3. Gary Simmons
Vice President
Planning and Economics
2
4. Crude Oil Characteristics
Crude oils are classified and priced by density and sulfur
content
Crude oil density is commonly measured by API gravity
• API gravity provides a relative measure of crude oil density
• The higher the API number, the lighter the crude oil
Light crude oils are easier to process
Heavy crude oils are more difficult to process
Sulfur content is measured as a percentage
• Less than 0.7% sulfur content = sweet
• Greater than 0.7% sulfur content = sour
• High sulfur crude oils require additional processing to meet regulatory
specs
Acid content is measured by Total Acid Number (TAN)
• Acidic crude oils are highly corrosive to refinery equipment
• High acid crude oils are those with TAN greater than 0.7
3
5. Crude Oil Basics
Crude Oil Quality by Types Estimated Quality of Reserves (2007)
4.0%
SOUR
Cold Lake
Cerro Negro
3.5%
Maya
WCS
3.0%
Sweet
M-100 (resid) Arab Heavy
SULFUR CONTENT
High Acid
2.5% Arab Medium 19%
(Sweet)
Light/Medium
Dubai 1%
Napo
2.0% Mars
Sour
Arab Light
Iran Heavy
2010 14%
Ameriven-Hamaca
1.5% 66%
2000 Heavy
Urals
1990
Sour
Alaskan North Slope
1.0%
1980
SWEET
0.5% WTI
Brent
Tapis
Bonny Light
Cabinda
0.0%
15 20 25 30 35 40 45 50
Source: DOE, Oil & Gas Journal, Company Information
HEAVY API GRAVITY LIGHT
Source: Industry reports
NOTE: Red line represents the average crude oil quality by decade (actual and projected)
Majority of global crude oil reserves are light/medium sour
Most quoted benchmark prices are light sweet crude oils
• WTI (West Texas Intermediate), Western Hemisphere
• Brent (North Sea Crude), Europe
Historical trend shows global crude oil supply becoming heavier and more sour
4
6. What’s in a Barrel of Crude Oil?
Crude Oil Types Characteristics Yields
2006 U.S.
3%
Production
> 34 API Gravity
32%
Light Sweet < 0.7 % Sulfur
Propane/
(e.g. WTI, LLS, Brent) Refinery
8%
30% Butane
8% Gases
35% Demand
Most Expensive 35%
Gasoline
RFG
49% Conventional
2% CARB
24 – 34 API Gravity Premium
24%
Medium Sour > 0.7 % Sulfur
(e.g. Mars, Arab Light, 26%
Arab Medium, Urals) 50% Demand
Distillate
33%
48%
Jet Fuel
Less Expensive
Diesel
Heating Oil
1%
< 24 API Gravity
15%
Heavy
10%
> 0.7 % Sulfur Fuel Oil &
21%
Heavy Sour Other
15% Demand
(e.g. Maya, Cerro Negro, Cold
Lake, Western Canadian Select) Source: EIA Refiner Production
63%
Least Expensive
Refineries upgrade crude oil to higher value products
5
7. Basic Refining Concepts
Intermediates Final Products
< 90°F Propane, Butane • Refinery fuel gas
and lighter • Propane
• NGLs
Light Straight
90–220°F More
• Gasoline (high octane)
Run Gasoline
processing
(low octane)
Crude oil
More
220–315°F • Gasoline (high octane)
Naphtha
• Jet fuel
Distillation processing
Tower
• Kerosene
(Crude
More
315–450°F • Jet fuel
Unit) Kerosene
• Diesel
processing
• Fuel oil
• Gasoline (high octane)
More
450–650°F Light Gas Oil • Diesel
Furnace processing
• Fuel oil
• Gasoline (high octane)
More
650–800°F Heavy Gas Oil • Diesel
Vacuum processing • Fuel oil
Unit
• Gasoline (high octane)
More
800+°F • Diesel
Resid, Pitch
• Heavy Fuel Oil, Asphalt
processing
• Lube stocks
6
8. Hydroskimming/Topping Refinery
Crude
Unit
Propane/
4%
Propane/Butane
Butane
Gasoline
Reformer High Octane Gasoline
Low Octane Gasoline RFG
Distillation Tower
30%
and Naphtha Conventional
CARB
Hydrogen
Premium
Light
Distillate
HS Kerosene/Jet Fuel
Sweet LS Kerosene/Jet Fuel
Desulfurizer
Distillate
Crude Diesel
34%
LS Diesel/Heating Oil
HS Diesel/Heating Oil Heating Oil
Oil Jet Fuel
Heavy
Gas Oil
Vacuum Fuel Oil &
32%
Unit Other
Heavy Fuel Oil / Resid
100% Total Yield
Simple, low upgrading capability refineries run light sweet crude oil, yet produce a high
yield of heavy fuel oil and resid 7
9. Medium Conversion:
Catalytic Cracking
Crude
Propane/
Unit 8% Butane
Propane/Butane
Gasoline
RFG
Reformer High Octane Gasoline
Low Octane Gasoline 45% Conventional
and Naphtha
Distillation Tower
CARB
Premium
Hydrogen
Distillate
Light LS Kerosene/Jet Fuel
HS Kerosene/Jet Fuel
Desulfurizer Distillate
Sour Diesel
27%
HS Diesel/Heating Oil LS Diesel/Heating Oil Heating Oil
Crude Jet Fuel
Light Cycle Oil
(LCO)
Alkylation
Alkylate
Unit
Fluid Catalytic
Gas Oil
Vacuum Cracker
Unit FCC Gasoline
(FCC)
Heavy
Fuel Oil &
24% Other
Heavy Fuel Oil / Resid
104% Total Yield
Refineries with moderate upgrading capabilities tend to run more sour crude oils
while increasing yields of higher value product and experiencing volume gain 8
10. High Conversion: Coking/Resid Destruction
Hydrogen Plant
Crude
Gas
Unit
Propane/
7%
Butane
Propane/Butane
Gasoline
RFG
Distillation Tower
58%
Reformer Conventional
High Octane
Low Octane Gasoline
CARB
Medium/ Premium
Hydrogen
Heavy Distillate
Distillate
Kerosene Kerosene/Jet Fuel
Sour Desulfurizer Jet Fuel
28% Diesel
Crude Heating Oil
Diesel/Heating Oil
Diesel
Oil
Hydrocracker Hydrocrackate Gasoline
Light Gas Oil
Ultra Low Sulfur Jet/Diesel
LCO Alkylation
Alky Gasoline
Unit
Fluid Catalytic
Cracker (FCC)
Medium Gas Oil
Vacuum
FCC Gasoline
Unit
Heavy
15% Fuel Oil &
Other
Delayed
Heavy Fuel Oil Coke
Coker
108% Total Yield
Complex refineries can run heavier and more sour crude oils while achieving the
highest yields of light products and greatest volume gain 9
11. Conversion Economics
U.S. Gulf Coast Refinery Margins
30
25
20
15
US$/Bbl
10
5
0
(5)
(10)
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Arab Medium Hydroskimming LLS Cracking Maya Coking
Need conversion capacity to capitalize on sour crude oil differentials
• Hydroskim – Breakeven or moderate margins; High resid yield
When margins are positive – increase crude oil runs
When margins are negative – decrease crude oil runs
• Cracking – Better margins; Lower resid yield
• Coking – Best margins; Lowest resid yield
Maximize heavy crude oils
10
12. Comparison of Conversion Capacity
U.S. Conversion Capacity1
MBPD
1,800
1,600
Cat Cracking
1,400
Hydrocracking
1,200
Coking
1,000
800
600
400
200
0
VLO XOM COP BP CVX RDS MRO TSO SUN
Conversion Capacity = Sum of Coking, Hydrocracking and Cat Cracking Capacity
1
Source: Oil & Gas Journal, Company Websites
Valero is an industry leader in upgrading capacity
Valero’s upgrading capacity provides superior operational
flexibility
Significant capital investment and long lead time required to add
conversion capacity
11
14. Valero St. Charles Refinery
Commissioned in the 1930’s
Acquired by Valero on July 1, 2003. Over $3
billion in upgrades over the past 10 years, $1
billion since Valero acquisition
Located on 1,000 acres adjacent to the
Mississippi River with strategic feedstock and
product transportation corridors
Owns and operates five docks on the
Mississippi River
Connected to the LOOP Crude delivery
system and the Colonial products
pipeline system
Heavy Sour Crude Facility with nearly 80% of
the finished products shipped as Gasoline,
ULSD, and other light products
Throughput capacity of 250 MBPD total
feedstocks
13
15. Valero St. Charles Refinery
Staffed with nearly 600 full-time
employees and 200 continuing service
contractors
Recognized as an “OSHA Voluntary
Protection Program Star Site”
Received OSHA VPP “Star Among
Stars” Status in 2006-2007
Received Valero Chairman’s Safety
Award in 2005 and 2007
Received Valero Chairman’s
Environmental Award in 2004
14
16. St. Charles Products and
Feedstock Slate
Typical Product Slate Typical Feedstock Slate
Product MBPD % Crude S % / API MBPD %
Maya 3.6 / 20.3 85 37
Gasoline 85 36
Ultra Low Sulfur Diesel 72 31 M-100 2.4 / 14.5 65 28
High Sulfur VGO 40 17 Mars 1.9 / 30.3 10 4
Alkylate 17 7 Total Crude 160 70
Propylene 4
9
LSVGO 0.4 / 24.5 45 19
Slurry (Fuel Oil) 3
7
LSATB 0.5 / 22.5 15 6
Mixed LPG 2
4.5
Total Cat Feed 60 26
Propane 0
0.3
100
Total Liquid Products 235
Total LCO 0.85 / 18.5 5 2
Pet Coke (Tons/day) <1
3,900
Sulfur (Tons/day) <1
450 Total Naphtha 0.03 / 60 3 1
Total Butylene 3 1
Total 231 100
15
17. St. Charles’ Capital Investments
Over $1,000 MM invested in capital improvements and $130 MM for turnaround
maintenance at St. Charles since Valero’s acquisition. Another $3,000 MM is approved
for completion prior to the end of 2010.
• Crude/Vacuum/Coker – 40 MBPD crude capacity increase
Completed in 2004
• Gasoline Desulfurization Unit 60 MBPD Capacity
Started up in 2005
• Utility Systems Upgrades
New 650# Boiler in 2005
Refinery water system in 2007
• HT/HC Combination Unit 58 MBPD Capacity
Started up in 2007
• SMR Hydrogen Units 100 MMSCFD Capacity
Started up in 2007
• Facilities Upgrades
New Laboratory in 2005
New East plant control room in 2007
New Maintenance facility in 2008
16
18. St. Charles’ Capital Investments
$1.4 Billion Refinery Upgrade and Expansion
New 50,000 BPD Gas Oil Hydrocracker
45,000 BPD Crude Expansion to 235,000 BPD
10,000 BPD Coker Expansion to 80,000 BPD
Increases ULSD production by 49,000 BPD
Target 2Q 2010 Completion
$2 Billion CCR/Aromatics Complex
New 75,000 BPD Continuous Catalytic Reformer
Upgrades Naphtha from Valero Hydrocrackers
Produces 33,000 BPD Para-xylene
Produces 17,000 BPD Benzene
Target 1Q 2011 Completion
Positions refinery for long term competitiveness
17
21. Optimizing Refining Portfolio
Quebec, Canada
• 215,000 bpd capacity
• 7.8 Nelson complexity
Benicia, California
• 170,000 bpd capacity
• 15.0 Nelson complexity
Paulsboro, New Jersey
• 195,000 bpd capacity
• 9.1 Nelson complexity
Wilmington, California Delaware City, Delaware
• 135,000 bpd capacity • 210,000 bpd capacity
• 15.9 Nelson complexity • 13.2 Nelson complexity
Lima, Ohio
• 165,000 bpd capacity
• SOLD in 2007
McKee, Texas
• 170,000 bpd capacity
• 9.4 Nelson complexity
Memphis, Tennessee
• 195,000 bpd capacity
• 7.5 Nelson complexity
• Under Strategic Evaluation
Three Rivers, Texas
• 100,000 bpd capacity
• 12.4 Nelson complexity
Ardmore, Oklahoma
Corpus Christi, Texas • 90,000 bpd capacity
• 315,000 bpd capacity • 10.9 Nelson complexity
• 18.4 Nelson complexity
Krotz Springs, Louisiana
• 85,000 bpd capacity St. Charles, Louisiana
Texas City, Texas • 6.5 Nelson complexity • 250,000 bpd capacity
• 245,000 bpd capacity • Under Strategic Evaluation • 14.3 Nelson complexity
• 10.8 Nelson complexity
Legend
Houston, Texas Port Arthur, Texas San Nicholas, Aruba
Valero Marketing Presence • 145,000 bpd capacity • 310,000 bpd capacity • 275,000 bpd capacity
• 15.1 Nelson complexity • 11.8 Nelson complexity • 7.0 Nelson complexity
Core Refinery • Under Strategic Evaluation
Non-Core Refinery Under Strategic Evaluation
Capacity shown in terms of crude and feedstock throughput
20
Source: Nelson complexities, Oil & Gas Journal and Valero estimates
22. Major Refining Processes – Crude
Processing
Definition
• Separating crude oil into different hydrocarbon groups
• The most common means is through distillation
Process
• Desalting – Prior to distillation, crude oil is often desalted to remove
corrosive salts as well as metals and other suspended solids.
• Atmospheric Distillation – Used to separate the desalted crude oil into
specific hydrocarbon groups (straight run gasoline, naphtha, light gas
oil, etc.) or fractions.
• Vacuum Distillation – Heavy crude residue (“bottoms”) from the
atmospheric column is further separated using a lower–pressure
distillation process. Means to lower the boiling points of the fractions
and permit separation at lower temperatures, without decomposition
and excessive coke formation.
21
23. Major Refining Processes – Cracking
Definition
• “Cracking” or breaking down large, heavy hydrocarbon molecules into
smaller hydrocarbon molecules thru application of heat (thermal) or through
the use of catalysts
Process
• Coking – Thermal non–catalytic cracking process that converts low value
oils to higher value gasoline, gas oils and marketable coke. Residual fuel
oil from vacuum distillation column is typical feedstock.
• Visbreaking – Thermal non–catalytic process used to convert large
hydrocarbon molecules in heavy feedstocks to lighter products such as fuel
gas, gasoline, naphtha and gas oil. Produces sufficient middle distillates to
reduce the viscosity of the heavy feed.
• Catalytic Cracking – A central process in refining where heavy gas oil range
feeds are subjected to heat in the presence of catalyst and large molecules
crack into smaller molecules in the gasoline and surrounding ranges.
• Catalytic Hydrocracking – Like cracking, used to produce blending stocks
for gasoline and other fuels from heavy feedstocks. Introduction of
hydrogen in addition to a catalyst allows the cracking reaction to proceed at
lower temperatures than in catalytic cracking, although pressures are much
higher.
22
24. Major Refining Processes – Combination
Definition
• Linking two or more hydrocarbon molecules together to form a large
molecule (e.g. converting gases to liquids) or rearranging to improve the
quality of the molecule
Process
• Alkylation – Important process to upgrade light olefins to high–value
gasoline components. Used to combine small molecules into large
molecules to produce a higher octane product for blending with gasoline.
• Catalytic Reforming – The process whereby naphthas are changed
chemically to increase their octane numbers. Octane numbers are
measures of whether a gasoline will knock in an engine. The higher the
octane number, the more resistance to pre or self–ignition.
• Polymerization – Process that combines smaller molecules to produce high
octane blending stock.
• Isomerization – Process used to produce compounds with high octane for
blending into the gasoline pool. Also used to produce isobutene, an
important feedstock for alkylation.
23
25. Major Refining Processes – Treating
Definition
• Processing of petroleum products to remove some of the sulfur,
nitrogen, heavy metals, and other impurities
Process
• Catalytic Hydrotreating, Hydroprocessing, sulfur/metals removal –
Used to remove impurities (e.g. sulfur, nitrogen, oxygen and halides)
from petroleum fractions. Hydrotreating further “upgrades” heavy
feeds by converting olefins and diolefins to parafins, which reduces
gum formation in fuels. Hydroprocessing also cracks heavier products
to lighter, more saleable products.
• Deasphalting – A process in which the asphaltic constituents of a
heavy residual oil are separated by mixing with a liquid solvent.
Everything will dissolve in the solvent but the asphaltics, which are
subsequently removed.
24
26. List of Refining Acronyms
AGO – Atmospheric Gas Oil kVA – Kilovolt Amp
ATB – Atmospheric Tower Bottoms LCO – Light Cycle Oil
B–B – Butane–Butylene Fraction LGO – Light Gas Oil
BBLS – Barrels LPG – Liquefied Petroleum Gas
BPD – Barrels Per Day LSD – Low Sulfur Diesel
BTX – Benzene, Toluene, Xylene LSR – Light Straight Run (Gasoline)
CARB – California Air Resource Board MON – Motor Octane Number
CCR – Continuous Catalytic Regenerator MTBE – Methyl Tertiary–Butyl Ether
DAO – De–Asphalted Oil MW – Megawatt
DCS – Distributed Control Systems NGL – Natural Gas Liquids
DHT – Diesel Hydrotreater NOX – Nitrogen Oxides
DSU – Desulfurization Unit P–P – Propane–Propylene
EPA – Environmental Protection Agency PSI – Pounds per Square Inch
ESP – Electrostatic Precipitator RBOB – Reformulated Blendstock for Oxygen Blending
FCC – Fluid Catalytic Cracker RDS – Resid Desulfurization
GDU – Gasoline Desulfurization Unit RFG – Reformulated Gasoline
GHT – Gasoline Hydrotreater RON – Research Octane Number
GOHT – Gas Oil Hydrotreater RVP – Reid Vapor Pressure
GPM – Gallon Per Minute SMR – Steam Methane Reformer (Hydrogen Plant)
HAGO – Heavy Atmospheric Gas Oil SOX – Sulfur Oxides
HCU – Hydrocracker Unit SRU – Sulfur Recovery Unit
HDS – Hydrodesulfurization TAME – Tertiary Amyl Methyl Ether
HDT – Hydrotreating TAN – Total Acid Number
HGO – Heavy Gas Oil ULSD – Ultra–low Sulfur Diesel
HOC – Heavy Oil Cracker (FCC) VGO – Vacuum Gas Oil
H2 – Hydrogen VOC – Volatile Organic Compound
H2S – Hydrogen Sulfide VPP – Voluntary Protection Program
HF – Hydroflouric (adic) VTB – Vacuum Tower Bottoms
HVGO – Heavy Vacuum Gas Oil WTI – West Texas Intermediate
kV – Kilovolt WWTP – Waste Water Treatment Plant 25
27. Safe Harbor Statement
Statements contained in this presentation that state the Company's or
management's expectations or predictions of the future are forward–
looking statements intended to be covered by the safe harbor provisions of
the Securities Act of 1933 and the Securities Exchange Act of 1934. The
words quot;believe,quot; quot;expect,quot; quot;should,quot; quot;estimates,quot; and other similar
expressions identify forward–looking statements. It is important to note
that actual results could differ materially from those projected in such
forward–looking statements. For more information concerning factors that
could cause actual results to differ from those expressed or forecasted, see
Valero’s annual reports on Form 10-K and quarterly reports on Form 10-Q,
filed with the Securities and Exchange Commission, and available on
Valero’s website at www.valero.com.
26
