Sweet crude imports to U.S. Gulf Coast falling-Valero CEO
* Shale oil to displace US Gulf sweet crude imports * Influx of sweet crude to narrow heavy crude differential * Valero to shelve new refinery coker By Kristen Hays SAN DIEGO, Calif., March 13 (Reuters) - Increasing U.S. onshore shale oil output likely will displace light sweet crude imports to the U.S. Gulf Coast by 2015, Valero Corp Chief Executive Bill Klesse said on Tuesday. The increased sweet crude going to Gulf Coast refineries also is expected to narrow heavy crude differentials to the point that Valero aims to shelve plans to add a coker unit to its 292,000 barrel-per-day refinery in Port Arthur, Texas, because it won't be economical, Klesse said. "Four years ago we thought we want to build cokers to do all of this but today you're seeing much more light sweet crude," said Klesse, head of the largest U.S. independent refiner, during a break at the annual meeting of the American Fuel and Petrochemical Manufacturers in San Diego, California. "In another two to three years, we are saying like 2014 to 2015, there will be no light sweet crude imports into the U.S. Gulf Coast. It's about a million barrels today," he said. In North Dakota alone, drilling in the Bakken shale prospect doubled the state's crude output in the last two years to 546,050 barrels per day (bpd). That will narrow the discount of heavy crude compared to light, so much so that Valero expects to let its permit for a $500 million coker project at the Port Arthur plant expire. The exploration and production boom in shale oil is "huge, and that's affecting the competitiveness of the refining business on the world scale," Klesse said. He said a big factor in the equation is uncertainty as to when TransCanada's proposed $7 billion Keystone XL pipeline can move forward to transport Canadian heavy crude from Alberta to U.S. Gulf Coast refineries with coker capability to process it -- like several of Valero's plants. "It's really because we're uncertain when the heavy crude is coming, and it's because we're seeing more light sweet crude," Klesse said. A Republican bid to fast-track Keystone was defeated in the U.S. Senate last week. TransCanada has said it has firm contracts to ship up to 1.1 million barrels of crude per day on the pipeline, and Klesse said Valero is among those confirmed shippers. Klesse said that differentials would be adequate for refineries with existing cokers. Total recently invested $2.5 billion in a coker project at its 232,0000-bpd refinery in Port Arthur. However, he said Valero doesn't see differentials staying wide enough to justify a new coker. Also, the pool of sweet crude will increase as other companies ramp up major projects to increase heavy-crude processing capability at refineries in the upper U.S. Midwest. Of those projects, ConocoPhillips' 356,000-bpd refinery in Wood River, Illinois, has started up, while Marathon Petroleum Corp's 106,000-bpd Detroit refinery upgrade is slated to be finished in the third quarter this year. BP Plc's conversion project at its 405,000-bpd Whiting, Indiana, refinery will increase its heavy crude processing capability to 350,000 bpd from about 80,000 bpd when it starts up next year. The light sweet crude those refineries will no longer process will back up into the Cushing, Oklahoma, hub for U.S. benchmark West Texas Intermediate crude, adding to already high inventories. Klesse said some measures to ease that glut, such as reversing of Enterprise Products Partners' Seaway pipeline from Cushing to the Gulf Coast, is an interim solution that doesn't really affect Valero. Enterprise aims to start the Seaway reversal June 1 with 150,000 bpd, with potential to increase the flow to 800,000 bpd. "We've got to have the Canadian heavy come to the Gulf Coast. Otherwise we're going to have a narrower heavy sour discount," Klesse said.
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