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Valero, EnCana Decide Against Ohio Refinery Venture

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    Dec. 15 (Bloomberg) — Valero Energy Corp., the largest U.S. refiner, and EnCana Corp. scrapped a plan for EnCana to supply heavy crude oil from western Canada to Valero’s Lima, Ohio, refinery because the cost was too high.
    The estimated expense to make the refinery capable of processing heavy crude was $2 billion, which “just did not allow for returns” on a par with the company’s other projects, Bill Klesse, Chief Operating Officer for San Antonio-based Valero, said in a statement today.
    Calgary-based EnCana plans to increase heavy-crude production from Alberta’s tar sands over the next decade and is seeking joint ventures and partnerships to help it expand. More than 20 companies have expressed interest in helping EnCana develop the properties and will be short-listed in early 2006, EnCana said in a separate statement today.
    “We have a variety of other potential options that we are pursuing,” EnCana spokesman Al Boras said in a phone interview, without providing additional details. “We’re going to see what comes forward from other players in the industry.”
    The oil sands hold the largest crude deposit outside the Middle East, according to the Canadian Association of Petroleum Producers. EnCana has previously said its goal is to produce 500,000 barrels a day from its oil-sands properties by 2015, up from about 42,000 barrels currently. Valero’s decision has not affected that goal, Boras said.
    One Piece of Initiative
    “Does it have any impact on our overarching timing for our ultimate goal of the decade?” Boras said. “Not particularly, because this would have been one piece in the overall group of initiatives that we need to do in order to expand our bitumen production.”
    Shares of EnCana fell C$1.32, or 2.3 percent, to C$56.54 on the Toronto Stock Exchange, declining with other oil and gas companies. Valero shares dropped $2.82, or 2.6 percent, to $106.88 in New York Stock Exchange composite trading.
    Alberta’s oil sands hold an estimated 175 billion barrels of recoverable oil, second only to Saudi Arabia, according to the Canadian Association of Petroleum Producers. Daily output from the sands is forecast to rise to 2.7 million barrels a day by 2015 from 1 million today, the association said.
    Valero has spent more than $1 billion in recent years to upgrade refineries for processing of heavy or high-sulfur “sour” oil, which is cheaper than low-sulfur “sweet” grades, such as West Texas Intermediate, the U.S. benchmark. Twelve of Valero’s 16 U.S. refineries process heavy or sour crude.
    The Lima plant, one of four refineries Valero acquired as part of its $10.8 billion purchase of Premcor Inc., processes sweet and light sour crude, according to Valero’s Web site.
    Valero still plans to invest more than $400 million to expand and upgrade the plant in the next five years, Klesse said in the statement. The refinery has capacity to process 170,000 barrels of oil a day.

    To contact the reporter responsible for this story:
    Bruce Blythe in Chicago at

  • #7693


    This is update on the Valero & EnCana deal to supply heavy crude to Valero’s Lima refinery – it failed because the $2Billion price tag was too high for VLO. 
    But EnCana still plans to increase its Hvy crude production to 500,000 BPD by 2015. And Valero still plans to spend $400MM to upgrade Lima Refinery to  increase heavy processing from 10% to more than +40% of its crude slate – something its current 22.5 MBD coker cannot do without major expansion. 
    So only the supplier of crude,  perhaps the percent of heavy bitumen crude (Premcor & EnCana feasibilty study were looking at up to 100% Canadian crude), and the timing will likely change …… but the coker must go in at any rate if the refinery is to survive.
    Charlie Randall

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