Valero May Close Memphis Plant if State Law Passes
Valero may close Memphis plant if state law passes
May 8, 2009
NEW YORK (Reuters) – The future of Tennessee’s only oil refinery is in jeopardy if a law passes the state’s general assembly on May 13 that would require it to supply unblended gasoline to fuel wholesalers.
Valero Energy Corp (VLO.N: Quote, Profile, Research), which owns and operates the 195,000-barrel per day refinery in Memphis, has said the cost of complying with the bill does not make sense in the poor refining economics environment.
“Passage of the bill would result in Valero being forced to seriously consider closing the Memphis refinery with an immediate loss of employment for over 500 Tennesseans,” said Rich Marcogliese, Valero’s executive Vice President, in a May 4 letter to Tennessee Governor Phil Bredesen.
Valero, which has contracts to supply already blended gasoline, estimates it would cost between $130 million and $150 million to duplicate the storage tanks, piping, pumps, wiring, and modify the truck rack to provide facilities for unblended fuel as House Bill 1517 is requiring.
The bill, which has already passed the Senate as Bill 1931, will be voted on in the general assembly subcommittee on May 13.
Federal law mandates each gallon of gasoline sold contains a percentage of renewable fuel such as ethanol. It gives the tax credit to the blender, which in Tennessee is now Valero but, if the law passes, will be whoever blends the fuel.
Adding in the loss of tax credits, Valero estimates it will cost 5 cents per gallon — in an weak demand economy where refiners are shuttering or cutting back on runs.
“The impact on refining is real — there is weekly speculation among industry analysts as to which refineries maybe closing because of weak demand coupled with geographic or regulatory disadvantages,” Marcogliese wrote.
The Memphis refinery, which Valero bought with other refineries from independent refiner Premcor back in 2005, distributes products to the Midwestern markets primarily via truck-loading racks at three product terminals, barges, and a pipeline directly to the Memphis airport.
“We have alternate arrangements and don’t believe it will have an impact on Fedex,” said Jim McCloskey, a spokesman for the airline.
He would not speculate on the cost of the alternate arrangements.
In 2006, Valero had conducted an strategic review of its assets and put Memphis on the sales block before taking it off as the refining business and prices for refinery assets began to decline.
The Tennessee Fuel and Convenience Association, which represents fuel wholesalers and convenience store operators, said there is no support for Valero’s contention.
“The facts do not support Valero’s claims that the legislation would require expensive new equipment or that the company has been hard hit by the recession,” said Jonathan Edwards, president of TFCA and president of Edwards Oil Company, which is headquartered in Lawrenceburg, Tennessee.
Edwards says there’s no evidence to support Valero’s claim that it would cost between $130 and $150 million to buy new equipment to store unblended ethanol. According to legislative testimony from Valero representatives, the company spent $7 million to install ethanol storage tanks and blending equipment, the TCFA said.
Tennessee’s legislators Jamie Woodson, who sponsored the bill in the state’s senate and Charles Curtis, who is the house sponsor were not immediately available for comment. (Reporting by Janet McGurty; Editing by Marguerita Choy)
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