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The oil tanker Seaqueen at the Valero Energy Corp. refinery at the Port of Corpus Christi, Tex.

Eddie Seal/Eddie Seal/Bloomberg

New supplies of crude oil from Canada and the American mid-continent will allow Gulf Coast refineries to expand exports of gasoline and diesel as North America dramatically reduces its dependence on offshore oil.

That's the prediction of Bill Klesse, chief executive officer of Valero Energy Corp., North America's largest independent refiner and a key customer for TransCanada Corp.'s controversial Keystone XL pipeline.

In a presentation to investors Tuesday, Mr. Klesse said he fully expects TransCanada's cross-border pipeline to be approved early in 2013, regardless of the outcome of the U.S. election in November. Keystone would deliver 800,000 barrels per day of oil sands bitumen to the Gulf Coast.

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"We expect the Canadian crude oil is going to get to the Gulf Coast," he said. "It is probably going to get there on [President Barack]Obama's timeline of first-quarter-2013 approval."

When that happens, Keystone XL combined with other new conduits – such as a plan by Enbridge Inc. and Enterprise Products Partners to reverse direction of the under-utilized Seaway pipeline from Cushing, Okla. – will displace virtually all imports of light, sweet crude to the Gulf Coast region, which now run at one million barrels per day. As well, Valero and other Gulf Coast refiners will be able to overcome stagnant U.S. gasoline demand by increasing international sales, particularly of diesel, which is preferred in Europe and Latin America, Mr. Klesse said.

"There are significant changes that are going to occur over the next few years," Mr. Klesse said. "Export markets are growing and they are a huge opportunity for the refining industry, not just Valero but for the entire industry."

Canadian crude producers have been eager to extend their pipeline network beyond the landlocked mid-continent to the Gulf Coast in the belief they can supplant heavy crudes now being imported from Venezuela and Mexico. Several other pipeline companies are pursuing projects to feed the Coast with growing production from Canada, as well as from the so-called tight, light oil plays like the Bakken in North Dakota and eagle Ford in western Texas.

But U.S. domestic petroleum demand peaked in 2005 and is not expected to return to that level in the next decade. That's one reason the Canadian industry and the federal and Alberta governments have been so keen to diversify Canada's energy exports to Asia by way of pipeline to British Columbia's west coast.

The U.S. became a net exporter of refined products last year. For the week ending Feb. 24, it exported 3.1 million barrels of gasoline and diesel – mainly from the Gulf Coast – and imported 1.7 million barrels, much of that into the U.S. Northeast, according to the U.S. Energy Information Administration.

Latin America has been a rapidly growing source of demand, but exports have also increased to Canada and Europe.

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Mr. Klesse said the Gulf Coast refineries are internationally competitive due to an abundance of crude supply, low natural gas prices and massive investments in new technology. At the same time, the shutdown of some foreign plants has created an export opportunity for American refiners.

U.S. producers are forbidden by law from exporting crude, other than from Alaska. Mr. Klesse said growing U.S. and Canadian production will eliminate imports of light crude from Africa and the Middle East, though refiners will still import low-cost, heavier grades to take advantage of price differentials.

Eager to take advantage of the Gulf Coast refining demand, TransCanada recently announced it intends to begin construction of the southern leg of the Keystone XL line, which will carry crude to Texas from Cushing, currently the terminus of pipelines from Canada. The company said it intends to refile an application to construct the entire pipeline as it works with the state of Nebraska to reroute it around the environmentally sensitive Sand Hills region.

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