NPRA: Valero looking to sell three refineries

March 12, 2008
Valero Energy Corp. is conducting a "strategic alternative review" of three of its refineries in an effort to possibly sell them, according to Chief Executive Officer Bill Klesse.

David N. Nakamura
Refining/Petrochemical Editor

SAN DIEGO, Mar. 12 -- Valero Energy Corp. is conducting a "strategic alternative review" of three of its refineries in an effort to possibly sell them, according to Chief Executive Officer Bill Klesse.

Speaking Mar. 11 at the National Petrochemical & Refiners Association annual meeting in San Diego, Klesse said that given Valero's entire refining portfolio, it does not make sense to invest in every plant. "Some of our plants are clearly worth more to others and it is a real opportunity to some other companies. The Lima refinery [in Ohio], which we sold last year, was a good fit for Husky [Energy Inc.] (OGJ, May 14, 2007, Newsletter).

"Today, we are looking at strategic alternatives…at Aruba, Memphis, Tenn., and Krotz Springs, La. We've elected not to invest further in those refineries," Klesse said, adding, "We expect to complete this strategic alternative review by the end of the year."

Klesse said Valero would still be interested in acquisitions, but that the company does not necessarily need to make any. Valero is focusing its capital investment on its existing refineries.

"We have two very large projects that we've announced on the US Gulf Coast," he said. "Our capital spending this year should be somewhere between $4 and 4.5 billion. I would expect next year's to be in the $5 billion range."

Prices, Taxes
Klesse also outlined Valero's positions on future gasoline trends in the US as well as tax issues.

He said he feels that gasoline demand may increase in the US this year, but probably will be flat and maybe even more likely decrease. "The high retail prices and the weak economy are having a very negative impact on demand," he said. "Our view is that crude oil prices are going to stay high. The world economy has shown that it can handle these high prices."

Regarding the renewable fuel standard, Klesse feels that an ethanol mandate, tax credit, and import duty are not all needed. "The ethanol program and other programs like it are just a huge transfer of wealth from [the refining] industry to the Midwest farmer," he said. "Since we have a mandate, let's at least eliminate the excise tax credit on ethanol. This is pork-barrel legislation at its worst."

Klesse said the US gasoline supply will likely contain 10-15% ethanol in the next few years. He noted, however, that ethanol volumes above this level are "totally impractical, totally uneconomical, and just crazy."

Due to the RFS mandate and CAFE standards, Klesse believes that "to maintain the US gasoline producing capability, our industry may need our government to increase import duties on gasoline and blendstock to protect the [refining] industry and prevent the dumping of gasoline in the US market."

Klesse also said Valero "would support an increase in the federal excise tax on transportation fuels combined with the elimination of the ethanol tax credit, which is not needed because we have the mandate." He said, "This would generate significant funds [to improve road infrastructure and eliminate bottlenecks]."

Contact David N. Nakamura at [email protected].