Valero to Expand Houston Refinery

The world's largest independent refiner, Valero Energy Corporation ( VLO - Analyst Report ) has proposed a $220 million to $280 million project for the expansion of its Houston refinery. The company also intends to purchase 2,000 railcars to compensate for a shortage of pipelines carrying the region’s swiftly rising crude supply.

The company is expected to construct a crude oil topper or specialized skimming device, which will enable to process more Eagle Ford crude as well as increase the shipment of crude oil to inland U.S. locations. The project will help the 90,000 barrels-per-day (bpd) refinery in Houston to boost its gasoline and diesel yield. The refinery will be connected by the railcars.

The topper, scheduled for completion in the beginning of 2015, splits crude into parts that are transformed into various fuels. The plan will assist the company in processing additional and even lighter crude from the Eagle Ford shale play.

Currently, Valero manages around 140,000 bpd of Eagle Ford crude in a number of refineries, among which Corpus Christi and Three Rivers manage around 205,000 bpd and 95,000 bpd, respectively.

Around 40,000 bpd of the North Dakota Bakken crude is processed at its 180,000 bpd refinery in Memphis, Tennessee. The crude from the Memphis refinery is carried to the oil hub of St. James, Louisiana by rail. It is again transferred back north via Royal Dutch Shell Plc’s ( RDS.A - Analyst Report ) Capline pipeline system.

Valero’s purchase of railcars will take the company’s fleet to 9,000. The lack of pipeline in many areas has driven the refiners and pipeline companies to increase railcar orders. Last year, Phillips 66 ( PSX - Snapshot Report ) had also planned to buy 2,000 railcars to enhance access to inland crudes.

Recently, Valero along with private, Houston-based industrial developer – TGS Development – started on a new project involving the construction of a new marine terminal near Port Arthur. Texas-based Total SA’s ( TOT - Analyst Report ) 225,000 bpd plant and Motiva Enterprises’ 600,000 bpd plant are some of the other refineries in Port Arthur.

Valero holds a Zacks Rank #2, which is equivalent to a Buy rating for a period of one to three months.