(Updates Canadian crude prices)
By Erwin Seba and Nia Williams
HOUSTON/CALGARY, Nov 14 (Reuters) - BP Plc hasstarted up a major new coking unit at its Whiting, Indiana,refinery, sources familiar with the facility's operations said,a delayed but crucial last step in the revamp of the sprawlingplant so it can run mostly heavy Canadian crude.
The 102,000 barrel-per-day (bpd) coker, which began thelengthy start-up process earlier this week but may not reachfull rates until next year, is a milestone in the $4 billionoverhaul of the refinery, a project that has whipsawed oilprices on several occasions this year.
The new delayed coker, the last of four major units to bebuilt or upgraded at Whiting, will mean the 405,000 bpd refinerycan swap out generally more expensive light, sweet oil fordiscounted oil sands crude from Alberta, likely lifting Canadianprices that have languished for much of this year.
Industry intelligence service Genscape and the sourcesfamiliar with Whiting operations reported activity on the cokeron Thursday. A BP spokesman declined to discuss operations.
The change is also likely to result in more of the boomingBakken supplies heading further south, pressuring Midwestprices. The discount for U.S. benchmark crude at the Cushing,Oklahoma, hub versus Brent has widened by more than $5 in thepast five days, the biggest five-day slump since early 2012.
BP has said the project will allow Whiting to run about 85percent heavy crude, up from just 20 percent prior to therevamp.
"Whiting has been running a light sweet slate while thecoker was getting back up to speed. You're at a point of thetransition now and you will see demand destruction for lightsweet oil in the mid-continent," said Stephen Schork, editor ofthe Schork Report in Villanova, Pennsylvania.
"Oil will have to discount, that is why you are seeing Brentmoving as more of a premium to WTI."
BP has said the coker, which boosts the yield of motor fuelfrom a barrel of oil and converts residual crude to petroleumcoke, a coal substitute, would begin operating by year-end.
BP officials said on a conference call in October that thetransition to heavy Canadian crude would take place during thefirst quarter of 2014.
DIFFERENT ERA
The Whiting overhaul was commissioned years ago, a time whenthe future for U.S. refiners seemed to be a growing supply ofheavy crude from Canada. Instead, refiners have been delugedwith a surge in domestic light, sweet shale crude.
Traders in Calgary have kept a close eye on the progress atWhiting, and said delays to the project contributed to WesternCanada Select's recent slump to a 10-month low of $41.50 perbarrel under the WTI benchmark last week.
WCS heavy blend for December delivery, the benchmarkCanadian heavy crude, climbed to $34.35 per barrel below WTI, up$1.40 from Wednesday, according to Shorcan Energy Brokers. Thatdiscount may narrow further as Whiting ramps up.
"When you look at what this means for Canadian heavy it'saround 102,000 bpd of demand. That's quite significantespecially when you look at Imperial Oil's Kearlproject bringing on about that same amount in this past year,"said David Bouckhout, senior commodity strategist at TDSecurities in Calgary.
"This is a good fit - there's more supply coming on and nowthe demand to absorb that," he added.
The investments and Whiting are at the center of BP's U.S.refining strategy to focus on plants with easy access toCanadian crude production areas. Earlier this year, BP completedthe sale of refineries in California and Texas. (Reporting by Erwin Seba in Houston and Nia Williams inCalgary; additional reporting by Jeanine Prezioso in New York;Editing by Terry Wade, Jonathan Leff and Tim Dobbyn)
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