Valero Energy : Basics of Refining and Renewable Diesel

Agenda

• 1 Crude Oil Overview

• 2 Refining Basics

• 3 Refinery Optimization and Economics

• 4 Renewable Diesel Basics

Crude Oil Characteristics

• • 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

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

Basic Refining Concept

7

Medium Conversion: Catalytic Cracking

Fuel Gas

8% Propane

Butane

43%

Gasoline RBOB CBOB Conventional CARB Premium

Distillate

ULSK

30% Jet Fuel

ULSD Heating Oil

19%

Fuel Oil Asphalt & Other

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

High Complexity: Coking / Resid Destruction

6%

Fuel Gas Propane Butane

47%

Gasoline RBOB CBOB Conventional CARB Premium

33%

Distillate Jet Fuel ULSK ULSD Heating Oil

Heavy

14% Fuel Oil & Other

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

Maximizing Refinery Profit

Linear 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

Optimizing Breakfast from an Engineer's Point of View

Solve for number of servings of each item:

Consume at least 18 grams of protein

3 g

4 g

6 g

8 g

2g

• ≥ 18 gramsprotein

  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

Crude Oil Break Even Values

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

Products	Light Sweet(1)Medium Sour(2)Heavy Sour(2) Yields Yields Yields	Light Sweet @ $99/bblLight Sweet @ $51/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 Break Even Values (High and Low Crude Prices)

Crude	Light Sweet @ $99/bblLight Sweet @ $51/bbl BEV BEV	BEV @ $99/bbl % of Light SweetBEV @ $51/bbl % of Light Sweet
Medium sour	-$3.55 -$2.58	96% 95%
Heavy sour	-$7.76 -$5.65	92% 89%

Crude Oil Differentials Versus ICE Brent

Premium

5%

0%

-5%

-10%

Discount

-15%

-20%

-25% 2008

Maya (heavy sour)

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

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Source: Argus. ASCI represents Argus Sour Crude Index.

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

Active Low-carbon Mandates

Carbon Mandatesin Development or

GHG Emissions Goal

2030 GHG Emissions Reduction Target	Net-Zero GHGEmissions Target	Primary Transportation Fuel Policy Mechanism	2030LiquidFuels Goal
California	40%	Net-zero by 2045	Low Carbon Fuel Standard (LCFS)	Reduce thecarbon intensity of transportation fuels by atleast20%
Canada	30%	Net-zero by 2050	Clean Fuel Standard (CFS) - enforcement expected 2022	Reduce the carbon intensityoftransportation fuels by10-12%
EU	40%	Net-zero by 2050	Renewable Energy Directive II (RED II)	Replace 14% of transport fuels with biofuels
Other Policies in Place	• Oregon is matching California'sGHG reduction target and has an LCFS policy in place • British Columbia and Ontario have existing low-carbon fuels policies • Sweden is implementing a21% 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

California RenewableDiesel Consumption

(million gallons)

618

113

2014

2015

2016

2017

2018

2019

LCFS Credit Price

(monthly average, $ per metric ton)

$200

$100

$0

2014

2015

2016

2017

2018

2019

2020

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

Diamond Green Diesel (DGD) Feedstock and Margin Indicator

DGD Feedstock Carbon Intensity and Product Value

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

DGD Margin Indicator $ per gallon

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)

NYMEX ULSDD4 RINLCFSFeedstockRenewable Diesel Margin

Questions and Answers

Appendix Contents

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

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.

Major Refining Processes - Cracking

• • 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 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, 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 - 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 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 - Treating

• • 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.

Refining and Renewable Diesel Acronyms

• • AGO - Atmospheric Gasoil

  • • HAGO - Heavy 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

• • 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

• • 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

Investor Relations Contacts

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