Crude Summit: Valero looks abroad, with help

US independent refiner Valero sees its future customers largely outside the US, but the company does not want to find them alone, chief executive Joe Gorder said today.

Growing wealth in emerging markets will pick up US demand whittled down by more efficient vehicles, Gorder told the Argus Americas Crude Summit in Houston, Texas. Especially US Gulf coast refining, aided by lower operating costs, ample water access and a wide range of feedstocks, would shift to a global supplier.

"We have got all of the advantages to be supplier to the world," Gorder said.

The US independent refiner purchased Peruvian fuel marketing business Pure Biofuels del Peru, including two products terminals, in 2018. But Valero prefers joint ventures or other partnerships to expand its products reach, relying on throughput arrangements and leasing agreements to stretch supply chains into other markets, he said.

"It is very difficult for a logistics project to compete with the refining project, from a return perspective," Gorder said. "We go about entering the market that way and it has been pretty effective for us so far."

Valero processed a new record volume of light, sweet crude in the fourth quarter of 2019. An expanded pipeline network allows Valero to cheaply tap shale production in US Gulf coast and midcontinent refineries, boosting overall throughputs.

A pair of crude topping units built over the past five years on the Texas coast allowed for that flexibility. Valero built alkylation units expecting low-sulphur gasoline regulations in the US, called Tier 3, to drive long-term octane demand. That short appears to be emerging, Gorder said.

"I think the industry in general might be running a little bit behind on compliance, because we are seeing a lot of competition and high values around the credits" used to comply with the regulation, Gorder said. "We are also seeing a lot of competition in export markets, where you can still move the higher sulphur fuel and sell it."

But refiners have needed to be choosy with investments based on a changing regulatory environment. Expectations that global lower-sulphur marine fuel requirements would create new opportunities for coking units had not directly supported wider industry investment in the billion-dollar devices, he said.

"You have got to be certain that you are not reacting to a short-term phenomenon with a long-term capital investment, or you are going to find it is obsolete before you really get it running," Gorder said.

By Elliott Blackburn