Valero Sees Bright Spot in Refining, Gears Up for Unit Additions, Upgrades in 2019

Researched by Industrial Info Resources (Sugar Land, Texas)--Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas) tempered expectations for its year-end earnings report, given the recent slide in crude oil prices. But stronger-than-expected results, plus a solid performance from its refining business, has given the company a rosy view of 2019. Industrial Info is tracking about $4.7 billion in active projects involving Valero, including $3.2 billion worth in the Petroleum Refining Industry.

Click on the image at right for a graph detailing Valero's active U.S. projects, by project type.

Valero's net income for 2019 was $3.1 billion, a decrease of more than 24% from 2017. Nonetheless, executives were upbeat about how the company performed compared with expectations, and said that Valero is in a good position to develop significantly in 2019. Much of this optimism comes from Valero's refining segment, which was influenced by wider discounts for North American sweet crude oils and some sour crude oils, relative to Brent crude oil, and executives cited throughput at the refinery in Port Arthur, Texas, as a major factor.

"We're starting 2019 with relatively low oil prices and an economy that is growing, which should support demand for refined products," said Joe Gorder, the chief executive officer of Valero, in an earnings-related conference call.

Valero is planning to begin construction in the coming months on a $750 million delayed coker unit addition at the Port Arthur Refinery, which will include four drums, with a total capacity of 55,000 barrels per day (BBL/d), to produce additional vacuum gas oil (VGO) for a pair of hydrocrackers. For more information, see Industrial Info's project report.

The company also expects to see long-term benefit from ongoing additions and expansions of sulfuric alkylation units at its refineries. These include:

• $300 million addition of a sulfuric alkylation unit at a refinery in Houston, with a capacity of 13,000 BBL/d; see project report
• $7 million upgrade of an existing sulfuric alkylation unit at Houston, with a capacity of 12,000 BBL/d; see project report
• $400 million addition of a sulfuric alkylation unit at the Saint Charles Refinery in Norco, Louisiana, with a capacity of 25,000 BBL/d; see project report
• $300 million upgrade of a sulfuric alkylation unit at a refinery in Wilmington, California, with a capacity of 25,000 BBL/d; see project report

Lower ethanol prices were a drag on Valero's Alternative Fuels business, generating a $27 million operating loss in the fourth quarter, but executives remain optimistic about the corn-based additive's future. Valero plans to finish construction this spring on a $335 million marine terminal on the Houston Ship Channel in Pasadena, Texas, a joint venture with Magellan Midstream Partners LP (NYSE:MMP) (Tulsa, Oklahoma), which would feature at least 10 tanks to store refined petroleum products and ethanol. For more information, see Industrial Info's project report.

"We take a long-term view, and we expect things to turn around," said Martin Parrish, the senior vice president of Alternative Fuels for Valero, in the conference call. "Ethanol demand in the U.S. is going to grow marginally, and export demand is way up this year, and we expect that to continue. [There are] more mandates worldwide--and even better than that, just blending economics for ethanol where it's priced."

Valero is weighing a proposed, $75 million expansion at Pasadena that could move forward following completion of the initial phase. The project would double the tanks to 20, allowing for 4 million barrels of storage. For more information, see Industrial Info's project report.

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