Valero Denies Double E Commitments

Valero Energy Corp. (VLO - Analyst Report) has denied any commitment to ship oil on the Double E pipeline from Cushing, Oklahoma to Houston. The company asserted that it is still supporting the rival Keystone XL project, which is a TransCanada Corp. (TRP - Snapshot Report) undertaking, and remains committed to receiving shipments of Canadian oil via the Keystone XL pipeline extension.

Double E is a 450,000 barrels per day oil link initiated by Enterprise Products Partners (EPD - Analyst Report) and Energy Transfer Equity (ETE - Snapshot Report). The construction of the pipeline is expected to be completed by the end of 2012 and operations are projected to commence before 2013. The line would help clear the excess oil supply in the Midwest.

Due to a shortage of southbound pipelines from Cushing to the Gulf Coast, there has been enormous price distortion in oil markets globally. The pipeline would be a remedy to this problem. Since Valero has huge refining interests in the GulfCoast, its influence could expedite the project.

Keystone XL plans to bring in crude from Canada and then ship it to the Gulf Coast. Because of several setbacks and conflicts from environmental groups wary of Canadian crude due to its higher carbon emissions, Keystone XL is pending approval from the U.S. State Department.

On the other hand, Double E requires other approvals, including one from the U.S. Environmental Protection Agency, but is exempt from the State Department's nod. Valero with its vast refining capacity would benefit from crude on both planned lines if they are built.

Valero has a Zacks #1 Rank, which translates into a Strong Buy rating for a period of one to three months. We rate the stock Outperform for the longer term.

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