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Tesoro to Expand Washington Refinery Product Variety

San Antonio-based Tesoro Corp., a major player in the Bakken and other shale plays through its midstream unit, Tesoro Logistics LLP (TLLP), said it will pursue nearly $400 million in two projects at its Anacortes, WA, refinery. One project could enhance future exports of refinery products to Asian markets.

The projects are spurred by more stringent gasoline fuel content requirements and by a growing global market for xylene, a major petrochemical that makes up a small fraction of crude oil.

Some observers see the projects as bolstering markets for light sweet crude, particularly from the Bakken, but a Tesoro spokesperson told NGI's Shale Daily that they are both being pursued "independent of any specific crude [supply] state."

During a recent earnings conference call (see Shale Daily, Feb. 13), Tesoro CEO Greg Goff said the two projects, representing a combined $390 million in capital spending, will be the bulk of the TLLP unit's $450 million capital budget for this year.

TLLP will spend up to $90 million on a naphtha "isomerization" project, which involves a chemical process to transform molecules into "isomers." This project is "designed to comply with upcoming reduced-sulfur gasoline regulations while simultaneously reducing gasoline production costs," the San Antonio-based spokesperson said. It is scheduled to start in 2018.

The larger, $300 million xylene project scheduled for 2017 will upgrade and diversify the value of the products produced at the Anacortes refinery, the spokesperson said. "The global xylene market is growing about 5-7% annually, primarily driven by demand in Asia, and Tesoro is well positioned as a supplier based on existing logistics and operating cost advantages."

Goff called the projects at Anacortes an indication of his company's "commitment to the facility and to the local community." He characterized the projects as "high return," holding the expectation that Tesoro can produce cleaner fuels at lower costs. "While enhancing the product mix, it also is expected to increase our gross margins," Goff said.

Overall, Tesoro is expecting the projects to improve its refining capability to deliver both local transportation fuels and global feedstocks. Among the multiple benefits to the state of Washington are increased tax revenues, positive local economic impacts, and high-paying temporary and permanent new jobs, Goff said.

"On a global scale, the logistics-enabled Asian trade possibilities associated with mixed xylenes are quite significant, based on increased naphtha sales to Asia, reduced freight costs on shipments of valuable products from Asia to the United States, and expansion of Tesoro trading activities in Asia," the spokesperson said.

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