Valero to boost processing of Eagle Ford crude, buying railcars

HOUSTON Tue Jan 15, 2013 6:54pm GMT

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HOUSTON Jan 15 (Reuters) - Valero Energy Corp plans to run more cheap inland U.S. crude with a new unit to help process it at the company's Houston refinery.

It also plans to buy 2,000 railcars to increase rail shipments of inland crudes where pipelines are lacking, Valero said at an investor presentation.

At the presentation on Jan. 8, the world's largest independent refiner unveiled a plan to spend $220 million to $280 million to build a crude oil "topper" at its 90,000 barrels-per-day (bpd) refinery in Houston.

Although the Houston plant is configured to process mostly light-sweet crude, such as Light Louisiana Sweet, the crude produced in the prolific Eagle Ford shale play in south Texas is even lighter, Valero spokesman Bill Day said.

A topper will help the plant's crude unit run more of that lighter crude to maximize production of gasoline and diesel.

"This is more like an expansion at the Houston refinery, which will enable us to process even more Eagle Ford there," he said.

John Auers, senior vice president and a refinery specialist at Turner, Mason & Co in Dallas, said a topper can essentially skim off material too light for the crude unit to run, allowing it to handle the rest.

"They're really just putting in equipment to allow them to handle the extra-light material," Auers said.

Other refiners have upgrade plans to increase such runs as well. Last August, privately-held Flint Hills Resources LP said it planned to spend $250 million to increase Eagle Ford runs at its 285,000 bpd refinery in Corpus Christi, Texas, as well as cut emissions at the plant. The company is seeking permits for the project.

Valero now runs about 140,000 bpd of Eagle Ford crude in several refineries, including Houston, 205,000-bpd Corpus Christi and 95,000-bpd Three Rivers.

Valero aims to finish the topper in early 2015. The company also runs about 40,000 bpd of North Dakota Bakken crude at its 180,000 bpd refinery in Memphis, Tennessee. That crude moves by rail to the St. James, Louisiana, oil hub and is then transported back north through Royal Dutch Shell's Capline pipeline system.

MORE RAILCARS

Regarding the railcars, Valero plans to buy 2,000 to bring its fleet to 9,000.

"We're looking to rail to other places not served by pipelines," Day said.

He did not specify which Valero refineries would get more crude by rail, but the company's California plants are among those that lack pipeline access.

Valero had discussed buying or leasing more railcars in general terms, but the presentation is the company's first public announcement of specific numbers.

Analysts say the push by refiners and pipeline companies to move more crude by rail has squeezed railcar manufacturers and the wait for new orders can be up to 18 months or more.

Day said Valero's orders have been on the books and the company hopes to receive the 2,000 railcars in 2013.

Phillips 66 announced plans last year to buy 2,000 railcars to increase access to inland crudes. The company expects to begin receiving the cars early this year.

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