Valero Makes Gains from Higher Refining Margins

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Researched by Industrial Info Resources (Sugar Land, Texas)--While Hurricane Harvey closed some of Valero Energy Corporation's (NYSE:VLO) (San Antonio, Texas) refineries in the Gulf Coast area, most were able to return to service in time to take advantage of higher refining margins, as fuel shortages and panic buying plagued much of the U.S., particularly the Gulf Coast region, company executives said Thursday. Industrial Info is tracking $2.6 billion in active Valero projects.

In a conference call, Valero Chief Executive Officer Joseph Gorder said: "Hurricane Harvey's path touched almost all of Valero' Gulf Coast refineries. ... We shut down our Corpus Christi and Three Rivers [about 70 miles south of San Antonio] refineries prior to Harvey's arrival and reduced rates at our three plants in the Houston and Port Arthur area, eventually shutting down Port Arthur due to flooding. Our team worked hard to get these plants safely back up and running, and we only experienced extended delays at Three Rivers and Port Arthur." Company executives said the Port Arthur refinery, which was running at reduced rates into the fourth quarter, is now running at normal capacity.

The outages and reduced rates at so many refineries during the storm helped push up refining margins during and immediately after Harvey. Valero's refining segment reported $1.4 billion in operating income for third-quarter 2017, compared with $934 million for the third quarter of 2016. Despite the shutdowns and reduced rates, Valero's refinery throughput capacity utilization was 92% for the just-passed quarter, averaging 2.9 million barrels per day (BBL/d), which was 33,000 BBL/d higher than third-quarter 2016.

Valero invested $565 million in growth and sustaining capital in third-quarter 2017. Among the largest of the company's projects that will be completed soon is the Diamond Pipeline, which Valero is constructing in partnership with Plains All American Pipeline LP (NYSE:PAA) (Houston, Texas). The 200-mile pipeline will transport up to 200,000 BBL/d of crude oil from Cushing, Oklahoma, to Valero's refinery in Memphis, Tennessee. The project has a total investment value of approximately $800 million and began construction in late 2016. Executives said the company would be filling the pipeline in November and expected it to be in operation in December. For more information, see Industrial Info's project reports on the Oklahoma, Arkansas, and Tennessee portions of the project.

Gorder said, "Construction also continues on the Diamond Green diesel expansion and the Houston alkylation unit." The Diamond Green expansion is an Alternative Fuels project at a biodiesel plant in Norco, Louisiana. The project began in the second quarter of this year and involves expanding the existing 160 million-gallon-per-year, multi-feedstock biodiesel plant with supporting equipment to increase production to 275 million gallons per year of second-generation renewable diesel transportation fuel. Construction is expected to be completed in second-quarter 2018. Richard Industrial Group (Beaumont, Texas) is performing design-build work on the project, which has an estimated total investment value (TIV) of $190 million. For more information, see Industrial Info's project report.

Construction of the alkylation unit at Valero's Houston Refinery began earlier this year. The 13,000-BBL/d unit will convert natural gas liquids into alkylates to produce high-value gasoline blendstock. Burns & McDonnell (Kansas City, Missouri) is performing engineering on the project, which is expected to be completed in early 2019. The project has an estimated TIV of $300 million. For more information, see Industrial Info's project report.

Recently announced projects include Valero's joint venture with Magellan Midstream Partners LP (NYSE:MMP) (Tulsa, Oklahoma) to expand a petroleum products terminal on the Houston Ship Channel in Pasadena, Texas. For more information, see September 15, 2017, article - Magellan Midstream Partners with Valero to Expand Houston Ship Channel Storage Project.

Also under construction are upgrades to the fluid catalytic cracking unit (FCCU) and alkylation unit at Valero's McKee Refinery in Sunray , Texas. The projects will modify the main fractionation columns of both units to improve gasoline yield and quality. Construction is expected to be wrapped up this quarter. The projects have a combined TIV of $17 million. For more information, see Industrial Info's project reports on the FCCU and alkylation unit.

Valero reported third-quarter 2017 net income of $841 million, compared with $613 million in third-quarter 2016.

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