Valero Energy: J.P. Morgan Natural Resources Conference Takeaways

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Valero Energy: J.P. Morgan Natural Resources Conference Takeaways

Port Arthur was for the most part running in 1Q, with

crude throughput now back to normal. The kerosene hydrotreater is now mechanically

complete and is expected back online by 3Q, aligned with prior guidance, though

management has not yet provided any guidance on the timing of the diesel hydrotreater

coming back online given the extent of damage. Until the diesel hydrotreater is repaired,

Port Arthur will be making some high sulfur diesel, which VLO will either sell into the

market or move to another USGC refinery with spare diesel hydrotreater capacity,

whichever delivers the best netback at market pricing. This aligns with our existing view

that the diesel hydrotreater remains a potential capture headwind into 2Q. As a reminder,

VLO plans to update capex guidance when a definitive cost estimate and repair timeline

are available, and our current FY26 capex estimate excludes any capex associated with

the hydrotreater rebuild.

• Ethanol is benefiting from a global demand pull and the cheapest octane in the

world. Management reiterated that as hydrocarbon prices have risen, ethanol has become

the cheapest form of octane in the world, driving global demand with countries moving

from E0 to E10, Brazil going from E30 to E32, and India targeting E20 and potentially

higher. Management noted VLO has gained entry into several new countries as a result

of the Strait of Hormuz crisis, with some buyers building SPRs and others finding

alternatives. On E15, management expects domestic blending to increase over time given

it is the cheapest form of octane and remains economic as long as corn pricing remains

at the ~$4/bushel level, though it characterized the near-term domestic pace as slow.