Valero May Close Memphis Plant if State Law Passes

Posted on May 9, 2009. Filed under: Blender's Tax Credit, Field-to-Pump | Tags: , , , , , |

Valero may close Memphis plant if state law passes

By Janet McGurty

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.

Fedex (FDX.N: Quote, Profile, Research), the world’s largest airline, is located in Memphis.

“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)

 

 

About Renergie

Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita.  Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol.  Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program.  Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On  April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector.  On January 20, 2009, Florida Energy & Climate Commission amended RET Grant Agreement S0386 to increase Renergie’s funding from $1,500,483 to $2,500,000. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is renewable, more economical, cleaner, and more efficient than unleaded gasoline.  Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.

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One Response to “Valero May Close Memphis Plant if State Law Passes”

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“Federal law mandates each gallon of gasoline sold contains a percentage of renewable fuel such as ethanol.”

This is a lie. The federal RFS act, EISA 2007, defines renewable fuel as E85. There is no mention of E10 or any other ethanol blend but E85. EISA 2007 is not a mandatory E10 law or a mandatory ethanol law. The problem obtains from the fact that nobody wants the ridiculously inefficient flex-fuel vehicles. If car manufacturers would build engines that would run efficiently on E85 only and service station chains would take advantage of the incredible corporate welfare dished out in EISA 2007 for E85, nobody would be pumping E10.

The actual reality that Valero, nor any other refiner, will talk about is that when they make gasoline for E10, they get to manufacture “suboctane” blending product, thus reducing their costs. Valero makes 84 AKI regular gasoline blending product, called BOB, that when blended with 10% ethanol results in 87 AKI regular E10. Same for premium. If they had to supply clear product for blender pumps, they would have to supply 87 AKI regular gasoline so that if someone pumped unblended gasoline into their car by choice, which most people would do if they had a choice, they would get the proper “octane” gasoline. There is nothing in EISA 2007 that prohibits this.


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    Renergie created “field-to-pump," a unique strategy to locally produce and market advanced biofuel (“non-corn fuel ethanol”) via a network of small advanced biofuel manufacturing facilities. The purpose of “field-to-pump” is to maximize rural development and job creation while minimizing feedstock supply risk and the burden on local water supplies.

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