Global Energy Management Institute The 2006 Refining Conference The Future of the Gulf Coast Refining Industry Nov

1. 1 Global Energy Management InstituteThe 2006 Refining Conference�The Future of the Gulf Coast Refining Industry�November 3, 2003 Gene Edwards Valero Energy Corporation

2. 2 Critical Uncertainties

3. 3 GDP growth of 4.2% and efficiency improvements of 1.6% per year Compares to a 35 year historical GDP growth of 3.7% and efficiency improvement of 1.7% per year World petroleum demand grows 1.6 to 1.8% per year Compares to historical oil demand growth of 1.7% World demand expected to grow 1.4 to 1.6 MMBPD per year over the next 5 years but added efficiency gains due to higher prices could reduce that.

4. 4 Oil prices have risen strongly over the last few years due to the reduction of spare OPEC capacity and increasing geopolitical risks Increases in non-OPEC supplies through the end of the decade come at the same time OPEC countries are adding capacity that should ease prices There are risks that non-OPEC supplies will come on more slowly than expected After 2010, OPEC again will be heavily relied upon to meet growing demand, providing support to the crude market Non-OPEC production growth through 2010 should help ease prices.

5. 5 Middle East growth will be led by Saudi Arabia and Kuwait Iran and Iraq both have supply growth potential but geopolitical consequences limit growth FSU growth fairly evenly split between Russia, Kazakhstan, and Azerbaijan African growth distributed between Angola, Nigeria, Algeria and Libya North American growth dominated by Canada�s oil sands Crude supply growth moving forward will be dominated by the Middle East, FSU, and Africa along with Canada.

6. 6 Growth in sweet crude, but high demand from Far East refiners Growth in High TAN grades in the short term Heavy is growing less quickly than historically Majority of growth is in medium sour crude oil.

7. 7 Lacking logistics to bring crude to USGC market (two proposed pipeline projects exist) High cost of developing fields Threat of Canadian upgrader projects Threat of increased capacity from Mid-Continent refinery upgrades

8. 8 Emerging economies lead world growth Asia alone accounts for nearly 53% with China about half of that U.S. demand grows 1.1% annually (240 MBPD) as the economy grows at its 3.1% per year long-term average

9. 9 World gasoline consumption grows about 1.1 - 1.3 MMBPD Asia makes up 62% of global growth while European demand continues to decline World diesel demand grows about 2.5 � 2.7 MMBPD Asia makes up 47% of this growth The U.S. makes up 37% of expected gasoline growth but only 11% of diesel growth

10. 10 U.S. gasoline demand is expected to continue growing, although at a slowing pace as a result of new engine technologies and changing consumer preferences. U.S. gasoline demand to grow at 1.0 to 1.3% per year (450 to 600 MBPD) over the next five years Supply Demand balance remains relatively tight over the next few years Longer-term, the supply-demand balance loosens due to numerous factors increasing supply: Increased ethanol production Increased production from U.S. refinery expansions Increasing imports from Europe and new foreign refineries

11. 11 Diesel demand to grow 1.4 � 1.7% per year (300 to 350 MBPD) over the next five years driven by growth in on-road consumption as a result of economic growth.

12. 12 U.S. diesel markets will continue to be affected by product specification changes until nearly all uses are at ULSD quality in 2012.

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