Tuesday, June 5, 2012

Valero: US refiners set to export to West Africa

By Ben Lefebvre

HOUSTON -(MarketWatch)- U.S. refiners will soon expand their growing fuel export business to include gasoline sales to West Africa, Valero Energy Corp.'s /quotes/zigman/186158/quotes/nls/vlo VLO -1.50% Chief Executive Bill Klesse said Thursday.

U.S. refiners have been able to process the discounted oil and natural gas available from the U.S. energy boom into fuels priced below those made by foreign competitors. The domestic energy boom has helped revive businesses in an industry that had been living on razor-thin margins for years.

Even as domestic fuel demand remains flat because of higher vehicle fuel efficiency and a lagging economy, demand has grown for U.S gasoline in Latin America and diesel in Europe. The U.S. will soon be able to export gasoline to West Africa, Klesse said.

"You will see gasoline move to West Africa from the Gulf Coast," Klesse told an audience at the UBS Global Oil and Gas Conference. "That's something we haven't seen before."

Valero, the largest independent refiner in the U.S., will increase its diesel production to about 40% of total fuel output to take advantage of foreign demand, Klesse said.

"We continue to see distillates exported into the marketplace, and the world is paying up," Klesse said.

U.S. fuel net exports averaged 840,00 barrels a day for the first three weeks of May, according to the U.S. Energy Information Administration. That compares to net imports of 464,000 barrels a day during the same time last year.

Increasing U.S. production of light, sweet crude oil in south Texas and North Dakota has pushed down raw material costs for refiners. Domestic oil production will eliminate the need for imports of light, sweet crude into the U.S. Gulf Coast by the beginning of 2014, Klesse said. That's a year earlier than most analysts have forecast.

"The oil is coming, and it's coming significantly," Klesse said.

U.S. refiners are also benefiting from low prices of natural gas, which they use to make fuel blendstocks. Natural gas prices have sunk to a decade-low as the boom in production has created a massive supply surplus.

The low price in natural gas has helped the U.S. refining industry defend itself even as mega-refineries topping 1 million barrels a day of production are built in Asia. Although Reliance Industries Ltd. in India and other mega-refineries have a huge advantage in production scale, they pay much higher prices for natural gas and oil than their U.S. competitors, Klesse said.

"Everyone was concerned that Reliance was going to swamp us," Klesse said. "That hasn't happened. The competitive advantage of natural gas is absolutely huge."

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