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Valero Retooling for Eagle Ford as Domestic Crude Lifts Refiners

Valero Energy Corp. is upgrading two of its refineries in Texas so they can process more light sweet crude from the prolific Eagle Ford Shale, a company spokesman told NGI's Shale Daily.

Bill Day said the San Antonio-based company is spending about $390 million to upgrade its Houston refinery and another $340 million to upgrade a refinery in Corpus Christi. The upgrades are to be finished by the end of next year. Afterwards, the Houston refinery would be able to process 90,000 b/d of additional light sweet crude, and the Corpus Christi facility would be able to process an additional 70,000 b/d.

The upgrades would not increase the output of either of the facilities, but they would allow the processing of more light sweet crude feedstock instead of more expensive intermediate (or partially processed petroleum) feedstock, Day said. The Corpus Christi plant's total capacity is 325,000 b/d, and the Houston refinery has capacity of 160,000 b/d.

"We also have a plant up in the Panhandle of Texas...where we're going to be expanding a crude unit there to process more Permian Basin crude," Day said. "We have a refinery in Three Rivers, TX, which is down [south of] San Antonio, where we've done some expansions to process more Eagle Ford crude.

"That's the crude that's becoming available. We have pushed out all foreign light sweet crude at our Gulf Coast refineries, so all of the light crude that we're using is domestic now."

Valero's Lane Riggs, senior vice president of refining operations, said Wednesday during an earnings conference call that overall, the company is not importing light crude into the Gulf "routinely anymore at all." Imports are medium and sour grades, he said.

Valero, along with Marathon Petroleum Corp. and Phillips 66, is among the three largest independent refiners in the United States. All three on Wednesday reported quarterly results that exceeded Wall Street expectations, thanks in large part to inexpensive supplies of domestic crude oil from U.S. shale plays.

The Eagle Ford’s light sweet crude also presents a challenge, which the refiners are working to address.

Phillips 66 CEO Greg Garland said the company is always looking for debottlenecking opportunities. "Eagle Ford is an interesting crude," he said. "We do see limits on processing Eagle Ford, but we're talking about spending $5 million, $10 million increments to remove those limits to process more Eagle Ford..."

How much light sweet crude Marathon Petroleum Corp. can run through its plants is a function of price, Michael Palmer, senior vice president of supply distribution and planning, said Wednesday during an earnings conference call.

"It's a function of the discount relative to our alternatives, and we really can't give you a specific number," Palmer told an analyst. "What I can tell you is that we know that within our system...we still have some logistical constraints, for example, that keep us from running as much light sweet as we would like to at certain times when the differential gets really wide. We're working to get rid of those constraints.

"We're also going to be taking on additional barging as we go forward because we think that will help alleviate some of the constraints. At the refineries, it's really a function of the price. So the object that we always have is to maximize our profitability. As that light discount widens, we can run more light sweet crude at these refineries. And that's what we'll do."

Day said Valero supports the current rules regulating the export of crude oil from the United States but is opposed to unlimited exports of crude (see Shale Daily, Jan. 23). Some oil and gas producers have been calling on the Obama administration to relax restrictions on the export of crude. "We don't think that there needs to be unlimited exports of crude oil," Day said.

Among those that want to export more domestic oil, constraints at U.S. refineries that prevent them from processing more light sweet crude is often cited as a reason. "We've got an infrastructure problem with lack of refinery capability to handle light tight (sweet) crude oil and pipeline issues because the light tight oil is not getting to markets where it could be used," Robert Dillon, communications director for the Senate Energy and Natural Resources committee, said recently (see Shale Daily, Jan. 9).

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