After Rough April, Recovery in Sight for Valero

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Researched by Industrial Info Resources (Sugar Land, Texas)--As Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) Chief Executive Officer Joe Gorder said in the company's recent earnings conference call, second-quarter 2020 was "challenging in many aspects," which may be an understatement, particularly for refiners. As several states and localities issued stay-at-home orders, demand in April bottomed out to 50% less than normal for gasoline, 70% for diesel and 30% for jet fuel relative to the same period of 2019. However, as restrictions eased, the company saw gasoline and diesel demand return to 85% to 90% of normal demand and jet fuel to 50%. In addition, in June, Valero saw a recovery of exports to Latin America and Europe.

During the quarter, Valero's refining throughput volumes averaged 2.3 million barrels per day (BBL/d), and throughput capacity utilization was 74%.

While the company lowered 2020 planned capital expenditures by $400 million, it remains on track to complete several major capital projects in its Refining, Ethanol and Renewable Diesel segments. In the second quarter, Valero made $503 million of capital investments, of which approximately $240 million was for sustaining costs, with $263 million toward growth projects. Valero expects spending in 2020 to be approximately $2.1 billion, with about 60% allocated to sustaining the business and 40% for growth. Approximately 30% of the growth capital will go toward expanding Valero's renewables business.

Among the projects Gorder touched on during the call was the addition of an alkylation unit at its refinery near Saint Charles, Louisiana, which he said "is designed to confer low-value feedstocks into a premium alkylate product." Construction on the 17,000-BBL/d sulfuric acid alkylation unit began early last year, with Burns & McDonnell Incorporated (Kansas City, Missouri) providing engineering, procurement and construction. Gorder said the project is on track to be completed in the fourth quarter of this year. For more information, see Industrial Info's project report.

Gorder said the addition of a delayed coker unit at the company's refinery in Port Arthur, Texas, was on track to be completed in 2023. The $700 million project kicked off late last year and is part of a wider refinery expansion that was originally cancelled in 2008. The 55,000-BBL/d, four-drum delayed coker will produce additional vacuum gas oil to supply the refinery's hydrocrackers. While the project is on track to be finished around its originally planned completion date, the mechanical and electrical construction kickoffs have been delayed to first-quarter 2021 due to COVID-19. For more information, see Industrial Info's project report.

The company's largest project is for an expansion at its renewable diesel plant in Norco, Louisiana. Gorder said, "The Diamond Green diesel expansion project is expected to be completed in 2021. This project is expected to increase annual renewable diesel production capacity by 400 million gallons per year, bringing the total capacity to 675 million gallons per year." For more information, see Industrial Info's project report. Gorder said its renewable diesel subsidiary was making progress on an advanced engineering review for a potential 400 million-gallon-per-year renewable diesel plant in Port Arthur. For more information, see Industrial Info's project report.

Among Valero's other projects that have kicked off this year or are planned to kick off soon is a series of refined products terminals in Mexico. The terminals will each hold between 640,000 barrels and 950,000 of refined products. For more information, see Industrial Info's project reports on the terminals in Altamira, Guadalajara, Mexico City, Puebla and Veracruz.

Valero reported second-quarter 2020 net income of $1.3 billion, compared with net income of $612 million in the prior-year quarter. However, on an adjusted basis, Valero reported a net loss of $504 million in the just-passed quarter, compared with adjusted net income of $665 million in 2019. The adjusted net loss excludes the benefit from an after-tax inventory valuation adjustment of $1.8 billion.

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