Advancing the Basics of Refining and Future of Energy ......Delayed Coker 13 Refinery Gases Gasoline. Distillate. Gasoil. Coke Drum. Total Coker unit liquid volume yield is approximately

I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1

Advancing theFuture of EnergyW I T H C A P I T A L D I S C I P L I N E , I N N O V A T I O N A N D U N M A T C H E D E X E C U T I O N

Basics of Refining and Renewable Diesel

R E L I A B L E A F F O R D A B L E S U S T A I N A B L E E N E R G Y

I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1 2

Gary SimmonsExecutive Vice PresidentChief Commercial Officer.


Agenda

3

1 Crude Oil Overview

2 Refining Basics

3 Refinery Optimization and Economics

4 Renewable Diesel Basics


Crude Oil Characteristics

Heavy, sour, high acid crude oils are more difficult to process, but trade at a discount relative to light, sweet, low acid crudes oils

4

• Crude oils are blends of hydrocarbon molecules

o Classified and priced by density, sulfur content and acidity

• Density is commonly measured in API gravity(relative density of crude oil to water)

o API > 10: lighter, floats on water

o API < 10: heavier, sinks in water

• Sulfur content is measured in weight percent

o Less than 0.7% sulfur content = sweet

o Greater than 0.7% sulfur content = sour

• Acidity is measured by Total Acid Number (TAN)

o High acid crudes are those with TAN greater than 0.7

o Acidic crudes are corrosive to refinery equipment and require greater investment to process significant volumes


Canada10%

U.S. 4%

South & Central

America 19%

Europe 1%

Russia / FSU 8%

Middle East 48%

Africa7%

Asia Pacific 3%

1.73 Trillion Barrels of Oil Reserves (2019)

Crude Oil Reserves and Quality

Majority of global reserves are sour crude oils

WTI and Brentare the primary light sweet crude oil pricing benchmarks

5

Sour

Sweet

Heavy Light

Maya Cold Lake

WCS

Basrah

Southern Green

Arab Medium

CastillaMars Arab Light

WTS

ANS

Dalia

WTI MidlandLLS

Brent

Bakken

Eagle Ford WTI Light

Napo

Oriente

2.51

0.0

1.0

2.0

3.0

4.0

0 10 20 30 40 50 60

API Gravity

Crude Oil Quality

Sulf

ur,

wt% M100

Source: Valero and industry reports.


What is in a Barrel of Crude Oil?

Refineries upgradecrude oil into higher value gasoline and distillates

6

2019 U.S. Refinery Production

8% Propane/Butane

45%

GasolineRBOBCBOBConventionalCARBPremium

38%

DistillateJet FuelDieselHeating Oil

Fuel Oil & Other10%

Source: Energy Information Administration.

Refinery Gases7%

• < 24 API Gravity

• > 0.7 % Sulfur

• Least Expensive

• 24 to 34 API Gravity

• > 0.7 % Sulfur

• Less Expensive

• > 34 API Gravity

• < 0.7 % Sulfur

• Most Expensive

Crude Oil Types Characteristics Inherent Yields

Light Sweet(WTI, LLS, Brent)

3%

32%

30%

35%

Medium Sour(Mars, Arab Medium)

Heavy Sour(Maya, WCS)

2%

24%

26%

48%

1%

15%21%

63%


Basic Refining Concept

7

Light Ends Recovery & Treatment

GasolinePetrochemicals

Fuel Gas Propane

NGLs

Light Naphtha Gasoline

90–220°F

220–315°F

KeroseneJet fuel Diesel

315–450°F

450–650°F

Gasoline Diesel

Gasoline DieselCoke

Intermediates Final Products

C1 - C4

C5 - C8

C8 - C12

C12 - C30

C30 - C50+

C30 - C50+

C50 - C100+

Heavy Naphtha

Kerosene

Diesel / Light Gasoil

Heavy Gasoil

Residual Fuel Oil / Asphalt

Natural GasPropaneButaneCrude Distillation

Unit(Atmospheric)

GasolineDiesel

Furnace

Crude Oil

< 90°F

Isomerization / Blending

Reformer / Blending

Hydrotreater

Hydrotreater / Hydrocracker

FCC / Hydrocracker

Coker / Resid Hydrocracker

Dis

tilla

tio

n T

ow

er

Vacuum Distillation

Unit

650 - 800°F

+800°F


Low Conversion: Hydroskimming (Topping)

Low complexity refineries process sweet crude oils

8

8%

32%


32%DistillateULSK / Jet FuelULSDHeating Oil

VGOFuel OilAsphalt & Other

32%

Fuel GasPropane Butane

4%

Light, SweetCrude

Dis

tilla

tio

n T

ow

er

Naphtha

LPG

Gasoline

Kerosene

Diesel

ULSK / Jet Fuel

ULSD

Vacuum Gasoil

Resid

Reformer

Distillate Hydrotreater

Hydrogen

VacuumDistillation

Unit


Medium Conversion: Catalytic Cracking

Moderate complexity refineries tend to run more sour crudes, yield more high value products and achieve higher volume gain

9

Light-Medium,

Sour Crude

Dis

tilla

tio

n T

ow

er

ULSD

ULSK / Jet Fuel

Naphtha

LPG

Reformate

Kerosene

Diesel

Gasoil

Resid / Asphalt

43%


30%

DistillateULSKJet FuelULSDHeating Oil

Fuel OilAsphalt & Other

19%

Fuel GasPropane Butane

8%

Reformer

Hydrogen

Vacuum Distillation

Unit

Alkylation Unit


Alkylate

FCC Gasoline

LCO ~

~

~

~

Slurry

Fluid Catalytic Cracker (FCC)



10

Québec FCC unit.

Rea

cto

r

Reg

ener

ato

r

Spent Catalyst

Regenerated Catalyst

Fluid Catalytic Cracker Yields

Total FCC liquid volume yield is approximately 110% of throughput

Refinery Gases

Butylene

(Alky Feed)

Gasoline

Light Cycle Oil

(Distillate)

Slurry

Gasoil

Air

Frac

tio

nat

or FCC converts

low-value gasoils intohigher value light products


High Complexity: Coking / Resid Destruction

High complexity refineries can run heavier, more sourcrudes oils while achieving the highest light product yields and volume gain

11

~

Hydrogen Plant

Delayed Coker


Reformer

LPG

Propane / Butane

Naphtha

Kerosene

Diesel

Light Gasoil

Gasoil

Resid

Reformate

Alkylation Unit

Alkylate

Gasoline

ULSD / ULSK / Jet Fuel

Naphtha

Coker Gasoil

Diesel

Coke

Butylene

Hydrogen

Hydrocracker

Gasoline

~~

~~~

Reformer


LCO

47%


33%

DistillateJet Fuel ULSKULSDHeating Oil

HeavyFuel Oil& Other

14%

Fuel GasPropane Butane6%

Medium –Heavy,

Sour Crude

Vacuum Distillation

Unit

ULSK / Jet Fuel

ULSD

Slurry

Hydrogen

Hydrogen

Hydrocracker (HCU)



Hydrocracker Unit (HCU)

12

Total Hydrocracker liquid volume yieldis approximately 110% to 115% of throughput

Hydrocracker Yields

Port Arthur Hydrocracker Unit.

Hydrogen

Gasoil

Refinery Gases

Gasoline

Distillate

Unconverted OilUnconverted Oil

Upgrades high sulfur gasoil into low sulfur gasoline, jet and diesel

Increases volumetric yield of products through hydrogen saturation

Rea

cto

r

Frac

tio

nat

or


Delayed Coker

13

Refinery Gases

Gasoline

Distillate

Gasoil

Co

ke D

rum

Total Coker unit liquid volume yield is approximately 80% of throughput.

Co

ke D

rum

Coker Yields

Fuel Oil

(Resid)

Frac

tio

nat

or

Coke

Furnace

Port Arthur Delayed Coker Unit

Upgrades low value residual fuel oil into higher value light products


Greg BramVice PresidentSupply Chain Optimization.


Maximizing Refinery ProfitLinear Programming (LP) Model

Relationship between variables are modeled in a series of linear equations

Linear program is used to find combination of feed slate, products, unit operating rates, and operating parameters that delivers highest profit

15

• Prices

• Qualities

• Availability (purchase volumes)

• Prices

• Specifications

• Market demand (sales volumes)

• 10 to 25+ individual process units

• Unit hardware constraints

• Operating parameters

• Operating costs

Refinery

Feedstocks (100+) Products (30+)


Linear Program (LP) Example: What’s for Breakfast?

Your goal is to consume at least 18 grams of protein, but not more than 10 grams of total fat for the lowest price

16

1 LARGE BAGEL$2.00

3 g protein1 g fat

2 LARGE EGGS$3.50

6 g protein5 g fat

3 BACON SLICES$4.00

8 g protein8 g fat

1 CUP OATMEAL$2.50

4 g protein1 g fat

1 CUP ORANGE JUICE$2.50

2 g protein0 g fat


Optimizing Breakfast from an Engineer’s Point of View

Even with only five food choices, there are so many possible combinations that using trial and error to find the one with the lowest cost is not efficient

17

Minimize the cost of breakfast

Consume no more than 10 grams of total fat

Consume at least 18 grams of protein

3 g 4 g 6 g 8 g 2 g ≥18 grams protein

1 g 1 g 5 g 8 g 0 g ≤ 10 grams total fat

$2.00 $2.50 $3.50 $4.00 $2.50 = Minimum

Solve for number of servings of each item:


What’s the Optimal Breakfast?

Linear programming is a branch of applied mathematics concerned with problems of constrained optimization

Price and “quality” of each variable drives the optimum solution

18

Servings Unit Cost Total Fat (g)Protein (g)

0

2.7 $2.50 = $6.75

0.9

0

0

$4.00 = $3.60

4 = 10.8

8 = 7.2

1 = 2.7

8 = 7.2

$10.35 GOAL = Lowest

18 g Min protein

10 g Max fat

Meal


Crude Oil Break Even Values

Break Even Value (BEV) = Alternate Crude Total Product Value –Reference Crude Total Product Value

BEV for alternate crude as a percentage of reference crude value is relatively insensitive to flat price environment

19

Products

Light Sweet(1)

Yields

Medium Sour(2)

Yields

Heavy Sour(2)

Yields

Light Sweet @ $99/bbl

Prices


Prices

Refinery gases 3% 2% 1% $49 $31

Gasoline(3) 32% 24% 15% $108 $60

Distillate(4) 30% 26% 21% $117 $69

Heavy fuel oil(5) 35% 48% 63% $79 $41

(1) Reference crude.(2) Alternate crudes.(3) Gasoline crack: $9/bbl.(4) Distillate crack: $18/bbl.(5) Heavy fuel oil: 80% of reference crude value.

Crude


BEV


BEV

BEV@ $99/bbl

% of Light Sweet

BEV @ $51/bbl

% of Light Sweet

Medium sour -$3.55 -$2.58 96% 95%

Heavy sour -$7.76 -$5.65 92% 89%

Crude Break Even Values (High and Low Crude Prices)

Crude Product Yields and Prices (High and Low Crude Prices)


Crude Oil Differentials Versus ICE Brent

20Source: Argus. ASCI represents Argus Sour Crude Index.

-25%

-20%

-15%

-10%

-5%

0%

5%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Maya (heavy sour) ASCI (medium sour) WTI (light sweet) LLS (light sweet)

Pre

miu

mD

isco

un

t


Martin ParrishSenior Vice PresidentAlternative Energy and Project Development


Active Low-carbon Mandates

Carbon Mandates in Development orGHG Emissions Goal

Global Low-carbon Fuel Policies Driving Demand Growth for Renewable Diesel

22

2030 GHG Emissions Reduction Target

Net-Zero GHG Emissions Target

Primary Transportation Fuel Policy Mechanism

2030 Liquid Fuels Goal

California 40% Net-zero by 2045Low Carbon Fuel Standard

(LCFS)Reduce the carbon intensity of transportation

fuels by at least 20%

Canada 30% Net-zero by 2050Clean Fuel Standard (CFS) –enforcement expected 2022

Reduce the carbon intensity of transportation fuels by 10-12%

EU 40% Net-zero by 2050Renewable Energy Directive II

(RED II)Replace 14% of transport fuels with biofuels

Other Policies in Place

• Oregon is matching California’s GHG reduction target and has an LCFS policy in place• British Columbia and Ontario have existing low-carbon fuels policies• Sweden is implementing a 21% GHG reduction mandate for diesel by 2020 and aims for 50% of transport fuels to be biofuels by 2030• Finland aims for 30% of transport fuels to be biofuels by 2030

Potential Policies

• State of Washington continues to debate an LCFS with a 20% GHG reduction target by 2035• New York introduced legislation that would require net-zero emissions by 2050 with the possibility of LCFS legislation• Certain Midwest states and Colorado are exploring similar renewables mandates

$0

$100

$200

20

14

20

15

20

16

20

17

20

18

20

19

20

20

LCFS Credit Price(monthly average, $ per metric ton)

113

618

20

14

20

15

20

16

20

17

20

18

20

19

California Renewable Diesel Consumption

(million gallons)

Source: California Air Resources Board. LCFS credit price through December 2020.


Renewable Diesel 31%

Ethanol24%

Biodiesel14%

Electricity (on-road charging)

13%

Electricity (other) 7%

Biomethane9%

Other1%

LCFS Credit by Fuel Type(2020 YTD)

-6%

-20%

-20%

-15%

-10%

-5%

0%

2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

California LCFS Performance(% reduction in carbon intensity)

Historic Compliance Targets

Reported % CI Reduction

Future Compliance Targets

Renewable Diesel Driving Low Carbon Results in California

Cost-effective fuel that can be used with existing vehicles

Does not require infrastructure investments

Over 2 billion gallons consumed since 2011

23Source: California Air Resources Board. 2020 through June 30.


Diamond Green Diesel (DGD) Feedstock and Margin Indicator

DGD is designed to process low carbon feedstocks for higher product value

24

NYMEXULSD

D4 RIN LCFS Feedstock RenewableDiesel Margin

DGD Feedstock Carbon Intensity and Product Value

New York Ultra Low Sulfur Diesel (ULSD) price ($ per gallon)+ 1.7 * Renewable Identification Number (D4 RIN, $ per RIN)+ 0.007 * Low Carbon Fuel Standard (LCFS) credit ($ per metric ton) - 8.5 * Chicago Soybean Oil price ($ per pound)

DGD Margin Indicator$ per gallon

LCFS credit value ($ per gallon)

Carbon Intensity (g CO2e / MJ)

Source: California Low Carbon Fuel Standard (LCFS) 2020 values, assuming $200 per metric ton carbon price.

20 27

32

54

82

100

$1.89$1.70

$1.58

$1.01

UsedCooking Oil

DistillersCorn Oil

AnimalFats

SoybeanOil

GridElectricity

Diesel


Renewable Diesel Process and Properties

A Pretreatment Unit allows the plant to process advantaged, low carbon intensity feedstocks

25

Pretreatment Unit

Feedstocks:Used Cooking Oil, Recycled Animal Fats and Inedible

Corn Oil

DeoxygenationReactor

Water

Separation Isomerization

Renewable Diesel

Light Fuels / Propane

H 2

Product Separation

Property Renewable Diesel

Physical properties Cetane > 70, Sulfur < 2 ppm

Cold temperature issues No issues

Stability No issues

Allowed in pipelines Yes

Practical limit in blend No limit with proper labeling; 85% sold in California

Renewable Naphtha


Questions and Answers

26


Appendix Contents

27

Topic Pages

Major Refining Processes – Crude Processing 28

Major Refining Processes – Cracking 29

Major Refining Processes – Combination 30

Major Refining Processes – Treating 31

Refining and Renewable Diesel Acronyms 32


• 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.

Major Refining Processes – Crude Processing


• Definition

• Breaking down large, heavy hydrocarbon molecules into smaller hydrocarbon molecules through application of heat (thermal) or 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 theheavy feed.

• Catalytic cracking – A central process in refining where heavy gas oil range feeds are subjected to heat in the presence of catalyst, whereby large molecules crack into smaller molecules in the gasoline and lighter boiling 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.

Major Refining Processes – Cracking


• Definition

• Linking two or more hydrocarbon molecules together to form a large molecule (e.g. converting gases to liquids) or rearranging toimprove 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 into gasoline.

• Catalytic reforming – The process whereby naphthas are changed chemically to increase their octane number. Octane number is a measure 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 blendstock.

• 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.

Major Refining Processes – Combination


• Definition

• Processing of petroleum products to remove some of the sulfur, nitrogen, heavy metals, and other impurities

• Process

• Catalytic hydrotreating and hydroprocessing – 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 paraffins, which reduces gum formation in fuels. Hydroprocessing also cracks heavier products to lighter, more saleable products.

Major Refining Processes – Treating


Refining and Renewable Diesel Acronyms

32

• AGO – Atmospheric Gasoil• API – American Petroleum Institute• ATB – Atmospheric Tower Bottoms• B–B – Butane-Butylene Fraction• BBLS – Barrels• BPD – Barrels Per Day• BTC – Blenders Tax Credit• BTX – Benzene, Toluene, Xylene• CARB – California Air Resource Board• CCR – Continuous Catalytic Regenerator• CI – Carbon Intensity• DAO – De–Asphalted Oil• DCS – Distributed Control Systems• DHT – Diesel Hydrotreater• DSU – Desulfurization Unit • EPA – Environmental Protection Agency• ESP – Electrostatic Precipitator• FCC – Fluid Catalytic Cracker• GDU – Gasoline Desulfurization Unit• GHT – Gasoline Hydrotreater• GOHT – Gasoil Hydrotreater• GPM – Gallon Per Minute

• P–P – Propane–Propylene• PSI – Pounds per Square Inch• RBOB – Reformulated Blendstock for Oxygenate Blending • RDS – Resid Desulfurization• RFG – Reformulated Gasoline• RFS – Renewable Fuel Standard• RIN – Renewable Identification Number• RON – Research Octane Number• RVP – Reid Vapor Pressure• SMR – Steam Methane Reformer (Hydrogen Plant)• SOX – Sulfur Oxides• SRU – Sulfur Recovery Unit• TAME – Tertiary Amyl Methyl Ether• TAN – Total Acid Number• UCO – Used Cooking Oil• ULSD – Ultra Low Sulfur Diesel• ULSK – Ultra Low Sulfur Kerosene• VGO – Vacuum Gasoil• VOC – Volatile Organic Compound• VPP – Voluntary Protection Program• VTB – Vacuum Tower Bottoms• WTI – West Texas Intermediate• WWTP – Waste Water Treatment Plant

• HAGO – Heavy Atmospheric Gasoil• HCU – Hydrocracker Unit• HDS – Hydrodesulfurization• HDT – Hydrotreating• HGO – Heavy Gasoil• HOC – Heavy Oil Cracker (FCC)• H2 – Hydrogen• H2S – Hydrogen Sulfide• HF – Hydroflouric (acid)• HVGO – Heavy Vacuum Gasoil• kV – Kilovolt• kVA – Kilovolt Amp• LCFS – Low Carbon Fuel Standard• LCO – Light Cycle Oil• LGO – Light Gasoil• LPG – Liquefied Petroleum Gas• LSD – Low Sulfur Diesel• LSR – Light Straight Run (Gasoline)• MON – Motor Octane Number• MTBE – Methyl Tertiary–Butyl Ether• MW – Megawatt• NGL – Natural Gas Liquids• NOX – Nitrogen Oxides


This presentation contains forward-looking statements made by Valero Energy Corporation (“VLO” or “Valero”)

within the meaning of federal securities laws. These statements discuss future expectations, contain projections of

results of operations or of financial condition or state other forward-looking information. You can identify forward-

looking statements by words such as “believe,” “estimate,” “expect,” “forecast,” “could,” “may,” “will,” “targeting,” or

other similar expressions that convey the uncertainty of future events or outcomes. These forward-looking

statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some

of which are beyond the control of Valero and are difficult to predict including, but not limited to, the effect, impact,

potential duration or other implications of the COVID-19 pandemic. These statements are often based upon various

assumptions, many of which are based, in turn, upon further assumptions, including examination of historical

operating trends made by the management of Valero. Although Valero believes that the assumptions were

reasonable when made, because assumptions are inherently subject to significant uncertainties and contingencies,

which are difficult or impossible to predict and are beyond its control, Valero cannot give assurance that it will

achieve or accomplish its expectations, beliefs or intentions. When considering these forward-looking statements,

you should keep in mind the risk factors and other cautionary statements contained in Valero’s filings with the

Securities and Exchange Commission, including Valero’s annual reports on Form 10-K, quarterly reports on Form 10-

Q, and other reports available on Valero’s website at www.valero.com. These risks could cause the actual results of

Valero to differ materially from those contained in any forward-looking statement.

Cautionary Statement

33

I N V E S T O R P R E S E N T AT I O N | B A S I C S O F R E F I N I N G A N D R E N E W A B L E D I E S E L 2 0 2 1I N V E S T O R P R E S E N T A T I O N | N O V E M B E R 2 0 2 0

Investor Relations Contacts

Homer BhullarVice President, Investor Relations [email protected]

Eric HerbortSenior Manager, Investor Relations [email protected]

Gautam Srivastava Senior Manager, Investor Relations [email protected]

Our products fuel modern life and make a better future possible

Documents

Advancing the Basics of Refining and Future of Energy ......Delayed Coker 13 Refinery Gases Gasoline. Distillate. Gasoil. Coke Drum. Total Coker unit liquid volume yield is approximately