In a presentation yesterday to investors, Valero Energy Corp. (NYSE: VLO) CEO Bill Klesse said that stagnant demand for refined products in the US would be replaced by foreign demand for gasoline and diesel exports:

There are significant changes that are going to occur over the next few years. Export markets are growing and they are a huge opportunity for the refining industry, not just Valero but for the entire industry.

This would be a good thing for Valero, especially, which owns eight refineries along the Gulf Coast, but may not be such good news for Tesoro Corp. (NYSE: TSO), Marathon Petroleum Corp. (NYSE: MPC), or HollyFrontier Corp. (NYSE: HFC), which own refineries that do not have ready access to seaborne transportation. We wrote about this last week.

In a report from the Toronto’s The Globe and Mail, Klesse also said that he expects the 1,700-mile Keystone XL pipeline from Alberta to the Gulf Coast to be approved in early 2013, regardless of who wins the presidency in the November elections. President Obama killed the pipeline, proposed by TransCanada Corp. (NYSE: TRP) late last year, but left the door open for a revised proposal, which TransCanada is readying for submission.

Klesse also expects imports of light, sweet crude to disappear completely from the Gulf Coast by 2014-2016 as the light, sweet crudes from the Bakken shale play in North Dakota and the Eagle Ford shale play in south Texas boost production. He expects the price of Louisiana Light Sweet (LLS) to fall from a current premium to WTI of around $18/barrel to a “structural premium” of about $2/barrel or less.

The Keystone XL pipeline, with its projected delivery of 800,000 barrels/day of heavy, sour crude from Canada, figures prominently in Valero’s plans to boost its profits. The higher volume of Canadian crude will widen the differential between Brent and other imported heavy, sour crudes by pushing prices down on imports.

For US drivers, this scenario does not mean that gasoline will be cheaper. It does mean that Valero will be able to capture bigger profits even as US demand for gasoline falls. The only thing that will push down pump prices is for Brent crude to fall significantly with respect to WTI. That is not part of either TransCanada’s or Valero’s plan.

Valero’s investor presentation is available here.

Paul Ausick

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