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Indiana refinery upgrade aimed at Canadian crude

By BRUCE BLYTHE
Bloomberg News

BP said Wednesday it will spend $3 billion to upgrade its Whiting, Ind., refinery to process more Canadian crude and benefit from increasing production from deposits buried in northern Alberta.

The refinery, the fifth-largest in the U.S., will run almost entirely on heavy Canadian crude, including supplies extracted from oil sands, once the project is finished in 2011, BP America President Robert Malone said. Construction is expected to begin in 2007.

U.S. refiners, including Valero Energy Corp., the nation's largest, have invested in plant upgrades to handle heavy or high-sulfur oil from Canada and Mexico. Such oil is typically cheaper, quicker to ship and less susceptible to supply disruptions than crude from the Middle East. Refiners are also expanding to keep pace with growing fuel consumption.

"The main driver is going to be that cost advantage on crude," said Jeff Hazle, an analyst with the National Petrochemical and Refiners Association. "With the increase in production they expect out of western Canada, they expect that crude to be priced favorably compared to what their current crude sources are."

The upgrades will also increase the Whiting plant's gasoline and diesel production by about 1.7 million gallons a day, or 15 percent from current levels, London-based BP said in a prepared statement.

BP "will modernize the refinery with equipment of significant size and scale and competitively reposition it as a top-tier refinery well into the future," the company's vice president of refining, Mike Hoffman, said in the statement.

The Whiting refinery, which opened in 1890 on the southern shore of Lake Michigan near Chicago, has capacity to process about 405,000 barrels of oil a day, making it BP's second-largest among five in the U.S. after its Texas City plant.

In the U.S., about 25 of 146 operating refineries, including plants operated by Conoco- Phillips and Marathon Oil Corp., process some oil sands crude, according to the National Petrochemical and Refiners Association. Those plants are primarily in Northern and Midwestern states such as Montana, Minnesota and Michigan.

The Indiana Economic Development Corp. offered $450,000 in training grants and $1.2 million in tax credits based on job creation and capital investment to attract the project, the Associated Press reported.