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Tarnation: Environmentalists, landowners and Valero await decision on the Keystone XL pipeline

Photo: Photos by Tar Sands Blockade / LauraBorealis, License: N/A

Photos by Tar Sands Blockade / LauraBorealis

A protester is arrested outside Wells, Texas.

Photo: , License: N/A

Protester sits in the trees above the Keystone XL pipeline construction outside Wells, Texas.

The group continues to claim Valero's Houston refinery, which sits in a free trade zone that exempts it from import and export taxes, is positioned to handle diluted bitumen once it starts flowing from Canada to the Gulf Coast.

Not true, says Day. Valero says its Houston refinery is in the process of being retooled to handle even more light, sweet crude, particularly of the variety that's being pumped in record amounts across South Texas' Eagle Ford Shale region. In fact, at a January 8 presentation to investors, Valero announced plans to spend upwards of $280 million to build a crude oil "topper" at the refinery to help the company process more of the light crude.

As for the protesters, "They can speak for themselves, but I would call into question their refining experience," Day says.

The "crappy stuff"

Valero's Port Arthur refinery was first built in 1901, just months after the oil discovery at Spindletop, the East Texas gusher that sparked the modern U.S. oil revolution.

The San Antonio company bought it in a sweeping 2005 acquisition that made Valero America's largest oil refiner. Sprawled across 4,000 acres, Port Arthur is among the most advanced and important of Valero's 16 refineries, analysts say. Before Valero bought it, the refinery's owners had already invested $850 million building a coker and hydrocracker on site, equipment that processes heavy, so-called "sour" crude full of sulfur. Last month Valero finished installing another $1.5 billion unit designed to process even more of it, including tar sands crude, and turn it into diesel. Valero is completing similar upgrades at its Gulf Coast refinery in Norco, Louisiana.

Valero's business model relies on squeezing profit from cheap, low-grade sour crude, with sales increasingly focused on the export market. In a September 2011 presentation, Valero told investors how the newest upgrades at Port Arthur would let it "process over 150,00 barrels/day of high-acid, heavy sour Canadian crude." In the presentation, the company explicitly detailed an export strategy, drawing a wave of condemnation from Keystone XL critics — a crucial argument for the pipeline has been that Keystone XL will keep America's tanks full with cheap gasoline. Because Valero's Port Arthur refinery also sits in a free trade zone, the company could carry out that long-term strategy tax-free.

With crude supplies from Mexico, South America, and the Middle East dwindling, Valero spokesman Day says Canadian oil sands would fill the void. "We are simply asking to be able to take that Canadian crude to replace diminishing supplies of heavy crude from elsewhere," he says.

In 2009, when TransCanada took its case before Canadian regulators, the pipeline company identified six shippers, or customers, that had signed long-term contracts and would account for 76 percent of Keystone XL's initial capacity. Three of those identified customers, including Valero, have major refineries in Port Arthur.

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