Refinery General Info

8/16/2019 Refinery General Info

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Lehman BrothersLehman Brothers

Analyst TeachAnalyst Teach--InInFebruary 17, 2005February 17, 2005

Refining Fundamentals &

Impact of Changing Fuel Specifications


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This presentation is not the property of Lehman Brothers. It is being

reproduced and distributed by Lehman Brothers as a convenience to

you. 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

information purposes only and should not be regarded as an offer tosell or as a solicitation of an offer to buy any product to which this

information relates.

Lehman Brothers Disclaimer StatementLehman Brothers Disclaimer Statement


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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 of1933 and the Securities Exchange Act of 1934. It is important

to note that the Company’s actual results could differ

materially from those projected in such forward-looking

statements. Factors that could affect those results includethose mentioned in the documents that the Company has filed

with the Securities and Exchange Commission.

Safe Harbor StatementSafe Harbor Statement


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Rich Marcogliese

Senior Vice President,Refining Operations


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Crude Oil CharacteristicsCrude Oil Characteristics

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

Classified as light, medium, or heavy

Light crudes are easier to process

Heavy crudes are more difficult to process

Sulfur content measures if a crude is sweet (low sulfur) or

sour (high sulfur) Less than 0.7% sulfur content = sweet

Greater than 0.7% sulfur content = sour

High sulfur crudes require additional processing to meet regulatoryspecs

Acid content measured by Total Acid Number (TAN)

Acidic crudes highly corrosive to refinery equipment

High acid crudes are those with TAN > 0.7


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Crude Oil BasicsCrude Oil Basics

Estimated Quality of Reserves (2005)

16%

2% 19%

63%

High Acid

(Sweet)

Source: Oil & Gas Journal, Company Information

Light/Medium

Sour

Heavy

Sour

Sweet

Bonny Light

1980

Brent

Mars

Maya

Arab Medium

Arab Heavy

Cabinda

Urals

Iran Heavy

Iran Light

Dubai

TapisWTI

Alaska North Slope

(ANS)

1990

2000

2010Arab Light

Venezuela Medium

0

0.5

1

1.5

2

2.5

3

3.5

20 25 30 35 40 45 50

S W E E T

S U L F U R C O N T E N T

S O U R

HEAVY API GRAVITY LIGHT

Crude Quality by Types

Source: Simmons & Co.

Majority of global reserves are light/medium sour

Most quoted benchmark prices are light sweet crudes WTI (West Texas Intermediate), Western Hemisphere

Brent (North Sea Crude), Europe Global crude supply is becoming heavier and more sour


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50%

26%

21%

3%

63%

22%

14%

1%

33%

34%

30%

3%34+ API Gravity

< 0.7 % Sulfur

35% DemandMost 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

2004 U.S. Refinery

Production

8%

Propane/Butane

49%

Gasoline

RFG

Conventional

CARB

Premium

32% Distillate

Jet Fuel

Diesel

Heating Oil

HeavyFuel Oil& Other

11%

Source: EIA Refiner Production

Basic Refining ConceptsBasic Refining Concepts

Propane/

Butane8%

Sweet Crude

(i.e. WTI, Brent)

Medium Sour Crude(i.e. Mars, Arab Light,

Arab Medium)

Heavy Sour Crude(i.e. Maya)

Crude Types Characteristics Yields


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Crude

Oil

Crude

Oil

Basic Refining ConceptsBasic Refining Concepts

Distillation

Tower

(Crude

Unit)

Butane &Lighter

Refinery FuelGas Processing


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Light

Sweet

Crude

100% Total Yield


30%

Gasoline

RFG

Conventional

CARB

Premium

HydroskimmingHydroskimming RefineriesRefineries – – Distillation ProcessDistillation Process

Simple low upgrading capability refineries tend to run sweet crude

Propane/

Butane

Hydrogen

CrudeUnit

Vacuum

Unit

Reformer Low Octane Gasoline

Propane/Butane

High Octane Gasoline

Heavy Fuel Oil

Kerosene/Jet Fuel

Diesel/Heating Oil

Distillate

Desulfurizer

Diesel/Heating Oil

Kerosene/Jet Fuel

Gas Oil

4%

32%

34% Distillate

Jet Fuel

Diesel

Heating Oil

D i s t i l l a t i o n T o w e r


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Hydrogen

Light Cycle Oil

(LCO)

Crude

Unit

VacuumUnit

Reformer

Alkylation

Unit

Low Octane Gasoline

Propane/Butane

Hi h Octane Gasoline

Heavy Fuel Oil

FCC Gasoline

Kerosene/Jet Fuel

Alkylate

Diesel/Heating Oil

Distillate

Desulfurizer

Diesel/Heating Oil

Kerosene/Jet Fuel

Gas Oil

Fluid Catalytic

Cracker (FCC)

Light

Sour

Crude

104% Total Yield


24%

45%

Gasoline

RFG

Conventional

CARB

Premium

Medium Conversion RefineriesMedium Conversion Refineries -- Catalytic CrackingCatalytic Cracking

Moderate upgrading capability refineries tend to run more sour crudes

while achieving increased higher value product yields and volume gain.

D

i s t i l l a t i o n T o w

e r

Propane/Butane8%

27% Distillate

Jet Fuel

Diesel

Heating Oil


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Hydrogen

LCO

Reformer

Medium Gas Oil

Propane/Butane


Heav Fuel Oil

FCC Gasoline

Kerosene

lky Gasoline

Hydrogen Plant

Hydrocrackate Gasoline

Coke

Gas

Light Gas Oil

Diesel

Kerosene/Jet Fuel

Diesel/Heating Oil

Low Octane Gasoline

Delayed

Coker

Fluid Catalytic

Cracker (FCC)

Alkylation

Unit

Hydrocracker

Distillate

Desulfurizer

Crude

Unit

Vacuum

Unit

Medium/Heavy

Sour

Crude

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

58%

Gasoline

RFG

Conventional

CARB

Premium

108% Total Yield

28% Distillate

Jet Fuel

Diesel

Heating Oil


15%

D i s t i l l a t i o n T

o w e r

High Conversion RefineriesHigh Conversion Refineries – – Coking/Resid DestructionCoking/Resid Destruction

Propane/

Butane7%


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Conversion capacity needed 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

Conversion EconomicsConversion Economics

USGC Medium Sour Crude Refining Margins13.0

11.0

9.0

7.0

5.0

3.0

1.0

-1.0

-3.0

$/BBL

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05


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Valero is an industry leader in upgrading capacity Valero’s upgrading capacity provides superior operational flexibility

Significant capital investment and long lead time required to add

conversion capacity No significant growth in conversion capacity expected until at least

’07 to ’09 time period

Note: VLO includes Aruba and QuebecSource: Oil & Gas Journal, Company Websites

Conversion Capacity1

1: Conversion Capacity = Sum of Coking, Hydrocracking and Cat Cracking Capacity

Cat Cracking

Hydrocracking

Coking

0

200

400

600

800

1,000

1,200

1,400

1,600

XOM VLO COP RDS BP CVX PCO MRO SUN TSO

MBPD

Comparison of Sour Conversion CapacityComparison of Sour Conversion Capacity


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Regulatory Changes Impacting SupplyRegulatory Changes Impacting Supply

Major changes in sulfur specs

2005 in Europe and 2006 in U.S.2005 in Europe and 2006 in U.S.

Capital diverted to regulatory compliance rather than capacityincreases

U.S. Refining Industry expected to invest around $20 billionfor Tier II

150

300

150

120

50

90

5030

1030

’03 ’04 ’05 ’06 Beyond

U.S.

500

350

500 500

350

5015

5015 10

’03 ’04 ’05 ’06 Beyond

Europe

’03 ’04 ’05 ’06 Beyond

U.S.

’03 ’04 ’05 ’06 Beyond

Europe

Maximum Gasoline

Sulfur Content (PPM)

Maximum Diesel

Sulfur Content (PPM)


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Desulfurization BasicsDesulfurization Basics

Goal Removal sulfur from light products (gasoline or diesel) to meetRemoval sulfur from light products (gasoline or diesel) to meet air qualityair quality

requirements for clean burning fuelsrequirements for clean burning fuels

Process

High Sulfur

Light Products(HC-S)

Desulfurization Unit

Sulfur Plant• Agricultural

• Pharmaceutical

Desulfurized Light Products

Elemental

Sulfur

HC-S

HC-SS

HC-S

S

S

Catalyst

HC-SS

HC-S

S

HC

H2S S

HC-S

H 2

Hydrogen Unit

H2

H2

H2

H2

H2H2

H2

H2H2

H2


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LCO

Reformer

Medium Gas Oil

Pro ane/Butane


Heav Fuel Oil

FCC Gasoline

Kerosene

lkylate Gasoline

Hydrogen Plant


Coke

Li ht Gas Oil

Diesel

Kerosene/Jet Fuel

Diesel/Heatin Oil

Low Octane Gasoline

Delayed

Coker

Fluid

Catalytic

Cracker

(FCC)

Alky

Unit

Hydrocracker

Distillate

Desulfurizer

Crude

Unit

Vacuum

UnitFCC

Gasoline

Desulfurizer

Sour

Crude

Install New

FCC

Gasoline

Desulfurizer

Install New

FCC

Gasoline

Desulfurizer

Significant capitalinvestment

Lower FCCgasoline octane

(yield loss)

Other Options

Desulfurize FCCDesulfurize FCC

feedfeed

Shift FCCShift FCCgasoline intogasoline into

distillatedistillate

Gasoline DesulfurizationGasoline Desulfurization

D i s t i l l a t i o n T o w e r


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LCO

Reformer

Medium Gas Oil

Pro ane/Butane


Heav Fuel Oil

FCC Gasoline

Kerosene

lkylate Gasoline

Hydrogen Plant


Coke

Li ht Gas Oil

Diesel

Kerosene/Jet Fuel

Diesel/Heatin Oil

Low Octane Gasoline

Delayed

Coker

Fluid

Catalytic

Cracker

(FCC)

Alky

Unit

Hydrocracker

Modified or New

Diesel Desulfurizer

Kerosene

Desulfurizer

Crude

Unit

Vacuum

Unit FCC

Gasoline

Desulfurizer

Sour

Crude

Install New

Diesel

Desulfurizer

or

Modify Existing

Desulfurizer

Install New

DieselDesulfurizer

or

Modify Existing

Desulfurizer

Significant capitalinvestment

Significant projectmanagement timeand focus

Diesel yield loss

Diesel DesulfurizationDiesel Desulfurization

D i s t i l l a t i o n T

o w e r


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Industry Environment Increasing global demand for clean products

Regulatory changes limiting supply

Reduced yields

Capital spending focused on upgrading existing products versus

capacity increase

Increasing availability of lower quality crudes

Refiner’s Challenges

Process lowest cost crudes into highest value products

Ensure compliance with changing regulatory requirements

Improve efficiency to offset rising per barrel operating costs

SummarySummary


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Appendix


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Major Refining ProcessesMajor Refining Processes

Category Definition ProcessTopping

(Separation of Crude)Separating crude oil into

difference hydrocarbon groups.

The most common means is

through distillation.

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 thedesalted 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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Category Definition ProcessCoking – 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 andsurrounding 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 toproceed at lower temperatures than in catalytic

cracking, although pressures are much higher.

Thermal and

Catalytic Cracking

“Cracking” or breaking down

large, heavy hydrocarbon

molecules into smaller

hydrocarbon molecules thru

application of heat or thru theuse of catalysts.


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Category Definition ProcessCombination/

Rearrangement of

Hydrocarbons

Linking two or more

hydrocarbon molecules together

to form a large molecule (e.g.

converting gases to liquids).

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 where 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.

Ethers Manufacture – Alcohols and ethers (MTBE)are added to gasoline to increase octane levels and

reduce generation of carbon monoxide.


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Category Definition ProcessTreating Processing of petroleum

products to remove some of the

sulfur, nitrogen, heavy metals

and other impurities

Catalytic Hydrotreating, Hydroprocessing,

sweeting/sulfur removal – Used to remove

impurities (e.g. sulfur, nitrogen, oxygen and halides)

from petroleum fractions. Hydrotreating further

“upgrades” heavy feeds by converting olefins anddiolefins to parafins, which reduces gum formation

in fuels. Hydroprocessing also cracks heavier

products to lighter, more saleable products.

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