May 1, 2012 / 8:10 PM / 6 years ago

UPDATE 2-Marathon does not favor reversing Capline oil line for now

* Capline a "very important artery" and supply source for
Midwest
    * Detroit refinery to start turnaround when upgrade finished
    * Working to increase shale oil run at Ohio, Kentucky plants


    By Selam Gebrekidan and Kristen Hays	
    NEW YORK/HOUSTON May 1 (Reuters) - Marathon Petroleum Corp's
 need to supply one of its Midwest refiners may prevent
it from reversing a key regional pipeline to send Canadian crude
to the giant U.S. Gulf Coast refining complex.	
    While other companies are scrambling to reverse existing
pipelines and build new capacity from the Midwest to the Gulf
Coast, where crude can fetch a hefty premium, Capline remains an
important supply link for Marathon's 212,000 barrels-per-day
(bpd) refinery in Catlettsburg, Kentucky, according to the CEO
of the company, which is a minority partner in Capline.	
    "We need to keep that option open, No. 1," Gary Heminger
told Reuters in an interview after analysts raised the issue
during the company's first-quarter earnings conference call.	
    "In the event there would be consideration in the market to
reverse that down the road, then you would need to make sure you
have a different artery that would be big enough in order to be
able to supply crude oil into the Midwest," the CEO of Marathon,
which has a 30 percent stake in the line, added.	
    The 630-mile Capline, operated by Royal Dutch Shell,
 roughly tracks the Mississippi River to Patoka,
Illinois. In the late 1960s, it delivered as much as 1.2 million
barrels per day of imported and Gulf of Mexico crude oil from
the Gulf Coast to Midwest refiners.	
    However, throughput has dwindled below 200,000 barrels per
day in February, the lowest rate in a decade, as oil output in
the Midwest region has ramped up and more crude arrives via
pipeline from Canada. The line shut briefly in March.	
    While the Marathon is working to process crude produced in
Ohio's Utica shale there, Heminger said it continues to be a
"very important artery" that ensures the Midwest has a
south-to-north supply source.	
    "We need to ensure we have access for crude to move south to
north," Gary Heminger told Reuters.	
    In addition, Capline is connected to the Strategic Petroleum
Reserve and the Louisiana Offshore Oil Port (LOOP), the only
deepwater oil port in the U.S., Heminger noted, adding the
ability to move crude up from the south improves supply
security.	
    "You don't want to be tied to just one supply source," he
said. "Now we have two supply sources."	
    Rising flows of crude oil from Canada and North Dakota have
swamped the U.S. Midwest, driving down prices there relative to
the Gulf Coast. Companies have sought to capitalize on the price
disparity by building pipelines as well as moving crude to the
coast by barge, truck and rail.	
    The reversal of the Seaway pipeline, which is scheduled to
begin sending Midwest crude to the Gulf in mid-May, is one of
first steps toward alleviating the glut of crude that has built
up in the Midwest over the past year.	
    	
    UTICA PLAY 	
    Heminger told analysts that Marathon, the largest Midwest
refiner, plans to run 20,000 to 30,000 bpd of condensate from
the Utica shale play in eastern Ohio and western Pennsylvania at
Catlettsburg and its 78,000 bpd Canton, Ohio refinery.	
    The company's project to build a permanent truck-unloading
facility at its 78,000-bpd Canton refinery will be in service
this summer, Heminger said.	
    Marathon also said on Tuesday it would begin a 70-day
turnaround at its 106,000 bpd refinery in Detroit, Michigan,
after it completes an upgrade project in the third quarter of
this year.	
    The planned turnaround will affect all units at the refinery
as Marathon ties in the new units, Heminger told analysts.	
    He told Reuters that the Detroit plant won't always run
heavy crude. When the coker is full, Marathon will run other
lighter crudes.	
    "The key is about a coker, you can always run heavy crude to
fill that up and then fill the balance of your process units
with a different crude," he said. "But if you have a sweet
plant, you can never run heavy crude." 	
    The Detroit upgrade, which will allow the plant to process
an additional 80,000 bpd of heavy Canadian crude, was 92 percent
complete in late March, he said. The upgrade will boost the
plant's overall capacity to 120,000 bpd.

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