* 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 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,"
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
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
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.