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Phillips 66 sees strong US export demand reviving midstream opportunities

New York (Platts)--14 Feb 2017 449 pm EST/2149 GMT


Phillips 66 expects a revival in the US midstream space in 2017, as demand for exports of crude, products and LPGs remain strong, President Tim Taylor said Tuesday.

"We see a resurgence of opportunities in the midstream," said Taylor, addressing attendees at Credit Suisse's 22nd Annual Energy Summit in Vail, Colorado. His comments were webcast.

Taylor said Phillips 66 and its midstream master limited partnership, Phillips Energy Partners, continues to find ways to deal with the "nature of market changes," particularly around growth in exports of both crude and products.

Phillips 66 is a stakeholder in the Dakota Access Pipeline, expected to come online in the second quarter of 2017.

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DAPL received its final permit to finish the line in February 2017 following a contentious battle with environmentalists.

Completion of the pipeline will open cheaper transportation for North Dakota's Bakken crude. The line will carry the light, sweet crude into the Midwest oil hub of Patoka, Illinois, and onward to the US Gulf Coast via the Energy Transfer Crude Oil Pipeline, or ETCOP. Phillips 66 is also a stakeholder in ETCOP.

This will give the landlocked crude port access, opening the door for exports, as well as lower transport costs for East Coast refiners, who pay high rail costs from North Dakota to the East Coast.

Phillips 66 is also working on the completing the Bayou Bridge Pipeline, which will bring Texas crude east to Louisiana. The Beaumont, Texas, to Lake Charles, Louisiana, segment is completed and work is underway connecting the line to St. James, Louisiana.

"We are creating crude options" for us and others, Taylor said.

While Phillips 66 is bullish on its chemical and midstream segments this year, it sees challenges remaining for the US refining segment, expecting current high product inventories to weigh on margins into the summer.

Taylor expects the first half of 2017 to be dedicated to "clearing up excess product inventories" and the second half heading back into a balanced supply and demand picture for refiners.

"This is a transition year," he said.

Asked about the corporate tax reform being discussed in Washington, Taylor echoed many other refiners saying "it is not completely understood."

He said a 25% tax on crude imports as being considered would see "Gulf Coast crude rise to parity" to imported grades, raising both crude and product prices.

The higher costs would be passed through to consumers and likely cause "upsets in the supply chain," he said.

While it is "way too early to tell" whether it would be a negative or positive for refining, it would be a positive for their chemical segment operations, Taylor said.

Removal of taxes on exports, as is currently under discussion, would benefit Phillips 66's chemical operations where exports are high and feedstock is domestic.

--Janet McGurty, janet.mcgurty@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com

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