit will begin production in the first quarter of 2023.
“Construction of the new crude unit is completed. We have initiated startup procedures and commissioning is underway,” said Exxon spokesperson Chevalier Gray in an emailed statement. “The unit will add 250,000 barrels per day of all new supply for the refined products market.”
U.S. stockpiles of gasoline and diesel are near five-year lows, and profit margins for producing motor fuels in the U.S. Gulf Coast region are near peak levels.
Refiners are making about $35.40 per barrel using the industry’s crack spread <CL321-1+R>, a profit measure which compares the cost of crude oil to sale prices for diesel and gasoline, according to Refinitiv.
“Right now, margins are sensational,” said Garfield Miller, president of refining investment banker Aegis Energy Advisers Corp.
“These margins tell you that as far as the U.S. Gulf Coast is concerned, there is plenty of demand relative to supply.”
Shale Oil To Diesel
The new CDU, called BLADE for the Beaumont Light Atmospheric Distillation Expansion project, was under deliberation as early as 2014 and formally approved in 2019. It is intended to process Exxon’s crude oil pumped from the Permian shale field in New Mexico and West Texas.
Exxon said on Friday the entire cost of BLADE is $2 billion. In a filing published on Sept. 28 with the Texas Comptroller’s office in support of property tax reductions, the company said its total collective investment was $1.2 billion.
Powering up the new equipment will not immediately produce large new volumes of diesel and gasoline. Exxon intends to bring the new CDU up slowly to address possible startup problems, the people said.
The new CDU, which will be the third at Beaumont, will ramp up the refinery’s capacity by 68%. CDUs do the initial work of converting crude into feedstocks for all other units at the refinery.
BLADE was built from modular sections over four years, a period that comprised the COVID-19 pandemic and 2020’s significant fall in motor fuel demand that caused a record annual loss for the No. 1 U.S. oil company.
Operators at the Beaumont refinery this week were cleaning the new CDU of air in preparation to pump in its first crude, the people with knowledge of the matter said. The new CDU will compensate for the refining capacity to be lost at the end of 2023 when Lyondell Basell Industries (LYB.N) closed its 263,776 bpd Houston refinery, said analysts.
“Up until COVID, the U.S. added the equivalent of a world-scale refining facility to existing capacity every year through expansions, de-bottlenecking, and tweaks,” Aegis Energy Advisers’ Miller said.
Since the COVID-19 pandemic started, six U.S. crude oil refineries have shut down reducing U.S. capacity from 18.98 million bpd to 17.9 million bpd, a U.S. Energy Information Administration report published in June.
Exxon’s Beaumont expansion indicates a return to an era of consistent refining capacity gains through processing tweaks and adding new equipment to existing plants.
Several big oil companies are building more refineries outside the United States, said Matthew Blair, managing director of refiners, chemicals, and renewable fuels research at energy banking firm Tudor, Pickering, Holt & Co.
“Overall, there are quite a number of new refineries on the docket this year,” Blair said, citing projects in China, Mexico, Kuwait, and Nigeria.
“This will help rebalance global markets and bring down product cracks,” he added, using the industry term for processing margins.