management presentation -...

Management PresentationJanuary 14, 2008

Refining 101: Refinery Basic OperationsRefining 201: Solvent Deasphalting and Reformers/CCRs

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Disclaimer Statement

The information contained within has been obtained from various sources; we do not represent that this information (including, but not limited to, prices, quotes and statistics) is complete or accurate and it should not be relied upon as such. All information is subject to change without notice. This document is provided for informational purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy any product to which this information relates.

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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 "believe," "expect," "should," "estimates," 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.

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Rich MarcoglieseValero Energy CorporationExecutive Vice President &

Chief Operating Officer

Refining 101: Refinery Basic Operations

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Crude Oil Characteristics

Crudes are classified and priced by density and sulfur contentCrude 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

−

Light crudes are easier to process −

Heavy crudes are more difficult to process

Crude sulfur content is measured as a percentage• Less than 0.7% sulfur content = sweet• Greater than 0.7% sulfur content = sour• High sulfur crudes require additional processing to meet regulatory specs

Acid content is measured by Total Acid Number (TAN)• Acidic crudes highly corrosive to refinery equipment• High acid crudes are those with TAN greater than 0.7

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Crude Oil Basics

Majority of global reserves are light/medium sourMost quoted benchmark prices are light sweet crudes

• WTI (West Texas Intermediate), Western Hemisphere• Brent (North Sea Crude), Europe

Historical trend shows global crude supply becoming heavier and more sour

Estimated Quality of Reserves (2006)

13%

20%

66%

2%

High Acid(Sweet)

Source: Oil & Gas Journal, Company Information

Light/MediumSour

HeavySour

Sweet

SWEE

T

SU

LFU

R C

ON

TEN

T

S

OU

R

HEAVY API GRAVITY LIGHT

Crude Quality by Types

Source: Industry reportsNOTE: Red line represents the average crude quality by decade (actual and projected)

Arab Heavy

Arab Medium

Arab Light

Alaskan North Slope

Iran Heavy

DubaiMars

TapisWTIBrent

Bonny LightCabinda

Napo

Cold Lake

WCSMaya

Ameriven-Hamaca

M-100 (resid)

1980

19902000

2010Urals

Cerro Negro

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

15 20 25 30 35 40 45 50

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What’s in a Barrel of Crude Oil?

48%

26%

24%

2%

63%

21%

15%1%

35%

30%

32%

3%> 34 API Gravity

< 0.7 % Sulfur

35% Demand

Most Expensive

24 – 34 API Gravity

> 0.7 % Sulfur

50% Demand

Less Expensive

< 24 API Gravity

> 0.7 % Sulfur

15% Demand

Least Expensive

Refineries upgrade crude oil to higher value products

2006 U.S. Production

8% Propane/Butane

49%

GasolineRFGConventionalCARBPremium

33% DistillateJet FuelDieselHeating Oil

Heavy Fuel Oil & Other

10%

Source: EIA Refiner Production

Refinery Gases8%

Light Sweet Crude(e.g. WTI, LLS, Brent)

Medium Sour Crude(e.g. Mars, Arab Light,Arab Medium, Urals)

Heavy Sour Crude(e.g. Maya, Cerro Negro, Cold

Lake, Western Canadian Select)

Crude Types Characteristics Yields

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Basic Refining Concepts

DistillationTower

(CrudeUnit)

Propane, Butane and lighter

• Refinery fuel gas • Propane• NGLs

< 90°F

Straight Run Gasoline (low

octane)• Gasoline (high octane)

90–220°F

Naphtha • Gasoline (high octane)• Jet fuel

220–315°F

Kerosene• Kerosene • Jet fuel• Diesel • Fuel oil

315–450°F

Light Gas Oil• Gasoline (high octane)• Diesel• Fuel oil

450–650°F

Heavy Gas Oil650–800°F

Resid, Pitch800+°F

Furnace

VacuumUnit

More

• Gasoline (high octane)• Diesel• Fuel oil

• Gasoline (high octane)• Diesel• Heavy Fuel Oil, Asphalt• Lube stocks

Intermediates Final Products

processing

More

processing

More

processing

More

processing

More

processing

More

processing

Crude oil

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Hydroskimming/Topping Refinery

LightSweetCrude

100% Total Yield


30%GasolineRFGConventionalCARBPremium

Simple, low upgrading capability refineries run sweet crude

Propane/Butane

Hydrogen

Crude Unit

Vacuum Unit

Reformer

Propane/Butane

High Octane Gasoline

Heavy Fuel Oil / Resid

LS Diesel/Heating Oil

Distillate Desulfurizer

HS Diesel/Heating Oil

HS Kerosene/Jet Fuel

Gas Oil

4%

32%

34%DistillateDieselHeating OilJet Fuel

Dis

tilla

tion

Tow

er

Low Octane Gasoline and Naphtha

LS Kerosene/Jet Fuel

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Medium Conversion: Catalytic Cracking

Moderate upgrading capability refineries tend to run more sour crudes while achieving increased higher value product yields and volume gain

Hydrogen

Light Cycle Oil (LCO)

Crude Unit

Vacuum Unit

Reformer

Alkylation Unit

Propane/Butane


Heavy Fuel Oil / Resid

FCC Gasoline

Alkylate




Gas OilFluid Catalytic Cracker (FCC)

104% Total Yield

Heavy Fuel Oil & Other24%

Dis

tilla

tion

Tow

er

Propane/Butane8%

27%DistillateDieselHeating OilJet Fuel


LightSour

Crude




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Medium Conversion: Catalytic Cracking/Deasphalting

Improved upgrading capability allows refiner to run heavier crudes while achieving increased higher value product yields and volume gain

Hydrogen

Light Cycle Oil (LCO)

Crude Unit

Vacuum Unit

Reformer

Alkylation Unit

Propane/Butane


Heavy Fuel Oil /

FCC Gasoline

Alkylate




Gas OilFluid Catalytic Cracker (FCC)

PitchSolvent

Deasphalting

105% Total Yield


11%

Dis

tilla

tion

Tow

erPropane/Butane9%

56%GasolineRFGConventionalCARBPremiumLight/

MediumSour

Crude 29%DistillateDieselHeating OilJet Fuel




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High Conversion: Coking/Resid Destruction

Complex refineries can run heavier and more sour crudes while achieving the highest light product yields and volume gain

108% Total Yield


15%

Propane/Butane

7%

28%DistillateJet FuelDieselHeating Oil


Hydrogen

LCO

Reformer

Medium Gas Oil

Propane/Butane

High Octane

Heavy Fuel Oil

FCC Gasoline

Kerosene

Alky Gasoline

Hydrogen Plant

Coke

Gas

Diesel

Kerosene/Jet Fuel

Diesel/Heating Oil

Low Octane Gasoline

DelayedCoker

Fluid Catalytic Cracker (FCC)

Alkylation Unit

DistillateDesulfurizer

Crude Unit

Vacuum Unit

Light Gas Oil Hydrocrackate Gasoline

Ultra Low Sulfur Jet/Diesel

Hydrocracker

Medium/ Heavy Sour

Crude Dis

tilla

tion

Tow

er

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Conversion Economics

Need conversion capacity to capitalize on sour crude discounts• Hydroskim – Breakeven or moderate margins; High resid yield

−

When margins are positive – increase crude runs−

When margins are negative – decrease crude runs• Cracking – Better margins; Lower resid yield• Coking – Best margins; Lowest resid yield

−

Maximize heavy crudes

U.S. Gulf Coast Refinery Margins

(10)

(5)

0

5

10

15

20

25

30

Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

U S

$ / B b

l

Arab Medium Hydroskimming LLS Cracking Maya Coking

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Comparison of Conversion Capacity

Valero is an industry leader in upgrading capacityValero’s upgrading capacity provides superior operational flexibilitySignificant capital investment and long lead time required to add conversion capacity

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

VLO XOM COP BP RDS CVX MRO SUN TSO

Cat Cracking

Hydrocracking

Coking

U.S. Conversion Capacity1MBPD

Source: Oil & Gas Journal, Company Websites 1 Conversion Capacity = Sum of Coking, Hydrocracking and Cat Cracking Capacity

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Refining 201:Solvent Deasphalting Units

and Reformers/CCRs

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Deasphalting Basics

Deasphalting is a solvent extraction process• Original application in lubes feedstock preparation• Expanded to recover cat cracker feed from vacuum resid

Vacuum resid feed yields Deasphlated Oil (DAO) and Asphaltenes(Pitch or DAU Rock)

Solvent Extraction differentiates by solubility differences while Distillation by boiling points

Solvents used are propane, butane, and pentane• Heavier the solvent, the more extraction (pentane allows for “deepest”

extraction)• Heavier solvent, higher operating costs for solvent recovery

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Deasphalting Incentives

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Deasphalting Process

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Deasphalting Units

McKee Propane Deasphalter Texas City ROSE

ExtractorColumns

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Naphtha Reforming Basics

Reformers improve the octane of naphtha making it a higher valuegasoline blending componentReformers produce large amounts of hydrogen (H2) which supports the desulfurization process in hydrotreaters and hydrocrackersReforming employs precious metals catalystCoke formation on catalyst as a byproduct requires burn-off

HydrotreatedNaphtha

(50-60 octane)

Reformate/Aromatics

(96-102 octane)

Hydrogen Fuel Gas/LPG

ReactorReactor Gas SeparationGas Separation StabilizerStabilizer

Regenerator (CCR)

Regenerator (CCR)

50 to 500 PSI950 to 1000 °F

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Reforming Fixed-Bed Semi-Regenerative

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Reforming Continuous Catalyst Regeneration (CCR)

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FiredHeater

StackedReactor

Structure

Reformer Units

Corpus Christi CCRBenicia Cyclic (Fixed-Bed)

Fixed-BedReactor

Structure

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Q&A

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Appendix

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Map of Valero Refineries

Valero Marketing Presence

Quebec, Canada• 215,000 bpd capacity

Three Rivers, Texas• 100,000 bpd capacity

Corpus Christi, Texas• 340,000 bpd capacity

Wilmington, California• 135,000 bpd capacity

Benicia, California• 170,000 bpd capacity

McKee, Texas• 170,000 bpd capacity

Krotz Springs, Louisiana• 85,000 bpd capacity

Texas City, Texas• 245,000 bpd capacity

Houston, Texas• 130,000 bpd capacity Port Arthur, Texas

• 325,000 bpd capacity

St. Charles, Louisiana• 250,000 bpd capacity

Ardmore, Oklahoma• 90,000 bpd capacity

Memphis, Tennessee• 195,000 bpd capacity

Paulsboro, New Jersey• 195,000 bpd capacity

San Nicholas, Aruba• 275,000 bpd capacity

Delaware City, Delaware• 210,000 bpd capacity

Capacity shown in terms of crude and feedstock throughput

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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 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.

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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.

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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.

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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.

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List of Refining AcronymsAGO – Atmospheric Gas OilATB – Atmospheric Tower BottomsB–B – Butane–Butylene FractionBBLS – BarrelsBPD – Barrels Per DayBTX – Benzene, Toluene, XyleneCARB – California Air Resource BoardCCR – Continuous Catalytic RegeneratorDAO – De–Asphalted OilDCS – Distributed Control SystemsDHT – Diesel HydrotreaterDSU – Desulfurization Unit EPA – Environmental Protection AgencyESP – Electrostatic PrecipitatorFCC – Fluid Catalytic CrackerGDU – Gasoline Desulfurization UnitGHT – Gasoline HydrotreaterGOHT – Gas Oil HydrotreaterGPM – Gallon Per MinuteHAGO – Heavy Atmospheric Gas OilHCU – Hydrocracker UnitHDS – HydrodesulfurizationHDT – HydrotreatingHGO – Heavy Gas OilHOC – Heavy Oil Cracker (FCC)H2 – HydrogenH2S – Hydrogen SulfideHF – Hydroflouric (adic)HVGO – Heavy Vacuum Gas OilkV – Kilovolt

kVA – Kilovolt AmpLCO – Light Cycle OilLGO – Light Gas OilLPG – Liquefied Petroleum GasLSD – Low Sulfur DieselLSR – Light Straight Run (Gasoline)MON – Motor Octane NumberMTBE – Methyl Tertiary–Butyl EtherMW – MegawattNGL – Natural Gas LiquidsNOX – Nitrogen OxidesP–P – Propane–PropylenePSI – Pounds per Square InchRBOB – Reformulated Blendstock for Oxygen Blending RDS – Resid DesulfurizationRFG – Reformulated GasolineRON – Research Octane NumberRVP – Reid Vapor PressureSMR – Steam Methane Reformer (Hydrogen Plant)SOX – Sulfur OxidesSRU – Sulfur Recovery UnitTAME – Tertiary Amyl Methyl EtherTAN – Total Acid NumberULSD – Ultra–low Sulfur DieselVGO – Vacuum Gas OilVOC – Volatile Organic CompoundVPP – Voluntary Protection ProgramVTB – Vacuum Tower BottomsWTI – West Texas IntermediateWWTP – Waste Water Treatment Plant

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