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PHILLIPS 66’S CEO SAYS THE COMPANY WILL LEAN LESS ON GASOLINE AND MORE ON PIPELINES AND CHEMICALS.
The top two executives at Phillips 66, one of the largest refiners in the U.S., backed away from the gasoline business on Wednesday and said that pipelines and chemicals hold more promise for the company.
U.S. demand for gasoline is falling and will continue to do so, Chief Executive Greg Garland and President Tim Taylor said after the Houston company’s annual shareholder meeting. At the same time, the U.S. shale revolution has opened vast underground reservoirs of inexpensive natural gas, a feedstock for chemicals and plastics.
“The Middle East and U.S. Gulf Coast are going to be the two best places in the world to make petrochemicals, long-term,” Garland said.
Phillips said refining will begin to make up a smaller portion of its portfolio, as Phillips expands its pipeline and chemical businesses to take advantage of booming natural gas production, particularly West Texas’ Permian Basin. And U.S. natural gas prices — some of the cheapest in the world — are holding around $3 per million British thermal units, or half what they were at their 2014 peak.
Meanwhile, gasoline demand is on a long slide downhill, Garland said. An uptick in 2015, driven by cheap U.S. fuel and lots of driving, surprised the industry. But it didn’t last.
Millennials are driving less, he said. They’re using bikes, public transportation and ride-sharing companies like Uber more. Even the quintessential American truck, the Ford F-150, is getting better gas mileage. The new F-150 is 20 percent more fuel efficient than older models, Garland said.
“In 10 years, if we’re driving the same, we’re
going to see less need for transportation fuel,” Garland said. “Given that as a backdrop, you don’t want to invest in adding capacity in a declining market.”
Increasing gasoline demand in South America, Latin America and Mexico will, in the short term, offset the decline in the U.S. market, Garland said.
Phillips’ long-term future lies in chemicals, executives said. Not only does the company have access to cheap natural gas as feedstock, Gulf ports also provide access to foreign markets, where expanding economies and rising middle classes are increasing demand for petrochemical products, particularly plastics.
“The trade we have makes the U.S. a very viable world export platform,” Taylor said. “And that’s where the competitive advantage comes from.”
Phillips has already begun expanding its pipelines and chemical facilities.
Eighteen months ago, it opened a plant at its Old Ocean complex, southwest of Houston, to separate natural gas liquids into components such as ethane, butane and propane, which are used in making plastics and other petrochemicals. It built a massive ethane cracker at its Cedar Bayou plant in Baytown to break down natural gas and create ethylene, the most common building block of plastics. The plant covers a plot the size of 44 football fields,
In December, Phillips said its new liquefied petroleum gas export terminal in Freeport was shipping cargo. The facility can export the equivalent of 4.4 million barrels per month of refrigerated propane and butane.
And in March, the company announced plans to build a 450,000-barrelper-day pipeline from the Permian’s Delaware Basin north to facilities in Odessa.
The American Chemistry Council, a chemical industry trade group, estimates that more than 250 petrochemical projects, costing about $160 billion, are under construction or planned across the country through 2023.
U.S. natural gas prices settled at $3.228 on Wednesday, up 3 cents. Phillips 66 shares rose 33 cents to $79.59 in New York.