Valero points to difficulties in US energy sector

The US energy sector has endured the recession better than most. That is because energy companies had stockpiled tremendous returns during the economic boom that yielded record oil and natural gas prices last year.

Yet the pain is being felt by a growing number of companies.

That was why, analysts say, Baker Hughes, the oilfield services provider, said it would buy oil pumping company BJ Services for $5.5bn in cash and stock at the end of August. It also is why a growing number of US independents are selling access to some of their natural gas assets to foreign energy companies.

Now refiners can be added to the list of the suffering. Valero, the US’ biggest refiner, said it is shutting down the coker and gasifier complex at the Delaware City refinery. The coker will be idle at lease until the outlook for coking economics improves. And the closure of the gasifier complex is for an indefinite period. It also said the plant-wide shutdown of the Valero Aruba refinery is now expected to be for an extended period. The shutdown of a coker and a fluid catalytic cracking unit at the Corpus Christi refinery continues. And cokers at certain other refiners will run at reduced rates until coking margins improve.

These efforts will cost about 950 people their jobs. But Bill Klesse, Valero’s chief executive, explains that the economic downturn is taking its toll:

These moves, while difficult, are necessary to improve the profitability of Valero’s refining system. Shutting down the coker and the gasifier complex at Delaware City will reduce costs, improve reliability, and allow the refinery to run a lighter crude slate and shift production to higher-margin products.  The decision for Aruba will lead to a substantial reduction in the refinery’s operating expenses.  We’re taking the correct steps to navigate through these tough conditions and to position our assets for economic recovery.

As the world talks about the smell of a recovery in the air, those who live in and around these refineries might think otherwise. Certainly, the air smells cleaner. And in an oil state like Texas, the smell of money is not clean. Indeed, clean air means no production. All this makes us wonder if this could be a signal that a double dip downturn is in order. Isn’t energy a leading indicator

Related links:

US refiners to be hit hard by energy bill (FT Energy Source, 25/08/09)

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