Chemicals – not gasoline – is future, says Phillips 66

Phillips 66 Chairman and CEO Greg Garland speaks during the ground breaking ceremony for the new Phillips 66 corporate headquarters campus in Westchase area, the campus will feature twin 9 story buildings Houston Friday, Nov. 22, 2013, in Houston. ( James Nielsen / Houston Chronicle ) less Phillips 66 Chairman and CEO Greg Garland speaks during the ground breaking ceremony for the new Phillips 66 corporate headquarters campus in Westchase area, the campus will feature twin 9 story buildings ... more Photo: James Nielsen, Staff Buy photo Photo: James Nielsen, Staff Image 1 of / 1 Caption Close Chemicals – not gasoline – is future, says Phillips 66 1 / 1 Back to Gallery

The top two executives at Phillips 66 backed away from the gasoline business on Wednesday and said that pipelines and chemicals held more promise for the company.

"Today, if we look at the opportunities out there, we would tell you we see better value creation in the midstream and chemicals business," Phillips Chief Executive Greg Garland said after the company's annual shareholder meeting. "The Middle East and U.S. Gulf Coast are going to be the two best places in the world to make petrochemicals, long-term."

Gasoline demand is on a long slide downhill, Garland said, speaking alongside Phillips President Tim Taylor. The uptick in 2015, driven by cheap U.S. fuel and lots of driving, surprised the industry. But that won't last. Millenials are driving less. They're using ride-sharing companies like Uber more. Even the quintessential American truck, the Ford F-150, is getting better gas mileage. New F-150s, Garland said, are 20 percent more fuel efficient than those on the road today.

"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."

Growing gasoline demand in South America, Latin America and Mexico will more than offset the decline in the U.S. market, Garland said. But the U.S. shale revolution has unleashed a vast supply of natural gas, a building block for petrochemicals. And the U.S. can produce natural gas at some of the cheapest costs in the world.

"If you think about petrochemicals — take polyethylene for example," Garland said. "Something between 80 and 90 percent of your cost structure is around feedstock and energy. If you get that part of the equation right, you can compete with anybody, any place in the world."

In addition, the Gulf ports allow companies like Phillips to ship petrochemical products, like plastic pellets, all over the world.

"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."