Valero opposes lifting oil export ban while sending crude to Canada

WASHINGTON — As the House approaches a pivotal vote on crude exports Friday, lobbyists for Valero Energy Corp. and other refiners have been walking the halls of Congress, pushing lawmakers to oppose legislation that would liberalize oil trade.

San Antonio-based Valero supports the longstanding crude export ban, which helps sustain a discount on the domestic oil it transforms into gasoline, diesel and jet fuel in 13 refineries around the country.

But the company’s high-profile opposition to crude exports comes even as it actively exploits an existing exception to the ban by shipping U.S. oil to its refinery in Quebec. And last month, Valero told investors and analysts that given current market conditions, it prefers importing medium-grade crudes from foreign suppliers instead of buying lighter, sweeter U.S. oil.  

Energy companies eager to sell raw, unprocessed U.S. crude around the world point to Valero’s posture as evidence that the current trade restrictions are fundamentally unfair, giving refiners access to world markets to buy the oil they use and sell the gasoline they make, even though domestic producers don’t have the same latitude.

That fairness argument is at the heart of the congressional debate over oil exports and will be the backdrop for House votes Friday on the issue.

“Like all refiners, they have the ability to purchase crude oil from more than 34 countries in the world and sell their refined product to another 140 countries,” said George Baker, executive director of Producers for American Crude Oil Exports. “That’s the very same principle we’re looking for.”

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U.S. oil companies pushing for widespread exports, like the independent, non-integrated companies that make up Baker’s coalition, say the current trade policy effectively forces them to sell their crude to domestic buyers. The 40-year-old export ban blocks most foreign sales of U.S. oil with exceptions for shipments to Canada and some crude extracted in Alaska and California. It does not affect refined petroleum products, such as gasoline.

The legislation teed up for House votes on Friday, by Rep. Joe Barton, R-Ennis, would do away with those restrictions but allow the president to halt oil exports amid “unusual and extraordinary” national security threats or for foreign policy reasons. The chamber is slated to consider 10 amendments, including one designed to strip out a controversial, unrelated provision in the export bill that authorizes $500 million in additional payments to U.S.-flag ships willing to be used by the Defense Department in an emergency.

The measure was added in a bid to win over some Democrats supportive of the maritime sector and its unionized workforce. But two conservative groups were actively lobbying lawmakers to spike it Thursday, and opposition could prompt some Republicans to vote against the underlying export legislation if the maritime provision isn’t stripped out.

Read more: Oil exports bill ensnared in maritime fight

Valero supports the current trade regime, and has actively lobbied to keep the existing export restrictions in place.

As the world’s largest independent refiner, with 15 facilities around the globe capable of churning through 2.9 million barrels per day of crude, Valero’s position on the issue carries heavy weight on Capitol Hill. The company reports lobbying lawmakers against a wholesale lifting of the oil export ban and serves as a resource for politicians and Hill staffers who want to know how U.S. refineries are adapting to the flood of light, low-sulfur oil flowing out of many U.S. wells today.

The company is also a U.S. crude exporter, taking advantage of the Canadian exception — and a Commerce Department license — to ship oil from the Eagle Ford shale formation in Texas to its refinery in Quebec.

But Valero stresses those transactions are consistent with the current policy that allows limited exports.

“We went through that exact same (licensing) process everyone else can go through,” said spokesman Bill Day. “Do we need unlimited crude exports when you have a process in place to export crude?”

Day said the company approaches the issue pragmatically, not ideologically. The current policy “is working,” Day said, “so why change it?”

Valero is trying to boost the amount of U.S. crude it can handle and is building new topping facilities in Corpus Christi and Houston that together will add 160,000 barrels per day of light oil processing capacity.

But recently, the company has been looking to run heavier, foreign grades of crude through its refineries. Executive Vice President Lane Riggs told investors and analysts in September that Valero is running more foreign-sourced medium sour crude and less domestic oil largely because the foreign varieties “can compete pretty easily” with the domestic supplies.

“There’s been times during the year we wanted to maximize domestic crude oil, but about half the time this year, we’ve been importing,” Riggs said.

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“We’re set up with the flexibility to buy whatever is the best deal out there,” Day said. “We don’t buy one different crude — we buy about 100 different grades of crude oil — and at that time, it was economically advantageous to buy the medium grades of crude.”

“We buy whatever is the best and is available and the most attractively priced,” he added.

Some domestic oil producers clearly envy Valero’s market freedom, as the amount of U.S. crude in storage — now 461 million barrels — stays at eight-decade highs.

“They are taking advantage of the very flooded, glutted market that they are creating to drive the price down, and ship it north and refine it there,” PACE’s Baker said. “That’s what they’re doing, and yet on the other hand, they are saying on the Hill that it’s a terrible thing that U.S. crude oil producers producers should be allowed to do the same thing.”

Valero is far from alone in its opposition to oil exports. Alon USA, Monroe Energy, PBF Energy and Philadelphia Energy Solutions have formed a coalition to combat the proposed trade policy change, arguing that exporting crude will harm refiners as well as consumers by boosting domestic oil prices so they come close to that of often-higher-cost international benchmarks.

By contrast, San Antonio-based Tesoro Corp. says it supports free trade and does not oppose oil exports, even though it would like to see Congress address other policies on biofuels and maritime shipping at the same time.