Valero’s Logistics Growth in Focus: New Pipelines and Terminals



Valero announces new pipelines and terminal construction

Valero Energy (VLO) has announced the construction of new pipelines and terminals in the US Gulf Coast. Valero has signed an agreement with a subsidiary of Magellan Midstream Partners (MMP) to construct a refined product pipeline in Texas, which is a significant step toward growing its Logistics segment’s portfolio.

Valero Energy and Magellan Midstream Partners plan to jointly develop a 16-inch, 135-mile pipeline from Houston to Hearne in Texas. Valero also plans to build a terminal in Hearne and another terminal in Williamson County. Also, Valero plans to build a 12-inch, 70-mile pipeline connecting these two terminals. These projects are expected to strengthen VLO’s pipeline network and increase its terminal capacity.

In 1H17, Valero had 1.0 million bpd (or barrels per day) of pipeline throughput and 2.8 million bpd of terminal throughput capacity. The projects are expected to cost Valero around $380 million. They are anticipated to be completed by mid-2019.

The completion of the projects would provide stable refined products supply to the central Texas region, which is witnessing growing demand for these products. The projects would facilitate the supply of ~60,000 bpd of refined products into Williamson County.

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Valero’s Logistics segment

Logistics is a focus area for Valero as it plans to expand Valero Energy Partners (VLP), its logistics master limited partnership, with dropdowns. The chart above gives you an overall view of Valero’s logistics assets that could be potential dropdown candidates.

In the previous part, we reviewed the formation of a joint venture between Valero and MMP for the development of a marine facility in Pasadena. This was with the aim of solidifying its logistics position in the region. 

Valero is also involved in other pipeline projects like the Diamond Pipeline project in the US. This crude oil pipeline is aimed at improving Valero’s supply flexibility. The company plans to spend growth capex of ~$1.0 billion per year, equally distributed between its Logistics and Refining segments until 2021. We’ll look into VLO’s capex in detail later in the series.

In the next part, we’ll look at VLO’s refining margin in 2Q17. Then, we’ill review the segment-wise outlook for the company’s upcoming quarterly earnings.


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