Valero Energy Corp. expects to begin shipping crude from Texas to its Quebec City refinery by ship this summer, as eastern refiners scramble to replace expensive imported oil with cheaper North American supply.
Valero – the largest independent refiner in North America – has received a one-year, renewable permit from the U.S. Commerce Department to export crude to Canada in order improve the competitiveness of its Quebec plant, which now relies on high-priced imported crude. U.S. law prohibits the export of crude oil without a special licence.
The San Antonio, Tex.-based company is also looking at enhancing its rail-handling capacity for the 230,000-barrel-per-day refinery that sits across the St. Lawrence River from the Quebec capital. And it is eagerly supporting Enbridge Inc.'s plan to reverse an existing pipeline to carry Western oil into Montreal and then barge it down river, as well as TransCanada Corp.'s proposal to convert a natural gas line to bring Western Canadian crude to the Montreal area.
"It's a different world now," Valero spokesman Bill Day said in an interview from the company's headquarters in San Antonio. "The infrastructure isn't really in place yet" to keep up with booming North American production.
The pipeline would be the most logical and efficient option to bring western oil to eastern Canada, he said. "There is nothing new about building pipelines, or even reversing pipelines. It's done all the time; it's a very safe and efficient way of moving liquids."
The Quebec government appears to be supportive of the pipeline proposals, which has been widely endorsed by politicians of all stripes, including ministers in the federal government, federal New Democratic Party Leader Thomas Mulcair, and New Brunswick Premier David Alward.
"I think the 'Canadian oil for Canada' message has resonated with the Quebec government as well," Mr. Day said.
Valero is just one of several oil companies looking to supply Eastern Canadian refineries with crude from Texas, which is facing a surge of production from tight, light plays like the Eagle Ford and the Permian. BP PLC and Royal Dutch Shell PLC have also received permits to move crude from the U.S. Gulf Coast to Eastern Canada.
In a recent presentation, Valero said it would cost only $2 (U.S.) a barrel to transport crude to Eastern Canada in internationally flagged carriers, while it costs more than $5 a barrel to ship crude from Texas to refineries on the U.S. East Coast. That's because of a U.S. law known as the Jones Act which requires all cargo moved between American ports to be carried on U.S.-flagged vessels.
For Valero's Quebec plant, the difference in shipping costs "represents a competitive advantage over U.S. refineries," Mr. Day said.
While refiners with access to lower-priced North American crude are enjoying fat profit margins, those in eastern North America are still struggling with high-cost imported crude and overabundance of processing capacity. Several plants have been shut down in the eastern U.S., Europe and the Caribbean, and Imperial Oil Ltd. has said it may have to close its 80,000-barrel-per-day refinery in Dartmouth, N.S., if it can't find a buyer.
Valero is also selling its retail network in Eastern Canada, which goes under the Ultramar brand, as part of a deal to spin off U.S. and Canadian gas stations into a separate, publicly traded company.