PORT ARTHUR – With the turn of a ceremonial valve Thursday, dignitaries marked the startup of an expanded Motiva refinery – underscoring Royal Dutch Shell‘s commitment not to imitate rival oil giants that have spun off their refining operations.

“By combining our upstream and downstream capabilities, integrated companies can drive innovation and match resource with demand,” Shell CEO Peter Voser said at the ceremony marking the completion of a five-year, $10 billion expansion that doubles the capacity of the refinery, a joint venture of Shell and Saudi Aramco.

“Some of our competitors have simply walked away from the issue – spinning off their downstream operations into standalone companies. Shell won’t do that,” Voser said.

In the past year, ConocoPhillips and Marathon Oil Corp. have become independent exploration and production companies and spun their refining and other downstream businesses into separate corporations.

Voser said Shell is confident it can continue to thrive as an integrated company through ventures such as the upgraded Motiva facility.

“Part of the problem is that some refineries are unsuitable for processing more difficult crude, on which supply increasingly depends,” he said. “They are in the wrong places making the wrong products.”

When at capacity, the refinery will process 600,000 barrels of crude a day, making it the nation’s largest.

Khalid Al-Falih, CEO of Saudi Aramco, said the project was the largest single expansion of U.S. refining capacity in four decades.

“With the completion of this massive expansion, the Port Arthur Refinery alone would be capable of meeting the entire gasoline demand of France, Italy or all of Scandinavia,” he told about 150 company officials and reporters marking the milestone.

The expanded refinery is designed to process a range of crude types into various products including gasoline, ultralow-sulfur diesel, jet fuel, petroleum coke, sulfur and petrochemical feedstocks.

Al-Falih said that diversity will make the $10 billion investment pay off for the partners, since the refinery will be able to adjust its operations to meet market conditions.

Aging refineries

The opening of the expanded refinery came as many refineries, particularly on the East Coast, are struggling to stay profitable. They have older, outdated equipment that makes it difficult to process new sources of oil, such as the heavier crude coming from Canadian oil sands.

Voser said the Port Arthur refinery’s flexibility will give it a competitive advantage.

“Finding new resources, extracting them from difficult locations, processing and distributing them is a global challenge that spans the entire value chain,” Voser said. “In this context, integrated oil companies such as Shell have a critical role to play, and a distinct advantage.”

Loads of concrete

Thursday’s commissioning event marked the beginning of the flow of crude through the new processing units after an expansion that involved more than 14,000 construction workers, 2,000 pieces of engineered equipment, 40,000 truckloads of concrete and 700 miles of pipe.

In an interview with the Chronicle after the ceremony, Voser said that at first the refinery will use mostly heavier Saudi Arabian crude oil but that it also can process lighter, lower-sulfur oil produced from shale formations that are contributing to a production boom.

“We can easily shift between gasoline and diesel as demand changes,” Voser said. “We will start with Saudi crude and then look elsewhere.”

A Shell project in Qatar is developing ways to produce liquid transportation fuel from natural gas. But Voser said he doesn’t see that undercutting the transportation fuel market for the Port Arthur refinery anytime soon.

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