valero energy Basics of Refining Presentation - January 13, 2009

Refining 101 + Technical TeachRefining 101 + Technical Teach--in on the in on the HydrotreaterHydrotreater & Hydrocracker& HydrocrackerHydrotreaterHydrotreater & Hydrocracker& Hydrocracker

January 13, 2009January 13, 2009

Safe Harbor Statement

Statements contained in this presentation that state the Company's or management's expectations or predictions of theCompany'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 th S iti E h A t f 1934 Th d "b li "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

t l lt ld diff t i ll f th j t d iactual 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

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Valero’s website at www.valero.com.

Rich MarcoglieseRich Marcogliesegg

Executive Vice President andand

Chief Operating Officer

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Crude Oil CharacteristicsCrudes 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 = sweetLess than 0.7% sulfur content sweet• Greater than 0.7% sulfur content = sour• High sulfur crudes require additional processing to meet regulatory

specsspecs

Acid content is measured by Total Acid Number (TAN)• Acidic crudes highly corrosive to refinery equipment

Hi h id d h i h TAN h 0 7

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• High acid crudes are those with TAN greater than 0.7

Crude Oil Basics

Cold LakeCerro Negro

Maya3.5%

4.0%

Estimated Quality of Reserves (2007)

SOU

R

Crude Oil Quality by Types

Arab Heavy

Arab Medium

DubaiMars

Napo

WCSMaya

M-100 (resid)

2 0%

2.5%

3.0%

19%1%

High Acid(Sweet) Light/Medium

Sweet

UR

CO

NTE

NT

Arab Light

Alaskan North Slope

Iran HeavyMars

UralsAmeriven-Hamaca

1.0%

1.5%

2.0%

14% 66%

Sour

HeavySour

EET

S

ULF

U

TapisWTIBrent

Bonny LightCabinda0.0%

0.5%

15 20 25 30 35 40 45 50Source: DOE, Oil & Gas Journal, Company Information

SWE

HEAVY API GRAVITY LIGHT

Majority of global crude oil reserves are sourMost quoted benchmark prices are light sweet crude oils

WTI (W t T I t di t ) W t H i h

Source: Industry reports

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

What’s in a Barrel of Crude Oil?

3%> 34 API Gravity

2007 U.S. Refinery Production

Crude Oil Types Characteristics Inherent Yields

35%

30%

32%> 34 API Gravity

< 0.7 % Sulfur

35% Demand

Most Expensive

Production

8% Propane/Butane

Gasoline

Refinery Gases8%

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

26%24%2%24 to 34 API Gravity

> 0.7 % Sulfur

48%

GasolineRFGConventionalCARBPremiumMedium Sour

(e.g. Mars, Arab Light,

48%

1%

50% Demand

Less Expensive

< 24 API Gravity

35% DistillateJet FuelDieselHeating Oil

( g , g ,Arab Medium, Urals)

63%

21%15%1%< 24 API Gravity

> 0.7 % Sulfur

15% Demand

Least Expensive

Heavy Fuel Oil & Other

9%

Source: EIA Refiner Production

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

Lake, Western Canadian Select)

6Refineries upgrade crude oil to higher value products

Basic Refining Concepts

Propane, Butane and lighter

• Refinery fuel gas • Propane• NGLs

< 90°F

Intermediates Final Products

C1 to C4• NGLs

Straight Run Gasoline (low

octane)• Gasoline (high octane)

90–220°F More

processing

Crude oil

C5 to C8

DistillationTower

(CrudeUnit)

Naphtha • Gasoline (high octane)• Jet fuel

220–315°F

Kerosene• Kerosene • Jet fuel315–450°F

More

processing

More

C8 to C12

Unit) Kerosene Jet fuel• Diesel • Fuel oil

Light Gas Oil• Gasoline (high octane)• Diesel450–650°F

Furnace

processing

More

i

C12 to C30

• Fuel oil

Heavy Gas Oil650–800°F

Furnace

VacuumUnit

• Gasoline (high octane)• Diesel• Fuel oil

processing

More

processing

C30 to C50+

C 30 to C50+

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Residual Fuel Oil/Asphalt

800+°F

Unit• Gasoline (high octane)• Diesel• Fuel oil• Lube stocks

More

processingC50 to C100+

Hydroskimming/Topping Refinery

Propane/Butane

Crude Unit

Propane/Butane 4%

Light

32%GasolineRFGConventionalCARBPremiumHydrogen

Reformer High Octane Gasoline

n To

wer

Low Octane Gasoline and Naphtha

LightSweetCrude

LS Diesel/Heating Oil

Distillate Desulfurizer

HS Diesel/Heating Oil

HS Kerosene/Jet Fuel32% Distillate

Jet FuelDieselHeating Oil

Dis

tilla

tion

LS Kerosene/Jet Fuel

g

Heavy Fuel Oil & Other

Vacuum Unit

Heavy Fuel Oil

Gas Oil32%

8

100% Total Yield

Simple, low upgrading capability refineries run sweet crude

Heavy Fuel Oil

Crude and Vacuum Towers

Reactor

Heater

9Crude Atmospheric Tower Vacuum Tower Reformer

Medium Conversion: Catalytic CrackingCrude Unit

Propane/ButanePropane/Butane8%

G li

Hydrogen

Reformer High Octane Gasoline

DistillateHS Kerosene/Jet F eln To

wer

45%

GasolineRFGConventionalCARBPremium

Light

Low Octane Gasoline and Naphtha

LS Kerosene/Jet FuelDistillate Desulfurizer

HS Diesel/Heating Oil

HS Kerosene/Jet Fuel

Dis

tilla

tion

31% DistillateJet FuelDieselHeating Oil

LightSour

Crude

LS Kerosene/Jet Fuel

LS Diesel/Heating Oil

Light Cycle Oil (LCO)

Alkylation Unit Alkylate

G OilFluid Catalytic

Vacuum Unit

Heavy Fuel Oil

FCC Gasoline

Gas Oil Cracker (FCC)

Heavy Fuel Oil & Other20%

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

104% Total Yield

High Conversion: Coking/Resid Destruction

Propane/Butane7%Propane/Butane

Hydrogen PlantGasCrude

Unit

50%GasolineRFGConventionalCARBPremium

Hydrogen

Reformer

Medium/

on T

ower Low Octane Gasoline

and NaphthaHigh Octane Gasoline

36% DistillateJet FuelDieselHeating Oil

DistillateDesulfurizer

Heavy Sour

Crude Dis

tilla

tio

HS Kerosene/Jet Fuel

HS Diesel/Heating Oil

LS Kerosene/Jet Fuel

LS Diesel/Heating Oil

LCOAlky Gasoline

Alkylation U it

Light Gas Oil Hydrocrackate Gasoline

Ultra Low Sulfur Jet/Diesel

Hydrocracker

Heavy Fuel Oil & Other15%

Medium Gas Oil

Heavy Fuel Oil

FCC Gasoline

Alky Gasoline

CokeDelayedCoker

Fluid Catalytic Cracker (FCC)

Unit

Vacuum Unit

11Complex refineries can run heavier and more sour crudes while achieving the highest light product yields and volume gain

108% Total YieldHeavy Fuel Oil CokeCoker

FCC and Hydrocracker Reactors

Reactor Hydrocracker ReactorsFluidized Catalytic Cracker

12RegeneratorMain Column

CokersDelayed Coker

Superstructure holds the drill and drill stem while the coke is forming in the drum Fluid Coker g

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Conversion Economics

35

40

45$/Bbl 6-3-2-1 Crack Spread

20

25

30

35

5

10

15

20

-5

0

5

Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08

Need conversion capacity to capitalize on sour crude oil differentials• Hydroskimming – Breakeven or moderate margins; High resid yield

When margins are positive – increase crude oil runs

LLS (Light Sweet) Mars (Medium Sour) Maya (Heavy Sour)

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When margins are positive increase crude oil runsWhen margins are negative – decrease crude oil runs

• Cracking – Better margins; Lower resid yield• Coking – Best margins; Lowest resid yield

Maximize heavy crude oils

Desulfurization BasicsObjective

Remove sulfur from light products (gasoline or diesel) to meet air quality i t f l b i f l

D lf i ti U it

requirements for clean burning fuelsUnits are called desulfurization or hydrotreater

High SulfurLight

Products

Desulfurization UnitDesulfurized Light Products

Elemental

HC-S

C t l t

HC-SHC

HC-SH2H2

H2

Products(HC-S) Sulfur Plant • Agricultural

• Pharmaceutical

Sulfur

HC-SSHC-S

SS

Catalyst

HC-SSS

H2S SH2

Hydrogen UnitH2

H2 H2LEGENDHC : Hydrocarbon

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H2 H2H2

yH2 : HydrogenS : Sulfur

1000 or less PSI;700 F or less

Hydrocracking BasicsObjective

Value added upgrading of high sulfur distillates to low sulfur gasoline and ultra l lf j t/di l t t i lit i t f l b i f llow sulfur jet/diesel to meet air quality requirements for clean burning fuelsTypically achieve 20% to 25% volume expansion due to hydrogen saturation

H d ki U it

High SulfurDistillate(HC S)

Hydrocracking Unit

HC-S

C t l t

HC-S

Desulfurized Hydrocrackate GasolineHC

El t l

HC-SH2H2

H2

Desulfurized Ultra Low Sulfur Jet/DieselHCH2 H2

(HC-S)

HC-S

HC-S

Catalysts

HC-S Sulfur Plant • Agricultural• Pharmaceutical

ElementalSulfur

SS

SSS

H2S SH2

H2 H2

H2H2

LEGENDHC : Hydrocarbon

S S

Hydrogen UnitH2

H2 H2

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HC : HydrocarbonH2 : HydrogenS : Sulfur

1300+ PSI;725 to 780 F

H2 H2H2

Hydrocrackers

McKee Hydrocracker Corpus Christi Hydrocracker

Distillate Yield MaximizationRecent economics have incentivized maximization of distillate rather than gasolineTypical opportunities to increase distillate yields• Immediate, non-capital opportunities +2 to 4%

E l O ti i ti f di till ti t i tExamples: Optimization of distillation cut points, re-routing of intermediate streams, and tank optimization

• Non-capital taking < 1yr +1 to 2%CC CExamples: FCC catalyst change, HCU catalyst selection

• Capital projects taking < 1 yr +1 to 2%Examples: Minor hardware changes (tower internals,

t di t ib t t ) h d li d b ttl kireactor distributors, ect.), hydraulic debottlenecking

• Capital projects taking > 1 year +3 to 5%Examples: Install/expand distillate draw capacity on fractionators additional fractionation new HCUon fractionators, additional fractionation, new HCU

Total +7 to 13%18

Q & A

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Appendix

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Major Refining Processes – Crude Processing

Definition• Separating crude oil into different hydrocarbon groups

The most common means is through distillation• The most common means is through distillationProcess• Desalting – Prior to distillation, crude oil is often desalted to remove

corrosive salts as well as metals and other suspended solids.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. V Di ill i H d id (“b ”) f h• 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 decompositionand 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• 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 g y p g ymolecules 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 bj t d t h t i th f t l t d l l l k i t llsubjected 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

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catalyst allows the cracking reaction to proceed at lower temperatures than in catalytic cracking, although pressures are much higher.

Major Refining Processes –Combination

Definition• Linking two or more hydrocarbon molecules together to form a large• 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• 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.P l i ti P th t bi ll l l t d hi h• 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

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g g p pimportant feedstock for alkylation.

Major Refining Processes – TreatingDefinition• Processing of petroleum products to remove some of the sulfur,

nitrogen heavy metals and other impuritiesnitrogen, heavy metals, and other impuritiesProcess• Catalytic Hydrotreating, Hydroprocessing, sulfur/metals removal –

Used to remove impurities (e.g. sulfur, nitrogen, oxygen and halides) p ( g g yg )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. g , p

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List of Refining AcronymsAGO – Atmospheric Gas OilATB – Atmospheric Tower BottomsB–B – Butane–Butylene FractionBBLS – Barrels

kVA – Kilovolt AmpLCO – Light Cycle OilLGO – Light Gas OilLPG – Liquefied Petroleum Gas

BPD – Barrels Per DayBTX – Benzene, Toluene, XyleneCARB – California Air Resource BoardCCR – Continuous Catalytic RegeneratorDAO – De–Asphalted OilDCS Di t ib t d C t l S t

LSD – Low Sulfur DieselLSR – Light Straight Run (Gasoline)MON – Motor Octane NumberMTBE – Methyl Tertiary–Butyl EtherMW – MegawattNGL N t l G Li idDCS – Distributed Control Systems

DHT – Diesel HydrotreaterDSU – Desulfurization Unit EPA – Environmental Protection AgencyESP – Electrostatic PrecipitatorFCC – Fluid Catalytic Cracker

NGL – Natural Gas LiquidsNOX – Nitrogen OxidesP–P – Propane–PropylenePSI – Pounds per Square InchRBOB – Reformulated Blendstock for Oxygen Blending RDS – Resid DesulfurizationFCC Fluid Catalytic Cracker

GDU – Gasoline Desulfurization UnitGHT – Gasoline HydrotreaterGOHT – Gas Oil HydrotreaterGPM – Gallon Per MinuteHAGO – Heavy Atmospheric Gas Oil

RDS Resid DesulfurizationRFG – Reformulated GasolineRON – Research Octane NumberRVP – Reid Vapor PressureSMR – Steam Methane Reformer (Hydrogen Plant)SOX – Sulfur Oxides

HCU – Hydrocracker UnitHDS – HydrodesulfurizationHDT – HydrotreatingHGO – Heavy Gas OilHOC – Heavy Oil Cracker (FCC)H2 Hydrogen

SRU – Sulfur Recovery UnitTAME – Tertiary Amyl Methyl EtherTAN – Total Acid NumberULSD – Ultra–low Sulfur DieselVGO – Vacuum Gas OilVOC Volatile Organic Compound

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H2 – HydrogenH2S – Hydrogen SulfideHF – Hydroflouric (acid)HVGO – Heavy Vacuum Gas OilkV – Kilovolt

VOC – Volatile Organic CompoundVPP – Voluntary Protection ProgramVTB – Vacuum Tower BottomsWTI – West Texas IntermediateWWTP – Waste Water Treatment Plant