NATIONAL ENERGY BOARD CANADA
IN THE MATTER OF THE NATIONAL ENERGY BOARD ACT AND THE REGULATIONS MADE THEREUNDER;
AND IN THE MATTER OF AN APPLICATION BY ENBRIDGE PIPELINES INC. RE Line 9B Reversal an Line 9 Capacity Expansion Project (“Enbridge Application”)
AND IN THE MATTER OF HEARING ORDER 0H-002-2013 FILE OF-FAC-OIL-E101-2012-10 02
EVIDENCE
OF
VALERO ENERGY INC.
August 6, 2013
INTRODUCTION:
1. Valero Energy Inc. - previously Ultramar Ltd. - a corporation headquartered in Montreal, is a subsidiary of Valero Energy Corporation. It owns and operates the Jean Gaulin refinery at Lévis, near Quebec City, which currently has a refining capacity of 235,000 barrels of oil per day, as well as several logistics infrastructures, including the Montreal East oil terminal, the largest of its kind in Canada. Its Canadian operations also make it a leader in industrial and commercial sales of petroleum products, and one of the most important suppliers for resellers and independent distributors. Our company is one of the largest employers in Eastern Canada in terms of direct and indirect jobs it generates.
2. Since 1998, Valero has successfully carried out several investment projects at the Jean Gaulin refinery, aimed at increasing throughput and modernizing equipment. Since 2001, Valero has invested over $2 billion in Eastern Canada and over $1.5 billion at the Jean Gaulin Refinery.
3. In order to reduce feedstock costs, Valero modified the refinery, allowing it to process a wider range of crude oils. A large part of the investments was intended to reduce the benzene content of gasoline as well as the sulphur content of its main fuels: gasoline and diesel. In advance of government regulations, and out of ongoing concern for environmental protection, Valero adopted this strategic direction to achieve energy savings and improve performance and reduce GHG and air emissions.
4. In 1996, the company built facilities that allowed its finished products to be transported by unit train between the refinery and its Montreal East, Chatham and Maitland terminals. In 2012, Valero invested $390 MM to build a products pipeline between Lévis and Montreal replacing unit trains and marine, thus providing secure, safe and reliable low cost access to domestic refined product for the Montreal region and Ontario markets. Valero continues to use marine, road and rail as well as pipeline transportation. Tanker trucks provide the main means of transportation for the distribution of the most common products such as gasoline and distillate to customer locations. Rail tank cars are used for the transportation of certain specialty products and common products.
5. Valero currently sources its crude oil for feedstock for its refinery from various international sources, including Mediterranean, Black Sea, North Sea, West Africa and South America. Valero seeks greater flexibility in sourcing its supply and seeks access to less expensive and more efficient North American crude to use as feedstock for its refinery.
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6. Valero participated in the Enbridge Open Season in May of 2012, for capacity on a reversed Line 9 from North Westover, Ontario to Montreal, Quebec for delivery to its Lévis, Quebec refinery. Valero committed to a long term ship-or-pay Transportation Services Agreement for a 10-year term with one five-year renewal option.
7. Valero understands that Enbridge proposes that 275,000 bpd of the requested commitments be accommodated, while 25,000 bpd of space be made available for spot, or uncommitted volumes.
NEED FOR THE PROJECT:
8. The refining industry is highly competitive. Valero currently purchases its crude oil from international sources and from the Atlantic Basin. These sources are currently more expensive than Western Canadian sources of crude. Being able to take advantage of this differential in feedstock prices will have a direct impact on Valero’s ability to remain competitive.
9. While the refining industry faces substantial competition, it requires that expensive improvements continue to be made to operations as a direct result of the changing business environment. Evolving environmental regulation has led to tougher emissions standards, requiring that refineries make continuous emissions reductions as part of their processing capabilities. These improvements are extremely cost intensive, making it increasingly important that cost savings be recovered in other areas, including available sources of feedstock.
10. In order to maintain its competitiveness, Valero requires greater flexibility and increased access to less expensive feedstock, including from Western Canada.
IMPACT OF THE PROJECT ON VALERO’S OPERATIONS:
11. Valero has also committed to investing between $110 million and $200 million to overhaul its handling capacity at its Montreal-East terminal and at the Lévis refinery, including upgrading of piping and tankage and a partnership to acquire new crude- carrying ships, in order to increase access to North American crude. This project will create 200 construction jobs and 100 permanent new jobs to operate the state of the art ships to move the crude from Montreal to Lévis with our shipping partner, and ongoing positive impacts for all services like pilots and tug boats, etc. There will be additional benefits to the Port of Montreal.
12. Valero believes that this project will allow its Lévis refinery to remain competitive versus the Atlantic Basin refineries that rely on higher priced imports.
13. Valero aims to be a North American-supplied refinery within one to two years, with the hopes of avoiding high priced imports, if the Enbridge Line 9 Reversal Project is approved.
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14. Shipping via Enbridge Line 9, offers Valero a commercial advantage over other forms of transportation.
15. The reversal, together with the increased volumes, will result in a lower overall cost of production for Valero’s refinery if Enbridge’s Line 9 is approved. If the Enbridge Line 9 reversal is not approved, Valero will experience difficulty remaining competitive in the North American refinery industry. The petro-chemical industry will also suffer negative impacts if the Enbridge Line 9 reversal is not granted because of the role that Valero plays as a supplier of that industry. Valero has witnessed other refineries, such as the Shell Montreal refinery, close its doors due to the nature of this highly competitive industry.
16. For the foregoing reasons, Valero supports the Enbridge Line 9B reversal and capacity expansion proposal and urges the Board to approve the application.
17. In conjunction with Suncor Energy Marketing Inc., Valero has sponsored the evidence of IHS, which is filed in support of the Enbridge Application. Valero endorses that evidence.