Home|News & Analysis|RSS Information and Widget| Future of Valero Aruba up in air; company has no interest in Murphy UK plant
Future of Valero Aruba up in air; company has no interest in Murphy UK plant
New York (Platts)--31Jan2012/459 pm EST/2159 GMT
Valero Energy CEO Bill Klesse on Tuesday signaled the possible closure of two more refineries -- one his company owns and one it does not -- adding to the growing list of shutdowns that are reshaping the global downstream market.
Klesse also said Valero should reach a new labor agreement with its refinery unions by tonight's deadline for its 290,000 b/d refinery in Port Arthur, Texas, and its 180,000 b/d Memphis, Tennessee, plant.
If a strike is called, Port Arthur would continue to operate while Memphis would have "an orderly shutdown," Klesse said during a conference call on Valero's fourth quarter earnings.
In North America, Klesse compared the outlook for Valero's 235,000 b/d Aruba refinery in the Caribbean to the Hovensa plant in the region that is being shut by the Hess-PDVSA joint venture and turned into a terminal.
"We're in the same boat as what was announced by one of our competitors operating in the Caribbean," he said, confirming the Aruba plant posted a loss in the fourth quarter.
A decision on "strategic alternatives" for Aruba will be made "very shortly here within the first quarter," he said.
Valero spokesman Bill Day confirmed in an email that a shutdown is one of several options being looked out, including "a sale, a joint operating agreement [and] further reductions in runs." The closure of Aruba would affect the intermediates sent from that plant to Valero's Gulf Coast refineries, as well as Atlantic Basin crude purchases.
Meanwhile, in the UK, Valero is "not talking" to Murphy Oil about buying Murphy's 130,000 b/d Milford Haven refinery that is up for sale, Klesse said. Valero was seen as the only real possible buyer for the plant, which is located near its own UK Pembroke refinery. If a buyer does not step forward, Milford Haven may close and be turned into a terminal, Murphy CEO David Wood said last week during a conference call.
"We have a very good base in the UK and Ireland," Klesse said, adding that Valero could just stick with its current holdings in that region.
MORE OPTIMISM ON US WEST COAST
Klesse appeared more optimistic about his company's West Coast plants, which he had earlier hinted could be sold off due to costly changes in California regulations such as the Low Carbon Fuel Standard, which has now been put on hold by court order.
Valero has 305,000 b/d of combined California refining capacity from its Benicia and Wilmington refineries.
"As of today the West Coast is a very key part of our business," said Klesse. "It is a core asset for us. We have a good position there."
On the other hand, the California Air Resources Board "is absolutely out of control...they're hurting the economy on the West Coast," he added. "We're well positioned there. But the macro is the problem and it needs to be solved."
On the Gulf Coast, Valero has in the past confirmed its interest in BP's 475,000 b/d Texas City, Texas, plant that is for sale. Klesse said a confidentiality agreement prohibits him from discussing it, but "nothing seems to be happening" on any sort of deal there. PBF Energy is also thought to be interested in that plant.
The rebalancing of the Atlantic Basin as refineries continue to shut is putting Valero in a good position as it can supply a region that should get tight, said Joe Gorder, executive vice president and chief commercial officer of Valero. More than 1 million b/d of capacity is slated for closure there.
"Obviously with what's happened in the marketplace from a supply perspective things look encouraging," Gorder said during the conference call. He cited Northeast US plant closures, Petroplus refinery shutdowns in Europe and the Hovensa Caribbean shutdown.
He predicted Colonial Pipeline, the main products artery to the East Coast, will "stay full all the time."
"A lot of barrels are moving out of the Gulf to Florida," said Gorder. "They can also move around to the East Coast. It always becomes, from our perspective, an arbitrage opportunity -- where can you supply the East Coast demand that we have most efficiently? Is it out of the Gulf, or is it out of [Valero's refinery in] Quebec or is it out of Pembroke?" GASOLINE EXPORTS A KEY
As far as gasoline, US demand is not strong so "the real story in gasoline continues to be the exports market," Gorder said.
Gasoline export demand should remain firm due to mostly to growth in imports by Venezuela, Mexico and Brazil.
"If you look at the gasoline markets in general, I think that we're going to continue to see very strong demand and our export business should continue to be strong," said Gorder.
As for distillates, there are "average" markets in the US, while exports are "very strong," he said. "The same refinery issues that are affecting gasoline are out there for diesel also. The arb to Europe, which was closed a little bit earlier this year, is now open again so we're seeing barrels move that way."
In the fourth quarter, Valero exported 65,000 b/d of gasoline and around 180,000 b/d of diesel fuel. That was a bright spot in an otherwise tough environment where the company posted operating income of $167 million, down from $378 million a year earlier. Its overall refining throughput margin sank by $1.84/b, including a $4.21/b drop on the Gulf Coast, as gasoline and petrochemicals margins dropped and discounts were cut for medium and heavy sour feedstocks.
US gasoline crack spreads have since firmed, said Klesse.
"There's no question that gasoline is sloppy, although quite frankly the cracks have improved significantly," he said.
The biggest problem is the global economy, he said, noting, "We sell fuels to everybody and there's a large segment of our customer base who is either unemployed or facing economic uncertainty."
--Beth Evans, email@example.com