Valero: Crude Runs Down By 10% On High Feedstock Costs
www.quicken.com Tuesday, January 28, 2003 03:00 PM ET Printer-friendly version NEW YORK (Dow Jones)--Valero Energy Corp. (VLO, news) said Tuesday that despite its improved sour crude oil discount in fourth quarter 2002, crude oil throughput at its 12 refineries was down by approximately 10% of capacity, and could be reduced by another 5% if crude oil and other feedstock costs remain high.
Valero's chariman and chief executive officer Bill Greehey said that while refining margins in the Northeast and Gulf Coast were at seasonally average levels, sweet crude oil and intermediate processing economics remained unfavorable and resulted in the 10% to 15% reduction in throughput rates.
The company's fourth-quarter sour crude oil discount increased by 25% from weak third-quarter levels, mostly due to increased production by members of the Organization of Petroleum Exporting Countries (OPEC, news) throughout the quarter, and contributed approximately $25 million in additional operating income versus the third quarter.
The company expects the increased availability of sour crudes to further widen the discount in February and March.
Valero's non-West Coast refining margins improved from third-quarter levels mostly due to lower refined product inventories, strong refined product demand and market concerns over supply disruptions related to the oil workers' strike in Venezuela.
The company expects refined product margins to continue to improve through 2003.
Greehey said the strike resulted in increased demand for U.S. products from Latin American countries and Venezuela. He said Valero sold eight product cargos to Latin American countries since the strike began.
West Coast refining margins remained weak throughout the fourth quarter on high inventory and production levels, Greehey said.
"Looking forward," Greehey said "we expect the combination of extremely low crude oil inventories, high feedstock costs and the upcoming heavy turnaround season to result in lower refined product output leading to significant declines in refined product inventories and higher refined product margins."
Valero has a relatively light schedule of maintenance turnarounds planned for 2003, compared with a heavy schedule in 2002.
"We will be up and running when a lot of other capacity will be down," Greehey said.
In first quarter 2003, approximately 800,000 barrels-a-day of crude processing capacity and 900,000 b/d of conversion unit capacity will be down for maintenance, he added.
Valero has planned plant-wide turnaround maintenance at its 85,000 b/d Ardmore, Okla., refinery beginning in late-March and ending by mid-April.
West Coast refining margins will also improve in 2003 due to reduced CARB gasoline production by some refiners as a result of the mandatory switch to ethanol blending from MTBE blending.
Valero said its switch to CARB Phase III ethanol blending and the completion of the alkylation unit expansion at the Benicia, Calif., refinery were on schedule for the end of the year.
"We see no (CARB gasoline) production reductions. Our production will stay flat," Greehey said.
By Rose Marton, Dow Jones Newswires; 201-938-2059, rose.marton@dowjones.com