PETROLEUM REFINING PowerPoint Presentation

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PETROLEUM REFINING. AGENDA. Introduction Trade Overview Threat Analysis Firm Evaluation Valero Energy Corporation Provident Inter Pipeline Conclusion Suggestions . Industry OVERVIEW. Principal Sector in Oil and Gasoline Trade. Petroleum Refining.

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AGENDA

– Introduction

– Business Overview

– Danger Evaluation

– Company Evaluation

– Valero Power Company

– Provident

– Inter Pipeline

– Recommendations

Industry OVERVIEW

– A refinery takes a raw materials (crude oil) and transforms it into petrol and lots of of different helpful products.

– What refining does:

– Adjusts and reshapes molecules

– Standardizes product

– Removes contaminants to meet requirements for:

– finish-user performance

– environmental rules

– All refineries perform three primary steps:

– Separation: fractional distillation)

– Conversion: cracking and rearranging the molecules

– Remedy: mixing, purifying, nice-tuning and improving merchandise to satisfy specific requirements

U.S. Prime Refineries Firms in 2011

Thousand of Cube Meters per day in 2007

IMPLICATIONS:DOWNSTREAM DIVESTMENTS

– Built-in majors continuing to exit refining business – some through divestment of refining belongings and some by means of spinning off of Downstream enterprise as a separate corporate entity.

– Result is that refinery ownership is transferring away from integrated majors towards non-built-in companies.

– To stay viable, refining companies will want to be able to generate adequate money to supply an ample return to their owners

– Refining margin = complete value of petroleum products – the worth of the uncooked materials-other costs

– Main Prices

– Fixed operating costs: labour, upkeep, taxes and overhead prices

– Variable working prices: feed-dependent prices for energy, water, chemicals, additives, catalyst and refinery fuels past own production

– Transport prices

– Marginal crude freight

– Insurance and ocean loss

– Relevant charges and duties

$/barrel

REGULATION Setting

– EPA has started to suggest regulation of GHG’s under present CAA packages equivalent to Automobile Emissions standards rule, Prevention of significant Deterioration, and New Source Performance Requirements

– Under these rules, permits will be required for tasks that emit threshold levels of CO2 (regardless of emissions of other standards pollutants similar to SOx, NOx, and many others.

– Considerably more permits might be required for refinery modifications

– Require installation of BACT (Best Available Management Technology) for managing CO2 emissions. BACT to be determined on case-by-case foundation.

– EPA is at present engaged on strategy for refinery GHG measures: Vitality managementCommand and control (source particular emission limits) Benchmarking

– In any case, larger give attention to power reduction initiatives will likely be required.

– RFS program was created below the Power Policy Act of 2005. Established first renewable gas mandate – 7.5 billion gallons by 2012

– Established new classes of renewable fuel and mandates for each, and elevated volumes of renewable gas (9 billion gallons in 2008 to 36 billion gallons by 2022)

– Progress in biofuels exceeds general growth in transportation fuels – elevated strain on refining

– Significant growth in facilities required to manufacture, retailer, transport, and blend biofuels

– Impact of accelerating biofuels volumes will result in changes to mix of gasoline blending elements – refinery configuration and/or new applied sciences

– Clean Air Act

– Dominant regulatory effect on refinery operations

Reformulated gasoline (RFG) standards

– Affects operations indirectly by way of restrictions on product mix

Clear Water Act

RCRA

State rules

Corporate Common Gasoline Economic system (CAFE) standards

– Indirect effect by performance necessities on merchandise

Risk Analysis

– Operational Risk

– Environmental Consideration

– Financial and Political Danger

– Commodity Danger

– Monetary Risk

– Regulatory Limitations

– Limitation on Capacity

– Air

Refinery emissions comprise several major ozone precursors. The related impacts would be most significant close to and downwind of a given facility.

– Water and soil

Potential for contamination from leaks and spills

– Carcinogens

Benzene is a major element of refinery air emissions

– Global warming

Future Regulation: Waxman-Markey Laws

– Market Atmosphere Characterized by Rising Regulatory Costs and Excess Capacity Abroad

– Rising costs of manufacturing from recently enacted environmental and regulatory requirements.

– Rising competition from foreign competitors – 7.6 – 8.8 million barrels per day (mb/d) of recent refining capability is expected to return on-line by 2015 – eighty% of which might be built outdoors of the OECD. Flat or declining demand for transportation fuels in the U.S. Natural Gas Refining Equipment market.

– Rising taxes, and biofuel mandates will further shrink margins and place 2.5 mb/d of the present 17.5 mb/d of domestic operable capability at high danger of everlasting closure early within the 2015-2030 forecast interval.

Gasoline Costs

– Within the 2015-2030 gasoline prices could rise by a median of $0.20 to $0.40 per gallon below the carbon costs calculated by the U.S. Environmental Safety Agency (EPA).

– Gasoline, and all different petroleum based transportation fuels, might rise by over $1/gallon below some CO2 allowance value forecasts by the U.S. Vitality Data Administration (EIA).

– Sensitivity analysis

– Simulation Analysis

– Likelihood Estimation

– Worth in danger (VaR)

– Diversification and Insurance coverage

– OTC Forward Contracts

– Exchange-Traded Vitality Futures

– International Exchange Futures

– Hedging by Options

– Fortune 500 company based mostly in San Antonio, Texas

– Included in 1981 – Valero Refining & Advertising Firm

– Modified name in 1997 to Valero Energy Company

– 22,000 workers

Bill KlesseChairman of the Board, CEO and President

Began out as chemical engineer

BSciChemEng

MBA in Finance

Mike CiskowskiExecutive Vice President and Chief Monetary Officer

Chargeable for Treasury, Finance, Accounting, Internal Audit, Buying and selling Controls and Insurance

BBA & MBA in Finance

– Jay BrowningSenior Vice President-Corporate Law and Secretary

– Chargeable for Company Governance, Finance, Securities and Change Fee, and information Techniques Support.

– BBA & MBA in Finance

– Donna TitzmanVice President and Treasurer

– Chargeable for the company’s banking, money management, buyer credit and funding administration areas.

– BBA Accounting, CPA

– Refining

– Refining operations, wholesale marketing, product supply and distribution, and transportation operations

– Ethanol

– Sales of internally produced ethanol and distillers grains

– Our ethanol operations are geographically positioned in the central plains area of the U.S.

– Retail

– Firm-operated convenience shops, Canadian dealers/jobbers, truckstop facilities, cardlock amenities, and house heating oil operations.

– Segregated into Retail-US and Retail-Canada

2010 Refining Capability in USA

Gross margin: 9.2%

Operating margin: Three%

– 16 petroleum refineries are situated in the United States (U.S.), Canada, the United Kingdom (U.Okay.), and Aruba

– Typical gasolines

– Distillates

– Jet gas

– Asphalt

– Petrochemicals

– Lubricants

– Premium merchandise together with CBOB and RBOB1

– Gasoline assembly the specs of the California Air Sources Board (CARB)

– CARB diesel gasoline

– Low−sulfur and ultra−low−sulfur diesel gasoline

– Approximately 63 percent of our present crude oil feedstock necessities are bought by way of term contracts whereas the remaining necessities are usually purchased on the spot market.

– The vast majority of the crude oil bought below our term contracts is purchased at the producer’s official said price (i.e., the “market worth established by the seller for all purchasers) and never at a negotiated worth particular to us.

– We market our refined merchandise by an intensive bulk and rack marketing network and we sell refined products by way of a community of roughly 6,800 retail and wholesale branded shops in the United States (U.S.), Canada, the United Kingdom (U.K.), Aruba, and Eire underneath numerous model names including Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®

– 10 ethanol plants in the Midwest

Retail – U.S.

Common 119,780 BPD

Fuels offered underneath Valero model

Convenience store merchandise and services

998 company-operated websites under Corner Retailer model identify

Retail – Canada

Gross sales of transportation fuels

Average 76,one hundred BPD

Fuels sold underneath Ultramar model

791 outlets

381 owned

410 impartial dealers and jobbers

Gross sales of house heating oil to residential customers

– “leads in shareholder value development via innovative, efficient upgrading of low price feedstocks into excessive worth, high quality merchandise. /p>

– Aggressive “growth by way of acquisitions technique

– Since 1997

– 1,000 to 22,000 workers

– 1 to sixteen refineries

– 0.2 to three million BPD capacity

– The Board considers oversight of Valero’s risk management efforts to be a responsibility of the total board

– Risk management is an integral part of Valero’s annual strategic planning course of, which addresses, amongst different issues, the risks and opportunities dealing with Valero

“The Board had a Finance Committee in 2010. The Finance Committee reviewed and monitored the investment insurance policies and performance of our Thrift Plan and pension plans, insurance coverage and risk administration policies and applications, and finance issues and policies as needed. Throughout 2010, the members of the Finance Committee were Irl F. Engelhardt (Chairman), Ruben M. Escobedo, Bob Marbut, Susan Kaufman Purcell, and Stephen M. Waters. The Finance Committee met 3 times in 2010.