Valero Energy Sees Louisiana and California as Among The Destinations That Will Be Served

Large US refiner Valero Energy sees Louisiana and California as among the destinations that will be served by its recent order of 5,320 new rail cars to move discounted inland crudes across the US, the company's chief operating officer said Thursday. 

Of the new rail cars, 1,600 will be coiled cars to take raw bitumen to its 270,000 b/d St Charles, Louisiana, refinery, COO Joe Gorder said during the Bank of America/Merrill Lynch 2013 Refining Conference in New York. His presentation was webcast. 

"We anticipate the volumes will be anywhere from 25,000 b/d to 30,000 b/d" that will be transported to the refinery on the heated cars, Gorder said. 

In a Wednesday securities filing, the refiner revealed the new rail cars will cost $750 million and will increase its rail car fleet to more than 12,000. Valero said the new cars will increase Valero's feedstock flexibility and access to discounted inland crudes. "We're also looking at the possibility of moving heavy sour Canadian crudes into our Wilmington refinery [in California, capacity 135,000 b/d], so we have an allocation of our rail cars to that," Gorder said. "It's not likely bitumen; it will be [something] like Western Canadian Select or some oil that has diluent in it that would flow." 

Those volumes could be around 30,000 b/d, he said. 

Valero also announced this week that it will build a 70,000 b/d crude offloading facility at its 170,000 b/d Benicia refinery in California. The $30 million project will allow the company to replace foreign and other crudes such as ANS and California domestic grades at the plant with railed-in lower-cost domestic production. 

Valero CEO Bill Klesse told the conference that the refiner is also shipping about 25,000-30,000 b/d of heavy Canadian oil down the Mississippi to its Hartford, Illinois terminal on barges. He said the discount for that crude is about $40/barrel with Gulf-Coast priced crudes while the company's operating cost is $3/b. 

"When I see a $40 discount, my eyes go whoa, how do we get there?" he said. 

In addition, Klesse appeared struck by what he said was an "amazing" 18-month timeline between placing an order for rail cars and their delivery. "For 1,000 cars, [18 months] is the first car, then they come to you for the next 12" months," he said.