July 31, 2012 / 3:00 PM / 7 years ago

UPDATE 4-Valero's Gulf Coast hydrocracker projects delayed

By Selam Gebrekidan

NEW YORK, July 31 (Reuters) - Two hydrocracker projects at Valero Energy’s Texas and Louisiana refineries have been slightly delayed but are on track for completion over the next year, the company said on Tuesday.

The San Antonio-based refiner said it would bring the hydrocracker project at its 290,000-barrels-per-day plant in Port Arthur, Texas to full rates in the fourth quarter after completing mechanical work in the third quarter.

Similar work at its 205,000-bpd St. Charles plant in Norco, Louisiana will be completed at the end of this year and the hydrocracker will reach full operation in the second quarter of 2013, Valero said.

“We have slipped a month or two on both projects,” Valero Chairman and Chief Executive Bill Klesse said on an earnings conference call.

“To be honest, some of my people will say that this is my schedule, not theirs,” he added, referring to the planned second-quarter restart of the St. Charles hydrocracker.

The two projects are designed to raise diesel production at the refineries, thereby increasing gross margins via exports. Valero said distillates will account for 39 percent to 40 percent of yield throughout its refineries once the projects are completed, compared with 33 percent to 34 percent at present.

Klesse added he foresees a competitive market for U.S. distillate exports even with the addition of new hydrocrackers at other Atlantic Basin refineries in the next 12 months.

“The U.S.-produced stuff is going to be ... very competitive. Whether we can squeeze it into the market; We think we will be able to,” he said.

“I wish I had the hydrocrackers today,” he added.

Valero reported $1.4 billion operating income in the second quarter, up from $1.3 billion a year earlier, due to higher margins at its Midwest, West Coast and East Coast refineries and an extra 342,000-bpd throughput following its acquisition of the Pembroke plant in Wales and Meraux in Louisiana.

Refinery margins in the Gulf Coast were weaker, partially offsetting income gains, it stated.

REFINERY TURNAROUND, RESTART

Valero also plans to bring back its fire-hit 125,000-bpd Meraux, Louisiana refinery to full operation at the end of August, although some units will be restarted as early as next week, it said.

It had shut all units at the refinery, which it acquired in October last year, following a fire in late July.

Maintenance costs are expected to reach as high as $10 million at Meraux, Klesse said.

The company is undertaking a project to enable more distillate production at the plant and plans to integrate gasoline production with the nearby St. Charles refinery.

The gasoline-making unit at the 132,000-bpd refinery in Benicia, California will be back in service in mid-August, in an email. The company had shut the unit last week after a compressor malfunction.

In the second quarter, Valero completed major turnaround projects at the St. Charles and the 156,000-bpd McKee refinery in Sunray, Texas.

In September, Valero will bring a gasoline-making fluid catalytic cracking unit off line at the 88,000-bpd plant in Houston for planned work that will last eight weeks. Eight-week maintenance work will follow on a crude unit at the Pembroke refinery in October.

More maintenance work is planned for Texas refineries in first quarter 2013 —the 225,000 bpd refinery in Texas City and the 200,000 bpd plant in Corpus Christi. Valero also plans work at its Quebec City, Quebec refinery in Canada in the first quarter.

The refiner is ramping up its domestic shale crude intake and ran more Eagle Ford and Bakken oil at its Gulf Coast and Midwest refineries in the second quarter.

The 93,000-bpd refinery in Three Forks and its 200,000-bpd plant at Corpus Christi, both of which are close to the Eagle Ford shale in south Texas, ran some 140,000 bpd of crude from the shale prospect.

The 180,000-bpd Memphis plant in Tennessee ran most of the 130,000-bpd Bakken crude Valero processed throughout its system. It received Bakken crude shipments from the St. James, Louisiana terminal, aboard the Capline pipeline.

ETHANOL BUSINESS TAKES A HIT

Valero reported a 92 percent drop in its ethanol production margins from a year earlier, as high inventories in the industry weighed on margins.

The ethanol segment of its business logged operating income of $5 million in the quarter.

The company significantly reduced ethanol production rates in July due to negative margins, rising corn prices, and high inventory levels, it said.

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