*Valero will trade ethanol and corn in San Antonio
*Refiner will keep 435 ethanol jobs and add a few more
By Timothy Gardner
NEW YORK, April 2 Top U.S. oil refiner Valero
Energy Corp (VLO.N), the recent buyer of seven ethanol plants,
said it will run them at full capacity despite poor average
margins for making the alternative motor fuel.
"Because of the amount of ethanol we are required to buy
for blending in gasoline, it makes sense for us to produce the
ethanol," Bill Day, a spokesman for Valero, said in an
interview. He did not say exactly when the plants would be at
capacity, citing the fact that it has yet to complete the
purchase on a few of them.
Valero will also trade corn and ethanol, hoping its
experience trading crude oil, gasoline and diesel will help it
avoid difficulties that bankrupted the company from which it
bought the distilleries.
The refiner bought the plants from VeraSun Energy Corp
VSUNQ.OB at an auction last month for about $477 million, and
will pay about $537 million in total to cover working capital
and other costs.
VeraSun declared bankruptcy late last year after locking in
pricey contracts for corn, the main feedstock for U.S.-made
Day said Valero will take a fresh approach. "We bought
hardware -- not contracts."
Valero will buy and sell corn and ethanol at its trading
floor at its headquarters in San Antonio, Texas, alongside its
traditional energy dealing. In addition, he said the company
would enter new contracts with feedstock suppliers.
The refiner, which will run the plants under a subsidiary
called Valero Renewable Fuels, will keep the 435 jobs
associated with the plants, and add workers at some of them,
Day said. The plants, which are scattered across the Midwest,
have a combined capacity of about 780 million gallons a year.
That is about 7.5 percent of the total current U.S. operating
capacity to make ethanol.
U.S. ethanol producers have suffered months of poor to
negative margins for making the biofuel as the economic crisis,
which followed record oil prices, has forced motorists to drive
less. Capacity in the ethanol industry jumped about 60 percent
last year amid generous government incentives given to the
industry, which led to a glut of the fuel and helped force many
distillers to shut plants.
Still, Valero hopes making the fuel will be profitable in
the long-term even though prospects are less certain over the
short-term. "We're hopeful with summer coming and overall
prices being lower than they were last summer that we can get
some people out on the road."
U.S. mandates require blenders to mix 10.5 billion gallons
of grain-based ethanol into the gasoline pool this year. The
rules require 15 billion gallons by 2015, which ethanol backers
say ensures a good market even for traditional ethanol.
Looking ahead, Day said Valero chose to buy VeraSun's
plants in part because new technologies could one day be bolted
on to them to make more advanced biofuels, like cellulosic
ethanol that is expected to be made from non-food crops.
As both a producer of the alternative fuel and a blender of
ethanol into gasoline, Valero's integration could give it an
advantage over companies that only make ethanol. Valero will
receive the 45 cent per gallon blenders credit for every gallon
of fuel it both makes and blends.
(Reporting by Timothy Gardner, editing by Marguerita Choy)