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UPDATE 2-Phillips 66 CEO not concerned about narrowed US crude discount

Wed May 8, 2013 5:16pm EDT

* US crude discount to Brent fall to less than $8

* CEO expects volatile spread as US production grows

* Company after Canadian heavy crude for Calif. refineries

By Kristen Hays

HOUSTON, May 8 (Reuters) - Phillips 66 Chief Executive Greg Garland said on Wednesday that the narrowed spread between U.S crude oil prices and London's Brent won't prompt any changes in the company's strategy because the U.S. remains fundamentally oversupplied.

Phillips 66 and other refiners benefit from discounted U.S. crude to make transporting North Dakota crude to their East and West coast refineries profitable.

A shrinking spread , which on Wednesday fell below $8 a barrel for the first time since January 2012, can erode the advantage of cheap U.S. crude.

In February, U.S. crude benchmark West Texas Intermediate 's discount to Brent surpassed $23. The cost to move it by rail to the East and West coasts can range from $12 to $16 a barrel.

Phillips 66 operates or has interests in 15 refineries worldwide, and 11 in the United States. Seven of the U.S. plants are on or near the East, West and U.S. Gulf coasts.

Garland, who spoke to reporters before the company's annual shareholder meeting in Houston, said booming U.S. production will keep supply ahead of infrastructure projects needed to move it to markets, so the spread will be volatile. Shareholders overwhelmingly re-elected him and other directors.

"As long as you have an oversupply of crude, as long as we're overdrilling our infrastructure, you're going to see a lot of volatility," Garland said. "So when you look at that whole infrastructure, look at drilling activity going on, we don't see any change in the base fundamentals."

Garland also said he sees U.S. gasoline demand flat to declining in the next five to 10 years while it rises in Latin America, South America, Asia and Africa. Phillips 66 is increasing its export capacity to capitalize on that demand.

The company exported 150,000 barrels per day of gasoline and diesel in the first quarter this year, and can export up to 320,000 bpd. Garland said the company aims to increase that capability to 500,000 bpd in the coming years - a third of Phillips 66's domestic output.

Phillips 66 ships North Dakota Bakken crude via rail to its 238,000 barrels-per-day (bpd) Bayway refinery in Linden, New Jersey, and its 100,000 bpd refinery in Ferndale, Washington. The company also moves cheap Texas crude to its 247,000 bpd Alliance refinery in Belle Chasse, Louisiana, and then Bayway via barge.

Garland also said Phillips 66 has little interest in tapping light sweet crude from the Permian Basin in Texas that could be shipped to southern California on the Kinder Morgan Energy Partners Freedom Pipeline.

Kinder Morgan is gauging shipper interest in a plan to convert a natural gas pipeline to move Texas crude to import-dependent California refineries.

Phillips 66 operates a 139,000 bpd Los Angeles-area refinery and a 120,200 bpd San Francisco-area plant.

But those plants, like others in California, are configured to run heavy California crude. They can run light sweet crude, but can more efficiently process heavy crude.

"I think we're more interested in trying to move heavy Canadian crude down to California to process in our refineries," Garland said.

So far the company has brought small amounts of Canadian crude via rail to California, Garland said, in addition to shipping some crude via barge from Washington State.