Eagle Ford crude prompts upgrades at Valero’s Texas refineries

Valero Energy Corp., the largest US independent refiner-marketer, plans to invest $730 million in upgrading two of its Texas refineries to process increased volumes of light crude sourced from the Eagle Ford shale.

The company will spend $390 million at its 160,000-b/d Houston refinery and $340 million at its 325,000-b/d Corpus Christi, Tex., refinery to add crude topping units designed to boost crude oil processing capacities at each of the plants, Valero spokesman Bill Day told OGJ.

While the addition of these units will not add to the refineries’ overall output capacities, they will allow the plants to reduce their purchases of higher-priced intermediate feedstocks from third-party suppliers in lieu of more favorably priced Eagle Ford crude, from which the refineries can produce and then process their own intermediates, Day said.

The projects, which Valero expects to have completed by yearend 2015, will expand light sweet crude processing capacities at the Houston and Corpus Christi refineries by an additional 90,000 b/d and 70,000 b/d, respectively, according to Day.

The independent refiner also plans an expansion of the crude unit at its 170,000-b/d McKee, Tex., refinery to increase throughputs of crude supplies from the nearby Permian basin. That project, which Valero expects to be completed by the end of first-quarter 2015, would lift the refinery’s crude processing capacity to just over 185,000 b/d, Day said.

The planned refinery upgrades come as part of Valero’s hope to continue maximizing on the benefits of economically attractive and advantageously located light tight oil (LTO) production from North American shale plays.

“These expansions are a long-term investment in making use of our growing domestic crude supplies in a way that makes sense,” Day said. “These kinds of projects really show that domestic refiners are willing to make the necessary investments to increase domestic crude processing.”

But with these projects currently still in the planning phase and the US Senate Energy and Natural Resources Committee now examining industry cries to lift an export ban in place on what proponents have called a surplus of US domestic LTO supplies mismatched for most US refinery configurations (OGJ Online, Jan. 30, 2014; Jan. 8, 2014), nothing is a done deal, according to Day.

While Valero has expressed its concerns over easing limits on the US crude oil export embargo (OGJ Online, Jan. 17, 2014), the company is not the opponent to domestic crude exports that the general media has characterized it to be, Day said.

“Valero actually holds a [crude oil] export license to export Eagle Ford crude to our refinery in Quebec, Canada, and it’s been working out quite well for us,” Day noted. “There are outlets in North America for the light crude supply coming from [US] shale production.”

As willing as Valero may be to invest in upgrading its refineries to handle increasing US LTO production, however, the lifting of the export ban without the proper economic return on US crudes from international buyers could disincentivize US refiners from making investments to accommodate the boom in LTO supplies.

Should the ban on US crude exports be lifted without those exports fetching the right price on international markets, Valero’s planned refinery upgrades likely would have to be reexamined, according to Day.

“We would have to go back to review the economics of the projects to make sure they still make sense for us,” Day said.

Contact Robert Brelsford at [email protected].