Valero Looking at Rail, Barges to Ship Canadian Crude to Gulf

Valero Energy Corp. is considering using barges and rail to move Canadian oil to the Gulf Coast as the government weighs approval of the Keystone XL pipeline, the most economic option, Valero President Joe Gorder said.

Valero could increase the amount of Canadian crude it moves by barge to its St. Charles refinery in Louisiana from Hartford, Illinois, a delivery point on an existing TransCanada Corp. line, Gorder said. Valero also owns heated rail cars and could use them to send Canadian bitumen to Louisiana and Texas.

Crude production in Canada is outpacing takeaway capacity, creating a glut in Alberta that depressed prices to a record low last month against Mexico’s Maya crude, the heavy oil benchmark used on the Gulf Coast. TransCanada’s Keystone XL construction requires State Department authorization because it would cross the U.S.-Canada border.

“We are bringing some heavy sour Canadian crudes into Port Arthur,” Texas, where Valero has a refinery, Gorder said. “We want heavy sour crude in the Gulf Coast. Keystone pipeline is the most economical way for us to do that. We’re still fully supportive of the pipeline and we want to see it happen. Second to that, then you look at other alternatives to get heavy sours out.”

Valero, the world’s largest independent refiner by processing capacity, is trying to bring in Canadian crude as fields mature and production declines in places like Mexico and Venezuela, which have traditionally supplied the heavy, sour oil for which Valero’s Gulf Coast refineries are configured. Heavy refers to the oil’s density and sour to its sulfur content.

Awaiting Approval

TransCanada broke its $7.6 billion Keystone XL pipeline into two projects after President Barack Obama rejected a permit application last year over environmental concerns in Nebraska. The Calgary-based company anticipates completing a segment of the pipeline that will run from Oklahoma to Texas refineries by the end of 2013, Chief Executive Officer Russ Girling said at a conference last week.

The company is awaiting approval from the State Department for the other segment of the pipeline which would run from Alberta to Steele City, Nebraska, and connect to a system TransCanada is already operating.

Valero doesn’t have any special insight into Keystone XL’s chances for approval, Chief Executive Officer Bill Klesse said.

“I think it’s just ridiculous,” Klesse said on the call. “There’s pipelines everywhere. There’s a pipeline in front of your home. Out in the streets. Canada’s an ally, and the refineries on the U.S. Gulf Coast need the Canadian oil.”

Western Canadian Select oil in Alberta was priced at a record $46.54-a-barrel discount to Maya crude on Dec. 14, according to to data compiled by Bloomberg. It was at $38.07 at 2:06 p.m. New York time today.

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