Lower oil prices helping Valero run refineries at near full capacity to meet rising consumer demand
Global oil giant Royal Dutch Shell’s recently announced cutbacks of 6,500 jobs and $7 billion in investment sent already shaken petroleum-dependent areas shuddering in the U.S. and world, but the news is actually good for at least one of them – St. Charles Parish.
The same lower petroleum prices that oil producer Shell is restructuring to withstand fiscally, for at least another two years, are the same prices that Valero Energy Corp. says is keeping its refineries at 96 percent capacity with expansions planned in Texas.
Lower prices paired with higher consumer demand makes it a profitable time for the San Antonio, Texas-based oil refinery company.
Additionally, Shell’s cutbacks won’t affect the Shell Chemical facility in the Norco Manufacturing Complex, said Rochelle Touchard, external relations manager.
However, Corey Faucheux, director of the parish’s Department of Economic Development & Tourism, said while he was happy to learn there wouldn’t be cuts locally, that this was “a sign of the uncertainty in the energy sector right now.”
Calling it a “global reduction,” Shell spokesman Ray Fisher said the 6,500 job cuts were already in motion before changes were announced on July 29.
“We are restructuring in some areas and have implemented performance units across the company,” Fisher said. “The outcome is a global staff reduction of 6,500, including head count and contractors. In most cases, affected individuals have already been informed, and internal and external announcements already made.”
As an example, the 750 job reductions announced over the past few months at Shell’s United Kingdom and Norway North Sea operations are part of the 6,500 total, he said. The job cuts come from the company’s global workforce, with about 2,500 coming from divestments. Direct contractor reductions count for another 2,400.
“The remainder of the reductions comes from Shell’s businesses around the world, mainly as a result of ongoing cost and efficiency drives,” Fisher said.
Shell is fortifying the company to withstand what it has described as a “prolonged downturn” in the oil industry that could last several years.
The world’s biggest oil producers – Shell, BP and Chevron – are bearing down to deal with a 50 percent drop in crude prices in the past year. All three have announced job cuts, deferred projects and sold assets.
Shell plans to reduce operating costs by $4 billion this year, before making further cuts in 2016. The Hague-based company employs about 94,000 people in more than 70 countries and territories, according to its website.
For Valero, however, it’s a good time to be in the refinery business.
“We’re in a different position than Shell,” said Bill Day, Valero’s vice president of communications. “Valero doesn’t drill or explore for oil. We’re more on the downstream, buying oil to turn into products, so the lower prices in oil are good for Valero.”
Valero, which has capacity to refine up to 2.9 million barrels of oil a day, is running its refineries at 96 percent capacity, Day said. Increased production paired with increasing consumer demand for lesser costing petroleum products boosted second-quarter earnings and kept secure more than 604 jobs at its Norco refinery and Diamond Green Diesel plant.
While oil producers are shelving expansions, Valero is moving ahead with investing millions of dollars in new refineries in Corpus Christi, Texas, (adding 70,000 barrel capacity per day) and Houston (adding 90,000 barrel capacity per day, which Day said would help the company take further take advantage of higher domestic oil production and lower prices.
“In this country, we haven’t seen a returned demand for gas like in 2004 or 2006, but we’re certainly better than in the downturn from the 2008 financial crisis,” Day said. “Current market conditions will likely continue through the next quarter or two.”
Day said the impact of lower costing petroleum products is stronger consumer buying. Even lower costing jet fuel, which the company makes, has bolstered the economy by cutting air fares and boosting travel.
Valero’s proposed $700 million methanol expansion, announced in July of 2013, is still in play, although the company is evaluating the project further, Day said. It is looking for a partner to do the project as a joint venture, a similar move it took with the Diamond Green Diesel plant by partnering with Darling Ingredients Inc. when it built its 10,000-barrel-per-day renewable diesel refinery near the Valero St. Charles Refinery.
“We’re evaluating new projects and will know more by end of the year on which ones to move forward with, but right now we’re seeing an increased demand for refined products,” Day said, adding, they’re planning on lower oil prices to continue boosting earnings into the third quarter. Of the methanol plant expansion, Day said, “It’s not on hold at all. It’s part of the process we go through.”
On July 29, the company announced it would hold its decision about the venture until late in the fourth quarter. If Valero proceeds with the Methanol expansion, it would add 20 permanent jobs to the parish’s workforce.
Overall, Day said, “This is a good time to be in the refinery business.”
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