EXCLUSIVE-Marathon eyes shuttering a Galveston Bay gasoline unit -sources

(Adds details on CDU overhaul, FCC operations)

By Erwin Seba

HOUSTON, June 13 (Reuters) - Marathon Petroleum Corp is considering the permanent shutdown of the smallest gasoline-producing unit at its Galveston Bay Refinery in 2016, rather than make costly upgrades to bring the unit into line with environmental rules, sources familiar with the refinery's plans said on Friday.

Marathon is planning on shutting its 60,000 barrel per day (bpd) fluidic catalytic cracking unit 1 (FCC) because of the cost of adding a scrubber unit that would replace the current electrostatic precipitator.

The FCC was originally built at the refinery during World War Two to boost gasoline production for the U.S. military.

While the FCC has been upgraded since the war, it still uses the precipitator to capture a very fine powder called catalyst that may flow out of the unit and be carried into the atmosphere from the unit's stack.

The Galveston Bay Refinery also has a 120,000 bpd FCC. It will continue in operation.

In 2016, the operating permit for the 60,000 bpd FCC expires. To renew it, Marathon would have to add a scrubber unit to capture the catalyst.

A scrubber mixes liquid into stack gas to capture catalyst, sulfur dioxide and nitrogen oxide before they are released into the atmosphere.

An FCC uses a very fine powder known as catalyst to convert gasoil produced by a crude distillation unit into gasoline. Fluidic refers to the catalyst, which acts like a fluid in the unit.

Marathon officials were not immediately available for comment.

Another refiner, Valero Energy Corp, is scheduled to shut the FCC at its 125,000 bpd Meraux, Louisiana plant in 2015 as part of an agreement with environmental regulators, company Chairman Bill Klesse said in March. The Meraux refinery will rely on a hydrocracker to produce motor fuel.

BP Plc (LSE: BP.L - news) , the previous owner of the Marathon refinery, shuttered a 36,000 bpd FCC in 2006, after the refinery was idled by heavy damage from a chaotic shutdown ahead of Hurricane Rita's 2005 landfall along the Texas coast. Marathon demolished the idled FCC last year.

CDU OVERHAUL WEIGHED

The sources also said Marathon is weighing overhauling one of two 218,500 barrel per day (bpd) crude distillation units at its 451,000 bpd Galveston Bay plant.

Marathon has a scheduled an overhaul of the Galveston Bay Refinery's 60,000 bpd Ultracracker, a hydrocracking unit, from September to mid-November, the sources said. The CDU, called Pipestill 3A, would be shut while the Ultracracker work is being performed.

The company is in the process of integrating the Galveston Bay Refinery, which was purchased in 2013 from BP, with Marathon's 80,000 bpd refinery located across the street.

If Marathon undertakes the overhaul of Pipestill 3A, it would be second crude unit overhaul at the Galveston Bay Refinery this year. The refinery's other CDU, called Pipestill 3B, was overhauled from mid-January to mid- March of this year. (Reporting by Erwin Seba; Editing by Terry Wade and Steve Orlofsky)