Valero Expects $5 Billion in Capex in 2019, 2020

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Researched by Industrial Info Resources (Sugar Land, Texas)--Despite tough market conditions in the first quarter, refiner Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) plans to spend $2.5 billion in both 2019 and 2020. Approximately 60% will be for sustaining the business and 40% for growth projects. The company's capital projects include investments at its refineries, terminals, and alternative fuels production sites.

In the company's first-quarter 2019 earnings conference call, Chief Executive Officer Joe Gorder gave an update on some of the company's current projects. "Our investments to grow the company continue to move forward. The Houston alkylation unit and the Central Texas terminals and pipeline projects remain on track to be operational in the second and third quarters [of 2019], respectively." Construction on the 13,000-barrel-per-day (BBL/d) sulfuric acid (SF) alkylation unit at the company's Houston refinery began in the first part of 2017, with Burns & McDonnell (Kansas City, Missouri) providing engineering and procurement. The unit will convert butanes and pentanes into alkylates to produce higher-value gasoline blendstock. For more information, see Industrial Info's project report.

The Central Texas pipeline and terminals project involves constructing refined products terminals in Hearne and Taylor, Texas, and a 60,000-BBL/d, 70-mile pipeline in between the two. The Hearne terminal will include four 112,500-barrel refined products tanks and a five-bay truck loading rack, and the Taylor terminal will include eight 62,500-barrel product tanks. Construction on the projects began late last year. The projects have a combined estimated total investment value (TIV) of $380 million. For more information, see Industrial Info's project reports on the Hearne terminal, Taylor terminal and refined products pipeline.

Gorder said, "The Pasadena terminal, Saint Charles alkylation unit and Pembroke cogeneration unit are all on track to be complete in 2020." For more on the company's ethanol and petroleum products terminal in Pasadena, Texas, see Industrial Info's project report and April 25, 2019, article - Growing Export Market Makes Ethanol Big Business in U.S.

Valero is underway with the addition of an SF alkylation unit at its refinery in Saint Charles, Louisiana. The project began earlier this year, with Burns & McDonnell providing engineering, procurement and construction (EPC). The 17,000-BBL/d unit will increase octane blending in the gasoline pool. The project has an estimated TIV of $400 million. For more information, see Industrial Info's project report.

The company is constructing a 49.5-megawatt, natural gas-fired cogeneration unit at its 220,000-BBL/d refinery in Pembroke, Wales. Construction began last summer, with Fluor Corporation (NYSE:FLR) (Irving, Texas) providing EPC. For more information, see Industrial Info's project report.

Gorder also spoke of the company's longer-term projects: "The Diamond Green diesel expansion and the Port Arthur coker are expected to be complete late 2021 and 2022, respectively." Valero's Phase III expansion project of its Diamond Green multi-feedstock biodiesel plant in Norco, Louisiana, will increase production capacity by 400 million gallons per year to 675 million gallons per year. Construction on the $235 million project is expected to kick off this summer. For more information, see Industrial Info's project report.

As part of an expansion at its refinery in Port Arthur, Texas, Valero is adding a delayed coker unit. The project has been planned for some time, but plans were cancelled in 2008. The 55,000-BBL/d, four-drum unit will produce additional vacuum gas oil to supply the refinery's hydrocrackers. Construction on the project is expected to take about three years to complete. Wood plc (Aberdeen, Scotland) is providing EPC. For more information, see Industrial Info's project report. A 600-ton-per-day sulfur recovery unit, also under construction, will support the new delayed coker. For more information, see Industrial Info's project report.

Valero posted lower first-quarter 2019 profits compared to last year due to lower refining margins and heavy maintenance in the quarter. The company reported net income of $141 million in the quarter, compared with $469 million in first-quarter 2018. Gorder said, "The first quarter presented us with tough market conditions. Differentials on medium and heavy sour crude oils were compressed by a number of factors, including OPEC and Canadian crude production curtailments, and Venezuelan sanctions. We also started the year with gasoline inventories at record-high levels and the gasoline crack at historic lows." The company's refinery throughput was 91% in the quarter, with volumes averaging 2.9 million BBL/d in the quarter, which was 66,000 BBL/d lower than first-quarter 2018 due to maintenance.

Gorder said investments in Valero's system flexibility had allowed it maintain positive cashflow and process record volumes of North American sweet crude oil and Canadian heavy crude in the quarter. The company has previously processed large amounts of heavy crude from Venezuela.

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