March 21, 2011 / 12:43 AM / 7 years ago

Valero CEO: Excess refining capacity remains

* Some refineries “cannot compete”

* Japan demand to supplied by Asia, possibly U.S. Gulf

* Co investing $10 million to expand Eagle Ford crude use

(Adds comments on Japan demand, Gulf Coast prospects, Eagle Ford crude)

SAN ANTONIO, March 20 (Reuters) - Excess oil refining capacity remains in North America, Western Europe and Japan in spite of a recent spate of refinery closures, Bill Klesse, chief executive of Valero Energy Corp , said on Sunday.

He noted the overcapacity existed “before the tragic events in Japan” where a devastating earthquake and tsunami temporarily shut 30 percent of that island nation’s refineries.

Klesse said refining in the industrialized world continued to face the prospect of cuts in refining capacity.

“When you look at distribution in these markets, you see refineries that over time cannot compete in this environment,” Klesse told reporters at the National Petrochemical & Refiners Association meeting in San Antonio.

Valero expects most of the refineries shut in Japan will quickly return to production and no demand will be placed on U.S. West Coast markets.

Supply for Japanese refined products will first come from other Asian refineries and possibly the U.S. Gulf Coast because prices would be more advantageous than the West Coast. Valero has seen “general industry interest” in supplying Japan from the Gulf, Klesse said.

Klesse said Valero continues to see the U.S. Gulf Coast as a place of growth for U.S. refiners, primarily due to growing worldwide diesel demand, but declined to talk explicitly about buying a Gulf Coast refinery, such as BP Plc’s plant in Texas City, Texas.

“Yes, the right situation, we are interested in growing our business,” Klesse said. “But for Valero, it’s a portfolio question, too. We need a strong portfolio to compete. So you see us working our portfolio.”

Last week, Valero announced the acquistion of Chevron’s Pembroke refinery in Wales, which Klesse said would supply Valero’s marketing network on the U.S. East Coast.

Valero’s 100,000 barrel per day (bpd) Three Rivers, Texas, refinery will continue to expand its use of Eagle Ford crude oil drawn from shale formations in south Texas.

The refinery will be running 40,000 bpd in Eagle Ford crude by May and with a $10 million investment in de-bottlenecking, will be running 60,000 bpd in 2012. (Reporting by Erwin Seba, Kristen Hays and Selam Gebrekidan; Editing by Marguerita Choy)

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