UPDATE 1-Valero mulls petchem project at St. Charles, LA

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SAN ANTONIO, May 1 (Reuters) - Valero Energy Corp (VLO.N: Quote, Profile, Research) CEO Bill Klesse said Thursday the largest U.S. oil refiner was considering a $2.1 billion petrochemical project at its 250,000 barrel per day St. Charles, Louisiana refinery to be completed by 2012.

The project, which has yet to win board approval, would take the benzene that upcoming U.S. environmental regulations will require be removed from gasoline and use it to make paraxylene, Klesse told shareholders at the company's annual meeting.

The company would build a continuous catalytic reforming unit to process the benzene, Klesse said. Paraxylene is used in making plastic fibers.

Valero is also considering a $2.5 billion coke gasification project for the Port Arthur refinery which would also be completed in the same time frame.

Port Arthur is already undergoing an expansion of its crude distillation, coking and hydrocracking capacity expected to expand the plants capacity by 75,000 bpd. (Reporting by Erwin Seba; Editing by John Picinich)