Refining 101 + Technical Teach

Teach--in on the
Hydrotreater & Hydrocracker

January 13, 2009

 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
th S
the Securities
iti E Exchange
h AActt off 1934
1934. Th
The words
d "believe,"
"b li "
"expect," "should," "estimates," and other similar expressions
identify forward–looking statements. It is important to note that
actual
t l resultslt could
ld differ
diff materially
t i ll from
f those
th projected
j t d iin
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.

2
 Rich Marcogliese
g

Executive Vice President

and
Chief Operating Officer

3
 Crude Oil Characteristics
ƒ Crudes are classified and priced by density and sulfur content
ƒ Crude 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
ƒ 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
ƒ Acid content is measured by Total Acid Number (TAN)
• Acidic crudes highly corrosive to refinery equipment
• High
Hi h acid
id crudes
d are those
h with
i h TAN greater than
h 0 0.7
7

4
 Crude Oil Basics
Crude Oil Quality by Types
4.0%
Cold Lake Estimated Quality of Reserves (2007)
SOUR

3.5% Cerro Negro

Maya
WCS
3.0%
M-100 (resid) Arab Heavy Sweet
UR CONTENT

2.5% Arab Medium High Acid

(Sweet) 19%
2 0%
2.0%
Napo Dubai
1% Light/Medium
Mars
SULFU

Iran Heavy Arab Light Sour

Ameriven-
1.5% Hamaca 14%
Urals 66%
Heavy
Alaskan North
1.0% Slope Sour
EET
SWE

0.5% WTI
Brent
Tapis
Cabinda Bonny Light
0.0%
15 20 25 30 35 40 45 50
Source: DOE, Oil & Gas Journal, Company Information
HEAVY API GRAVITY LIGHT
Source: Industry reports

ƒ Majority of global crude oil reserves are sour

ƒ Most quoted benchmark prices are light sweet crude oils
• WTI (West
(W t Texas
T Intermediate),
I t di t ) Western
W t Hemisphere
H i h
• Brent (North Sea Crude), Europe

5
 What’s in a Barrel of Crude Oil?
Crude Oil Types Characteristics Inherent Yields
3% 2007 U.S. Refinery
> 34 API Gravity Production
Light Sweet 32%
< 0.7 % Sulfur
(e.g. WTI, LLS, Brent) Propane/
Refinery
30% 8%
8% Butane
35% Demand Gases

Most Expensive 35%

Gasoline
RFG
48% Conventional
24 to 34 API Gravity
2% CARB
24% Premium
Medium Sour > 0.7 % Sulfur
((e.g.
g Mars,, Arab Light,
g , 26%
Arab Medium, Urals) 50% Demand
35% Distillate
Less Expensive 48% Jet Fuel
Diesel
Heating Oil

< 24 API Gravity 1%

15% Heavy
> 0.7 % Sulfur 21% 9% Fuel Oil &
Heavy Sour Other
(e.g. Maya, Cerro Negro, Cold 15% Demand
Lake, Western Canadian Select) Least Expensive 63% Source: EIA Refiner Production

Refineries upgrade crude oil to higher value products

6
 Basic Refining Concepts
Intermediates Final Products
< 90°F Propane, Butane • Refinery fuel gas
C1 to C4 and lighter • Propane
• NGLs
90–220°F Straight Run More
Gasoline (low • Gasoline (high octane)
C5 to C8 processing
octane)
Crude oil
220–315°F More • Gasoline (high octane)
Naphtha
Distillation C8 to C12 processing • Jet fuel
Tower
(Crude • Kerosene
Unit) 315–450°F More • Jet fuel
Kerosene
C12 to C30 processing • Diesel
• Fuel oil

More • Gasoline (high octane)

450–650°F Light Gas Oil
Furnace • Diesel
processing
i
C30 to C50+ • Fuel oil

More • Gasoline (high octane)

650–800°F Heavy Gas Oil • Diesel
Vacuum C 30 to C50+ processing • Fuel oil
Unit
• Gasoline (high octane)
800+°F Residual Fuel More • Diesel
Oil/Asphalt processing • Fuel oil
C50 to C100+
• Lube stocks
7
 Hydroskimming/Topping Refinery
Crude
Unit
Propane/
Propane/Butane 4% Butane

Gasoline
Reformer High Octane Gasoline
Low Octane Gasoline RFG
32%
n Tower

and Naphtha Conventional

CARB
Hydrogen
Premium
Light
Distillation

HS Kerosene/Jet Fuel Distillate

Sweet Desulfurizer
LS Kerosene/Jet Fuel
32% Distillate
Jet Fuel
Crude Diesel
HS Diesel/Heating Oil LS Diesel/Heating Oil
Heating g Oil

Vacuum Gas Oil Heavy

Fuel Oil &
Unit 32% Other

Heavy Fuel Oil

100% Total Yield

Simple, low upgrading capability refineries run sweet crude
8
 Crude and Vacuum Towers

Reactor

Heater

Crude Atmospheric Tower Vacuum Tower Reformer

9
 Medium Conversion: Catalytic Cracking
Crude
Unit Propane/
Propane/Butane 8% Butane

Gasoline
G li
Reformer RFG
Low Octane Gasoline High Octane Gasoline 45% Conventional
and Naphtha
n Tower

CARB
Hydrogen Premium

Distillate
Light
Distillation

HS Kerosene/Jet Fuel
F el LS Kerosene/Jet Fuel
Desulfurizer Distillate
31%
Sour HS Diesel/Heating Oil LS Diesel/Heating Oil
Jet Fuel
Diesel
Crude Heating Oil

Light Cycle Oil

(LCO)

Alkylation
Unit Alkylate
Fluid Catalytic
Vacuu G Oil
Gas Cracker (FCC)
m Unit FCC Gasoline Heavy
Fuel Oil &
20% Other
Heavy Fuel Oil

104% Total Yield

Moderate upgrading capability refineries tend to run more sour crudes
while achieving increased higher value product yields and volume gain 10
 High Conversion: Coking/Resid
Destruction
Hydrogen Plant
Crude
Gas
Unit
Propane/
Propane/Butane 7% Butane

Gasoline
RFG
on Tower

Low Octane Gasoline Reformer High Octane Gasoline 50% Conventional

and Naphtha CARB
Medium/ Hydrogen
Premium
Distillatio

Heavy Distillate 36% Distillate

HS Kerosene/Jet Fuel LS Kerosene/Jet Fuel
Sour Desulfurizer Jet Fuel
Diesel
Crude HS Diesel/Heating Oil LS Diesel/Heating Oil Heating Oil

Hydrocracker Hydrocrackate Gasoline

Light Gas Oil
Ultra Low Sulfur Jet/Diesel
LCO Alkylation
U it
Unit Alky Gasoline
Fluid Catalytic
Vacuum Medium Gas Oil Cracker (FCC)
Unit FCC Gasoline
Heavy
Fuel Oil &
Delayed 15% Other
Heavy Fuel Oil Coker Coke
108% Total Yield
Complex refineries can run heavier and more sour crudes while achieving the
highest light product yields and volume gain 11
 FCC and Hydrocracker Reactors
Fluidized Catalytic Cracker
Reactor Hydrocracker Reactors

Main Column Regenerator

12
 Cokers
Delayed Coker
Superstructure holds the drill and drill stem
Fluid Coker
g in the drum
while the coke is forming

13
 Conversion Economics
$/Bbl 6-3-2-1 Crack Spread
45
40
35
30
25
20
15
10
5
0
-5
Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08
LLS (Light Sweet) Mars (Medium Sour) Maya (Heavy Sour)

ƒ 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
‰ When margins are negative – decrease crude oil runs
• Cracking – Better margins; Lower resid yield
• Coking – Best margins; Lowest resid yield
‰ Maximize heavy crude oils 14
 Desulfurization Basics
Objective
ƒ Remove sulfur from light products (gasoline or diesel) to meet air quality
requirements
i t ffor clean
l b
burning
i fuels
f l
ƒ Units are called desulfurization or hydrotreater

D
Desulfurization
lf i ti UnitU it
HC Desulfurized Light Products
High Sulfur HC-S H2 HC-S
Light HC-S
H2
Products H2 Elemental
C t l t
Catalyst
(HC-S) Sulfur Plant Sulfur
HC-S HC-S • Agricultural
H2S S S S
H2 S • Pharmaceutical
HC-S
S S

Hydrogen Unit
H2 LEGEND
H2 H2
HC : Hydrocarbon
y
H2 1000 or less PSI; H2 : Hydrogen
H2 H2
700 F or less
S : Sulfur
15
 Hydrocracking Basics
Objective
ƒ Value added upgrading of high sulfur distillates to low sulfur gasoline and ultra
l
low sulfur
lf jet/diesel
j t/di l to
t meett air
i quality
lit requirements
i t for
f clean
l burning
b i fuels
f l
ƒ Typically achieve 20% to 25% volume expansion due to hydrogen saturation

H d
Hydrocracking
ki Unit
U it HC Desulfurized Hydrocrackate Gasoline
High Sulfur HC-S H2 HC-S
Distillate HC-S H2 H2
H2 HC Desulfurized Ultra Low Sulfur Jet/Diesel
H2
(HC S)
(HC-S) C t l t
Catalysts H2 El
Elemental
t l
H2
HC-S H2 H2 HC-S Sulfur Plant Sulfur
• Agricultural
H2 H2S S S S
HC-S S • Pharmaceutical
S S

Hydrogen Unit
H2 LEGEND
H2 H2
HC : Hydrocarbon
H2 1300+ PSI;
H2 H2 H2 : Hydrogen
725 to 780 F
S : Sulfur
16
 Hydrocrackers

McKee Hydrocracker Corpus Christi Hydrocracker

 Distillate Yield Maximization
ƒ Recent economics have incentivized maximization of
distillate rather than gasoline
ƒ Typical opportunities to increase distillate yields
• Immediate, non-capital opportunities +2 to 4%
‰ Examples:
E l O
Optimization
ti i ti off distillation
di till ti cutt points,
i t
re-routing of intermediate streams, and tank optimization
• Non-capital taking < 1yr +1 to 2%
‰ Examples: FCC
CC catalyst change, HCU
C catalyst selection
• Capital projects taking < 1 yr +1 to 2%
‰ Examples: Minor hardware changes (tower internals,
reactor
t distributors,
di t ib t ect.),
t) h hydraulic
d li d debottlenecking
b ttl ki
• Capital projects taking > 1 year +3 to 5%
‰ Examples: Install/expand distillate draw capacity
on fractionators
fractionators, additional fractionation
fractionation, new HCU
Total +7 to 13%
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Q&A

19
Appendix

20
 Major Refining Processes – Crude
Processing
ƒ Definition
• Separating crude oil into different hydrocarbon groups
• The most common means is through distillation
ƒ 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
V Distillation
Di ill i – Heavy
H crude
d residue
id (“b (“bottoms”)
”) ffrom the
h
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
 Major Refining Processes – Cracking

ƒ Definition
• “Cracking”
Cracking or breaking down large
large, heavy hydrocarbon molecules into
smaller hydrocarbon molecules thru application of heat (thermal) or through
the use of catalysts
ƒ 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 g – Thermal non–catalytic
y process
p used to convert large
g hydrocarbon
y
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
bj t d to t heat
h t in
i the
th presence off catalyst
t l t and
d llarge molecules
l l crackk iinto
t smaller
ll
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
 Major Refining Processes –
Combination

ƒ 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
ƒ 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
P l i ti – Process
P th t combines
that bi smaller
ll molecules
l l tto produce
d hi
high
h
octane blending stock.
• Isomerization – Process used to produce compounds with high octane for
blendingg into the g
gasoline p
pool. Also used to p
produce isobutene, an
important feedstock for alkylation.

23
 Major Refining Processes – Treating
ƒ Definition
• Processing of petroleum products to remove some of the sulfur,
nitrogen heavy metals
nitrogen, metals, and other impurities
ƒ Process
• Catalytic Hydrotreating, Hydroprocessing, sulfur/metals removal –
p
Used to remove impurities ((e.g.
g sulfur, nitrogen,
g oxygen
yg 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,
g , more saleable p
products.

24
 List of Refining Acronyms
ƒ AGO – Atmospheric Gas Oil ƒ kVA – Kilovolt Amp
ƒ ATB – Atmospheric Tower Bottoms ƒ LCO – Light Cycle Oil
ƒ B–B – Butane–Butylene Fraction ƒ LGO – Light Gas Oil
ƒ BBLS – Barrels ƒ LPG – Liquefied Petroleum Gas
ƒ BPD – Barrels Per Day ƒ LSD – Low Sulfur Diesel
ƒ BTX – Benzene, Toluene, Xylene ƒ LSR – Light Straight Run (Gasoline)
ƒ CARB – California Air Resource Board ƒ MON – Motor Octane Number
ƒ CCR – Continuous Catalytic Regenerator ƒ MTBE – Methyl Tertiary–Butyl Ether
ƒ DAO – De–Asphalted Oil ƒ MW – Megawatt
ƒ DCS – Distributed
Di t ib t d Control
C t l Systems
S t ƒ NGL – Natural
N t l Gas
G Liquids
Li id
ƒ DHT – Diesel Hydrotreater ƒ NOX – Nitrogen Oxides
ƒ DSU – Desulfurization Unit ƒ P–P – Propane–Propylene
ƒ EPA – Environmental Protection Agency ƒ PSI – Pounds per Square Inch
ƒ ESP – Electrostatic Precipitator ƒ RBOB – Reformulated Blendstock for Oxygen Blending
ƒ FCC – Fluid Catalytic Cracker ƒ RDS – Resid Desulfurization
ƒ GDU – Gasoline Desulfurization Unit ƒ RFG – Reformulated Gasoline
ƒ GHT – Gasoline Hydrotreater ƒ RON – Research Octane Number
ƒ GOHT – Gas Oil Hydrotreater ƒ RVP – Reid Vapor Pressure
ƒ GPM – Gallon Per Minute ƒ SMR – Steam Methane Reformer (Hydrogen Plant)
ƒ HAGO – Heavy Atmospheric Gas Oil ƒ SOX – Sulfur Oxides
ƒ HCU – Hydrocracker Unit ƒ SRU – Sulfur Recovery Unit
ƒ HDS – Hydrodesulfurization ƒ TAME – Tertiary Amyl Methyl Ether
ƒ HDT – Hydrotreating ƒ TAN – Total Acid Number
ƒ HGO – Heavy Gas Oil ƒ ULSD – Ultra–low Sulfur Diesel
ƒ HOC – Heavy Oil Cracker (FCC) ƒ VGO – Vacuum Gas Oil
ƒ H2 – Hydrogen ƒ VOC – Volatile Organic Compound
ƒ H2S – Hydrogen Sulfide ƒ VPP – Voluntary Protection Program
ƒ HF – Hydroflouric (acid) ƒ VTB – Vacuum Tower Bottoms
ƒ HVGO – Heavy Vacuum Gas Oil ƒ WTI – West Texas Intermediate
ƒ kV – Kilovolt ƒ WWTP – Waste Water Treatment Plant
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