Drilling in the Eagle Ford shale isn’t just transforming the South Texas oil patch. The boom also is bringing change to the refinery that’s closest to the drilling: Valero’s Energy Corp.’s Three Rivers plant.
The Valero refinery began taking in Eagle Ford crude just late last year. Now the 100,000-barrel-a-day plant is processing about 35,000 barrels of Eagle Ford crude oil daily, a total that’s expected to rise to about 50,000 barrels a day by year’s end.
The boost in Eagle Ford drilling and changes at the Valero plant have prompted local officials to adopt and copyright a new slogan for the city: “Three Rivers — Heart of the Eagle Ford Shale.”
“We have a location advantage,” said Harry Wright Jr., vice president and general manager of Valero Three Rivers Refinery.
Using more locally produced crude oil will enable the Valero refinery to reduce costs and boost profit margins. The less expensive Eagle Ford crude will, as its use increases, replace more expensive foreign oil that arrives at Gulf Coast ports such as Corpus Christi and is then sent by pipeline to the refinery.
San Antonio-based Valero prepared for the arrival of more Eagle Ford crude in May, when it completed a facility for trucks to unload the oil on high ground just across the Frio River from the plant. A cost for the improvements wasn’t disclosed.
Valero tunneled 175 feet under the river to add a 12-inch pipeline to link the truck area to the plant. The crude is unloaded into storage tanks, measured and sent through the pipeline to the refinery.
The unloading area has five bays now, with two more to be added.
Valero CEO Bill Klesse told shareholders at the company’s annual meeting in the spring that the company is benefiting from a glut of light, sweet crude oils that have depressed the price of the benchmark West Texas Intermediate crude, which he said is “landlocked and oversupplied.”
That has created favorable conditions for Valero’s landlocked plants, including Three Rivers, he said.
As production of the Eagle Ford crude increases, that will displace imported oil at the plant. About half of the crude purchased for the Three Rivers plant arrives over the water from foreign sources, Wright said, including from such faraway locales as the Middle East, West Africa, Russia and the North Sea.
“Because domestic oil is cheaper than light, sweet foreign crude, that will enable the Three Rivers refinery to be more competitive” and should increase the plant’s profitability, said Andy Lipow, president of the energy consulting firm Lipow Oil Associates in Houston.
Valero has estimated that Eagle Ford shale production totaled about 100,000 barrels a day through May of this year, a total that will more than double to an estimated 220,000 barrels a day next year. By 2016, Valero expects Eagle Ford production will increase to 600,000 barrels a day.
The Three Rivers plant’s key products are gasoline and ultra-low-sulfur diesel and jet fuel. It also produces feedstock for the petrochemical industry, including benzene that’s used to make Styrofoam, Wright said.
Using more Eagle Ford crude won’t alter the product mix at the plant, Wright said, but the light, sweet crude requires less of a capital investment thant refining heavier crudes requires. Lighter crude’s lower sulfur content doesn’t require costly equipment to remove it, he said.
And the Eagle Ford shale oil also is beneficial because “it contains much less condensate that previously thought,” Wright said. Condensate is a gaseous liquid used to make liquid petroleum gas, such as propane and butane, which is usually less valuable than gasoline and diesel fuel.
“Refiners would rather have oil than condensate to produce more diesel and gasoline and less liquid petroleum gas,” Wright said.