Phillips 66 will focus on growing its chemical and midstream segments at the expense of its fuel production business because of the weak outlook for fuel demand.
Phillips 66, the refining sector of oil major ConocoPhillips (COP) that will become a stand-alone company after April 30, will shift its long-term capital spending to its ChevronPhillips chemical production and DCP Midstream (DPM) segments.
Greg Garland, a ConocoPhillips executive vice president who will head Phillips 66, said that the company will roughly double its 2012 capital expenditure budget for its chemical business to USD 500 million, while its spending on its refining business will increase from just under USD 1 billion. Capex for its midstream segment will more than double to USD 1 billion.
In the long term, Phillips 66 will split 50% of its capital expenditure budget evenly on the chemical and midstream businesses, up from 11% and 5%, respectively in 2011. Spending on its traditional fuel segment will shrink from 84% of total capital budget in 2011 to 50%.
The shift comes as the long-term outlook for gasoline sales in the U.S. lags due to increased vehicle fuel efficiency and greater use of alternative fuels. High oil prices are also eroding fuel refiners’ profit margins.
The outlook is better for chemical segment, where raw material prices are falling because of increased natural gas liquids production, Garland said. Increased oil and gas production in the U.S. will also boost pipeline business, he said