Valero Energy Corp. (VLO), the largest independent refiner and marketer of petroleum products in the U.S., is all set to meet the growing demand for distillate in 2012. The company expects worldwide distillate demand to boost approximately 2% and gasoline demand by 1% this year.
Two hydrocracking units of the company that are under construction at refineries in Texas and Louisiana are expected to expand Valero’s distillate output by 6% to 39% in 2013. The units will likely generate about 60% distillates and 30% gasoline and blendstocks.
With a daily refining capacity of 292,000 barrels, the Port Arthur, Texas refinery will include 60,000 barrels per day (BPD) of hydrocracker upon commencement by August. The hydrocracker at Valero’s 205,000 BPD St. Charles refinery in Norco, Louisiana is expected to start up in the first quarter of 2013. The company expects construction work to be completed by the fourth quarter of the current year.
The current global demand for distillates is about 26 million BPD (MMBPD) while gasoline demand is approximately 21 MMBPD. Valero believes that there is ample quantity of gasoline to furnish the markets and gasoline output will drop 7% to 42% of total production in 2013. The average distillate margin has been above $16 per barrel so far in 2012 as opposed to $6 per barrel for gasoline.
Among all the independent refiners, Valero offers the most diversified refinery base with a capacity of 3.0 MMBPD in its 16 refineries located throughout the U.S., Canada and the Caribbean. The company continues to progress on its numerous growth opportunities, including the new hydrocrackers at the Port Arthur, Texas and St. Charles, Louisiana plants. These projects will enable Valero to increase its diesel production and diversify its market exposure.
However, we maintain our long-term Neutral recommendation for Valero considering its exposure to the unfavorable macro backdrop for being the largest independent refiner in the country.
The company, which competes with another ace refiner––Tesoro Corporation (TSO), holds a Zacks #3 Rank, which translates to a short-term Hold rating.
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