Cover and table of contents

10-K 1 vloform10-kx12312018.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _______________ to _______________

Commission file number 1-13175

VALERO ENERGY CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	74-1828067
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

One Valero Way
San Antonio, Texas		78249
(Address of principal executive offices)		(Zip Code)
	Registrant’s telephone number, including area code: (210) 345-2000

Securities registered pursuant to Section 12(b) of the Act: Common stock, $0.01 par value per share listed on the New York Stock Exchange.

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes þ No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o Non-accelerated filer o
Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the voting and non-voting common stock held by non-affiliates was approximately $47.5 billion based on the last sales price quoted as of June 29, 2018 on the New York Stock Exchange, the last business day of the registrant’s most recently completed second fiscal quarter.

As of January 31, 2019, 417,614,487 shares of the registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

We intend to file with the Securities and Exchange Commission a definitive Proxy Statement for our Annual Meeting of Stockholders scheduled for April 30, 2019, at which directors will be elected. Portions of the 2019 Proxy Statement are incorporated by reference in Part III of this Form 10-K and are deemed to be a part of this report.

CROSS-REFERENCE SHEET

The following table indicates the headings in the 2019 Proxy Statement where certain information required in Part III of this Form 10-K may be found.

Form 10-K Item No. and Caption			Heading in 2019 Proxy Statement
10.	Directors, Executive Officers and Corporate Governance		Information Regarding the Board of Directors, Independent Directors, Audit Committee, Proposal No. 1 Election of Directors, Information Concerning Nominees and Other Directors, Identification of Executive Officers, Section 16(a) Beneficial Ownership Reporting Compliance, and Governance Documents and Codes of Ethics
11.	Executive Compensation		Compensation Committee, Compensation Discussion and Analysis, Executive Compensation, Director Compensation, Pay Ratio Disclosure, and Certain Relationships and Related Transactions
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		Beneficial Ownership of Valero Securities and Equity Compensation Plan Information
13.	Certain Relationships and Related Transactions, and Director Independence		Certain Relationships and Related Transactions and Independent Directors
14.	Principal Accountant Fees and Services		KPMG LLP Fees and Audit Committee Pre-Approval Policy

Copies of all documents incorporated by reference, other than exhibits to such documents, will be provided without charge to each person who receives a copy of this Form 10-K upon written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000.

i

CONTENTS

		PAGE
PART I		1
Items 1. & 2.	Business and Properties	1
	Overview	1
	Available Information	1
	Valero’s Operations	2
	Environmental Matters	13
	Properties	13
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	21
Item 3.	Legal Proceedings	21
Item 4.	Mine Safety Disclosures	22
PART II		22
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	22
Item 6.	Selected Financial Data	24
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	60
Item 8.	Financial Statements and Supplementary Data	62
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	139
Item 9A.	Controls and Procedures	139
Item 9B.	Other Information	139
PART III		139
Item 10.	Directors, Executive Officers and Corporate Governance	139
Item 11.	Executive Compensation	139
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	139
Item 13.	Certain Relationships and Related Transactions, and Director Independence	139
Item 14.	Principal Accountant Fees and Services	139
PART IV		140
Item 15.	Exhibits and Financial Statement Schedules	140
Signature		144

ii

The terms “Valero,” “we,” “our,” and “us,” as used in this report, may refer to Valero Energy Corporation, to one or more of its consolidated subsidiaries, or to all of them taken as a whole. In this Form 10-K, we make certain forward-looking statements, including statements regarding our plans, strategies, objectives, expectations, intentions, and resources under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You should read our forward-looking statements together with our disclosures beginning on page 25 of this report under the heading: “CAUTIONARY STATEMENT FOR THE PURPOSE OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.”

PART I

ITEMS 1. and 2. BUSINESS AND PROPERTIES

OVERVIEW

We are a Fortune 500 company based in San Antonio, Texas. Our corporate offices are at One Valero Way, San Antonio, Texas, 78249, and our telephone number is (210) 345-2000. We were incorporated in Delaware in 1981 under the name Valero Refining and Marketing Company. We changed our name to Valero Energy Corporation on August 1, 1997. Our common stock trades on the New York Stock Exchange (NYSE) under the trading symbol “VLO.” On January 31, 2019, we had 10,261 employees.

We own 15 petroleum refineries located in the United States (U.S.), Canada, and the United Kingdom (U.K.) with a combined throughput capacity of approximately 3.1 million barrels per day (BPD). Our refineries produce conventional gasolines, premium gasolines, gasoline meeting the specifications of the California Air Resources Board (CARB), diesel, low-sulfur diesel, ultra-low-sulfur diesel, CARB diesel, other distillates, jet fuel, asphalt, petrochemicals, lubricants, and other refined petroleum products. We sell our refined petroleum products in both the wholesale rack and bulk markets, and approximately 7,000 outlets carry our brand names in the U.S., Canada, the U.K., and Ireland. We also own 14 ethanol plants in the Mid-Continent region of the U.S. with a combined production capacity of approximately 1.73 billion gallons per year. We sell our ethanol in the wholesale bulk market.

On January 10, 2019, we completed our acquisition of all of the outstanding publicly held common units of Valero Energy Partners LP (VLP) as described in Note 2 of Notes to Consolidated Financial Statements, which is incorporated herein by reference.

AVAILABLE INFORMATION

Our website address is www.valero.com. Information on our website is not part of this report. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other reports, as well as any amendments to those reports, filed with (or furnished to) the U.S. Securities and Exchange Commission (SEC) are available on our website (under “Investors”) free of charge, soon after we file or furnish such material. In this same location, we also post our corporate governance guidelines and other governance policies, codes of ethics, and the charters of the committees of our board of directors. These documents are available in print to any stockholder that makes a written request to Valero Energy Corporation, Attn: Secretary, P.O. Box 696000, San Antonio, Texas 78269-6000.

VALERO’S OPERATIONS

As of December 31, 2018, we had three reportable segments as follows:

•	Refining segment includes our refining operations, the associated marketing activities, and certain logistics assets, which are not owned by VLP, that support our refining operations;

•	Ethanol segment includes our ethanol operations, the associated marketing activities, and logistics assets that support our ethanol operations; and

•	VLP segment includes the operations of VLP, which is a limited partnership that owns logistics assets that provide transportation and terminaling services to our refining segment.

Financial information about these segments is presented in Note 17 of Notes to Consolidated Financial Statements, which is incorporated herein by reference.

Effective January 1, 2019, we revised our reportable segments to align with certain changes in how our chief operating decision maker manages and allocates resources to our business. Accordingly, we created a new reportable segment — renewable diesel — because of the growing importance of renewable fuels in the market and the growth of our investments in renewable fuels production. The renewable diesel segment includes the operations of Diamond Green Diesel Holdings LLC (DGD), our consolidated joint venture as discussed in Note 12 of Notes to Consolidated Financial Statements. The operations of DGD have been included in the refining segment through December 31, 2018, but were transferred from that segment on January 1, 2019. Also effective January 1, 2019, we no longer have a VLP segment, and we include the operations of VLP in our refining segment. This change was made because of the Merger Transaction with VLP, as defined and discussed in Note 2 of Notes to Consolidated Financial Statements, and the resulting change in how we manage VLP’s operations. We no longer manage VLP as a business but as logistics assets that support the operations of our refining segment.

REFINING

Refining Operations

As of December 31, 2018, our refining operations included 15 petroleum refineries in the U.S., Canada, and the U.K., with a combined total throughput capacity of approximately 3.1 million BPD. The following table presents the locations of these refineries and their approximate feedstock throughput capacities as of December 31, 2018.

Refinery		Location		Throughput Capacity (a) (BPD)
U.S. Gulf Coast:
Port Arthur		Texas		395,000
Corpus Christi (b)		Texas		370,000
St. Charles		Louisiana		340,000
Texas City		Texas		260,000
Houston		Texas		250,000
Meraux		Louisiana		135,000
Three Rivers		Texas		100,000
				1,850,000
U.S. Mid-Continent:
McKee		Texas		200,000
Memphis		Tennessee		195,000
Ardmore		Oklahoma		90,000
				485,000
North Atlantic:
Pembroke		Wales, U.K.		270,000
Quebec City		Quebec, Canada		235,000
				505,000
U.S. West Coast:
Benicia		California		170,000
Wilmington		California		135,000
				305,000
Total				3,145,000

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(a)	“Throughput capacity” represents estimated capacity for processing crude oil, inter-mediates, and other feedstocks. Total estimated crude oil capacity is approximately 2.6 million BPD.

(b)	Represents the combined capacities of two refineries – the Corpus Christi East and Corpus Christi West Refineries.

Total Refining System

The following table presents the percentages of principal charges and yields (on a combined basis) for all of our refineries for 2018, during which period our total combined throughput volumes averaged approximately 3.0 million BPD.

Combined Total Refining System Charges and Yields
Charges:
	sour crude oil	30	%
	sweet crude oil	47	%
	residual fuel oil	8	%
	other feedstocks	4	%
	blendstocks	11	%
Yields:
	gasolines and blendstocks	48	%
	distillates	37	%
	other products (primarily includes petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur and asphalt)	15	%

U.S. Gulf Coast

The following table presents the percentages of principal charges and yields (on a combined basis) for the eight refineries in the U.S. Gulf Coast region for 2018, during which period total throughput volumes averaged approximately 1.8 million BPD.

Combined U.S. Gulf Coast Region Charges and Yields
Charges:
	sour crude oil	40	%
	sweet crude oil	33	%
	residual fuel oil	11	%
	other feedstocks	5	%
	blendstocks	11	%
Yields:
	gasolines and blendstocks	45	%
	distillates	38	%
	other products (primarily includes petrochemicals, gas oils, No. 6 fuel oil, petroleum coke, sulfur and asphalt)	17	%

Port Arthur Refinery. Our Port Arthur Refinery is located on the Texas Gulf Coast approximately 90 miles east of Houston. The refinery processes heavy sour crude oils and other feedstocks into gasoline, diesel, and jet fuel. The refinery receives crude oil by rail, marine docks, and pipelines. Finished products are distributed into the Colonial, Explorer, and other pipelines and across the refinery docks into ships and barges.

Corpus Christi East and West Refineries. Our Corpus Christi East and West Refineries are located on the Texas Gulf Coast along the Corpus Christi Ship Channel. The East Refinery processes sour crude oil, and the West Refinery processes sweet crude oil, sour crude oil, and residual fuel oil. The feedstocks are delivered by tanker and barge via deepwater docking facilities along the Corpus Christi Ship Channel, and West Texas or South Texas crude oil is delivered via pipelines. The refineries’ physical locations allow for the transfer

of various feedstocks and blending components between them. The refineries produce gasoline, aromatics, jet fuel, diesel, and asphalt. Truck racks service local markets for gasoline, diesel, jet fuels, liquefied petroleum gases, and asphalt. These and other finished products are also distributed by ship and barge across docks and third-party pipelines.

St. Charles Refinery. Our St. Charles Refinery is located approximately 25 miles west of New Orleans along the Mississippi River. The refinery processes sour crude oils and other feedstocks into gasoline and diesel. The refinery receives crude oil over docks and has access to the Louisiana Offshore Oil Port. Finished products are shipped over these docks and through our Parkway pipeline and the Bengal pipeline, which ultimately provide access to the Plantation and Colonial pipeline networks.

Texas City Refinery. Our Texas City Refinery is located southeast of Houston on the Houston Ship Channel. The refinery processes crude oils into gasoline, diesel, and jet fuel. The refinery receives its feedstocks by pipeline and by ship or barge via deepwater docking facilities along the Houston Ship Channel. The refinery uses ships and barges, as well as the Colonial, Explorer, and other pipelines for distribution of its products.

Houston Refinery. Our Houston Refinery is located on the Houston Ship Channel. It processes a mix of crude and intermediate oils into gasoline, jet fuel, and diesel. The refinery receives its feedstocks by tankers and barges at deepwater docking facilities along the Houston Ship Channel and by various interconnecting pipelines. The majority of its finished products are delivered to local, mid-continent U.S., and northeastern U.S. markets through various pipelines, including the Colonial and Explorer pipelines.

Meraux Refinery. Our Meraux Refinery is located approximately 15 miles southeast of New Orleans along the Mississippi River. The refinery processes sour and sweet crude oils into gasoline, diesel, jet fuel, and high sulfur fuel oil. The refinery receives crude oil at its dock and has access to the Louisiana Offshore Oil Port. Finished products are shipped from the refinery’s dock and through the Colonial pipeline. The refinery is located about 40 miles from our St. Charles Refinery, allowing for integration of feedstocks and refined petroleum product blending.

Three Rivers Refinery. Our Three Rivers Refinery is located in South Texas between Corpus Christi and San Antonio. It processes sweet crude oils into gasoline, distillates, and aromatics. The refinery has access to crude oil from West Texas and South Texas through third-party pipelines and trucks. The refinery distributes its refined petroleum products primarily through third-party pipelines.

U.S. Mid-Continent

The following table presents the percentages of principal charges and yields (on a combined basis) for the three refineries in the U.S. Mid-Continent region for 2018, during which period total throughput volumes averaged approximately 466,000 BPD.

Combined U.S. Mid-Continent Region Charges and Yields
Charges:
	sour crude oil	1	%
	sweet crude oil	91	%
	blendstocks	8	%
Yields:
	gasolines and blendstocks	55	%
	distillates	36	%
	other products (primarily includes petrochemicals, gas oils, No. 6 fuel oil, and asphalt)	9	%

McKee Refinery. Our McKee Refinery is located in the Texas Panhandle. It processes primarily sweet crude oils into gasoline, diesel, jet fuels, and asphalt. The refinery has access to local and Permian Basin crude oil sources via third-party pipelines. Refined petroleum products are transported primarily via third-party pipelines and rail to markets in Texas, New Mexico, Arizona, Colorado, Oklahoma, and Mexico.

Memphis Refinery. Our Memphis Refinery is located in Tennessee along the Mississippi River. It processes primarily sweet crude oils. Most of its production is gasoline, diesel, and jet fuels. Crude oil supply is primarily from Cushing, Oklahoma over the Diamond pipeline, which began operations in November 2017. Crude oil can be received, along with other feedstocks, via barge. Most of the refinery’s products are distributed via truck rack and barges.

Ardmore Refinery. Our Ardmore Refinery is located in Oklahoma, approximately 100 miles south of Oklahoma City. It processes sour and sweet crude oils into gasoline, diesel, and asphalt. The refinery predominantly receives Permian Basin and Cushing-sourced crude oil via third-party pipelines. Refined petroleum products are transported via rail, trucks, and the Magellan pipeline system.

North Atlantic

The following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in the North Atlantic region for 2018, during which period total throughput volumes averaged approximately 466,000 BPD.

Combined North Atlantic Region Charges and Yields
Charges:
	sweet crude oil	81	%
	residual fuel oil	7	%
	blendstocks	12	%
Yields:
	gasoline and blendstocks	45	%
	distillates	42	%
	other products (primarily includes petrochemicals, gas oils, and No. 6 fuel oil)	13	%

Pembroke Refinery. Our Pembroke Refinery is located in the County of Pembrokeshire in southwest Wales, U.K. The refinery processes primarily sweet crude oils into gasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives all of its feedstocks and delivers some of its products by ship and barge via deepwater docking facilities along the Milford Haven Waterway, with its remaining products being delivered through our Mainline pipeline system and by trucks.

Quebec City Refinery. Our Quebec City Refinery is located in Lévis, Canada (near Quebec City). It processes sweet crude oils into gasoline, diesel, jet fuel, heating oil, and low-sulfur fuel oil. The refinery receives crude oil by ship at its deepwater dock on the St. Lawrence River and by pipeline and ship from western Canada. The refinery transports its products through our pipeline from Quebec City to our terminal in Montreal and to various other terminals throughout eastern Canada by rail, ships, trucks, and third-party pipelines.

U.S. West Coast

The following table presents the percentages of principal charges and yields (on a combined basis) for the two refineries in the U.S. West Coast region for 2018, during which period total throughput volumes averaged approximately 282,000 BPD.

Combined U.S. West Coast Region Charges and Yields
Charges:
	sour crude oil	66	%
	sweet crude oil	9	%
	other feedstocks	12	%
	blendstocks	13	%
Yields:
	gasolines and blendstocks	60	%
	distillates	26	%
	other products (primarily includes gas oil, No. 6 fuel oil, petroleum coke, sulfur and asphalt)	14	%

Benicia Refinery. Our Benicia Refinery is located northeast of San Francisco on the Carquinez Straits of San Francisco Bay. It processes sour crude oils into gasoline, diesel, jet fuel, and asphalt. Gasoline production is primarily California Reformulated Blendstock Gasoline for Oxygenate Blending (CARBOB), which meets CARB specifications when blended with ethanol. The refinery receives crude oil feedstocks via a marine dock and crude oil pipelines connected to a southern California crude oil delivery system. Most of the refinery’s products are distributed via pipeline and truck rack into northern California markets.

Wilmington Refinery. Our Wilmington Refinery is located near Los Angeles, California. The refinery processes a blend of heavy and high-sulfur crude oils. The refinery produces CARBOB gasoline, diesel, CARB diesel, jet fuel, and asphalt. The refinery is connected by pipeline to marine terminals and associated dock facilities that move and store crude oil and other feedstocks. Refined petroleum products are distributed via pipeline systems to various third-party terminals in southern California, Nevada, and Arizona.

Feedstock Supply

Our crude oil feedstocks are purchased through a combination of term and spot contracts. Our term supply agreements are at market-related prices and are purchased directly or indirectly from various national oil companies as well as international and U.S. oil companies. The contracts generally permit the parties to amend the contracts (or terminate them), effective as of the next scheduled renewal date, by giving the other party proper notice within a prescribed period of time (e.g., 60 days, 6 months) before expiration of the

current term. The majority of the crude oil purchased under our term contracts is purchased at the producer’s official stated price (i.e., the “market” price established by the seller for all purchasers) and not at a negotiated price specific to us.

Marketing

Overview

We sell refined petroleum products in both the wholesale rack and bulk markets. These sales include refined petroleum products that are manufactured in our refining operations, as well as refined petroleum products purchased or received on exchange from third parties. Most of our refineries have access to marine transportation facilities and interconnect with common-carrier pipeline systems, allowing us to sell products in the U.S., Canada, the U.K., and other countries.

Wholesale Rack Sales

We sell our gasoline and distillate products, as well as other products, such as asphalt, lube oils, and natural gas liquids (NGLs), on a wholesale basis through an extensive rack marketing network. The principal purchasers of our refined petroleum products from terminal truck racks are wholesalers, distributors, retailers, and truck-delivered end users throughout the U.S., Canada, the U.K., Ireland, and Latin America through our operations in Peru and Mexico.

The majority of our rack volume is sold through unbranded channels. The remainder is sold to distributors and dealers that are members of the Valero-brand family that operate 5,335 branded sites in the U.S., 907 branded sites in the U.K. and Ireland, and 792 branded sites in Canada as of December 31, 2018. These sites are independently owned and are supplied by us under multi-year contracts. For branded sites, products are sold under the Valero®, Beacon®, Diamond Shamrock®, and Shamrock® brands in the U.S., the Texaco® brand in the U.K. and Ireland, and the Ultramar® brand in Canada.

Bulk Sales

We also sell our gasoline and distillate products, as well as other products, such as asphalt, petrochemicals, and NGLs, through bulk sales channels in the U.S. and international markets. Our bulk sales are made to various oil companies, traders, and bulk end-users, such as railroads, airlines, and utilities. Our bulk sales are transported primarily by pipeline, barges, and tankers to major tank farms and trading hubs.

We also enter into refined petroleum product exchange and purchase agreements. These agreements help minimize transportation costs, optimize refinery utilization, balance refined petroleum product availability, broaden geographic distribution, and provide access to markets not connected to our refined product pipeline systems. Exchange agreements provide for the delivery of refined petroleum products by us to unaffiliated companies at our and third-parties’ terminals in exchange for delivery of a similar amount of refined petroleum products to us by these unaffiliated companies at specified locations. Purchase agreements involve our purchase of refined petroleum products from third parties with delivery occurring at specified locations.

Logistics

We own logistics assets (crude oil pipelines, refined petroleum product pipelines, terminals, tanks, marine docks, truck rack bays, and other assets) that support our refining operations, and these assets are not owned by VLP. See discussion of the VLP segment on page 10.

ETHANOL

We own 14 ethanol plants with a combined ethanol production capacity of 1.73 billion gallons per year. Our ethanol plants are dry mill facilities(a) that process corn to produce ethanol, distillers grains, and corn oil(b). We source our corn supply from local farmers and commercial elevators. Our facilities receive corn primarily by rail and truck. We publish on our website a corn bid for local farmers and cooperative dealers to facilitate corn supply transactions.

We sell our ethanol primarily to refiners and gasoline blenders under term and spot contracts in bulk markets such as New York, Chicago, the U.S. Gulf Coast, Florida, and the U.S. West Coast. We also export our ethanol into the global markets. We ship our dry distillers grains (DDGs) by truck or rail primarily to animal feed customers in the U.S. and Mexico. We also sell modified distillers grains locally at our plant sites, and corn oil by truck and rail. We distribute our ethanol through logistics assets, which include railcars owned by us.

The following table presents the locations of our ethanol plants, their approximate annual production capacities for ethanol (in millions of gallons) and DDGs (in tons), and their approximate annual corn processing capacities (in millions of bushels).

State		City		Ethanol Production Capacity		Production of DDGs		Corn Processed
Indiana		Bluffton(c)		115		302,000		40
		Linden		135		355,000		47
		Mount Vernon		100		263,000		35
Iowa		Albert City		135		355,000		47
		Charles City		140		368,000		49
		Fort Dodge		140		368,000		49
		Hartley		140		368,000		49
		Lakota(c)		110		289,000		38
Michigan		Riga(c)		55		145,000		19
Minnesota		Welcome		140		368,000		49
Nebraska		Albion		135		355,000		47
Ohio		Bloomingburg		135		355,000		47
South Dakota		Aurora		140		368,000		49
Wisconsin		Jefferson		110		352,000		41
Total				1,730		4,611,000		606

The combined production of ethanol from our plants averaged 4.1 million gallons per day for 2018.

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(a)

Ethanol is commercially produced using either the wet mill or dry mill process. Wet milling involves separating the grain kernel into its component parts (germ, fiber, protein, and starch) prior to fermentation. In the dry mill process, the entire grain kernel is ground into flour. The starch in the flour is converted to ethanol during the fermentation process, creating carbon dioxide and distillers grains.

(b)

During fermentation, nearly all of the starch in the grain is converted into ethanol and carbon dioxide, while the remaining nutrients (proteins, fats, minerals, and vitamins) are concentrated to yield corn oil, modified distillers grains, or, after further drying, dried distillers grains. Distillers grains generally are an economical partial replacement for corn and soybeans in feeds for cattle, swine, and poultry. Corn oil is produced as fuel grade and feed grade (not for human consumption), and is sold primarily as a feedstock for biodiesel or renewable diesel production with a smaller percentage sold into animal feed markets.

(c)	The Bluffton, Lakota, and Riga plants were acquired from two subsidiaries of Green Plains Inc. in November 2018. The annual ethanol, DDG production, and corn processing capacities for these ethanol plants were only applicable for November and December of 2018.

VLP

VLP is a limited partnership that owns and operates crude oil and refined petroleum products pipeline and terminal systems in the U.S. Gulf Coast and U.S. Mid-Continent regions that provide transportation and terminaling services to our refining segment and are integral to the operations of our Ardmore, Corpus Christi East and West, Houston, McKee, Memphis, Meraux, Port Arthur, St. Charles, and Three Rivers Refineries.

The following table summarizes information with respect to VLP’s pipelines:

Pipeline		Diameter (inches)		Length (miles)		Throughput Capacity (thousand BPD)		Commodity		Associated Valero Refinery		Significant Third-party System Connections
Ardmore logistics system
Hewitt segment of Red River crude oil pipeline		16		138		60(a)		crude oil		Ardmore		Plains Red River, Plains Cushing
Wynnewood refined products pipeline		12		30		90		refined petroleum products		Ardmore		Magellan Central
McKee logistics system
McKee crude system		multiple segments		145		72		crude oil		McKee		—
McKee products system
McKee to El Paso pipeline		10		408		21(b)		refined petroleum products		McKee		—
SFPP pipeline connection		16, 8		12		33(c)		refined petroleum products		McKee		Kinder Morgan SFPP System
Memphis logistics system(d)
Collierville crude system
Collierville pipeline		10-20		52		210		crude oil		Memphis		Capline; Diamond (e)
Memphis products system
Memphis Airport pipeline system		6		11		20		jet fuel		Memphis		Memphis International Airport
Shorthorn pipeline system		14, 12		9		120		refined petroleum products		Memphis		Exxon Memphis
Port Arthur logistics system
Lucas crude system
Lucas pipeline		30		12		400		crude oil		Port Arthur		Sunoco Logistics Nederland; Enterprise Beaumont; Cameron Highway; TransCanada Cushing MarketLink; Seaway
Nederland pipeline		32		5		600		crude oil		Port Arthur		Sunoco Logistics Nederland
Port Arthur products system
12-10 pipeline		12, 10		13		60		refined petroleum products		Port Arthur		Sunoco Logistics MagTex; Enterprise TE Products, Enterprise Beaumont
20-inch diesel pipeline		20		3		216		diesel		Port Arthur		Explorer; Colonial
20-inch gasoline pipeline		20		4		144		gasoline		Port Arthur		Explorer; Colonial
St. Charles logistics system
Parkway pipeline		16		140		110		refined petroleum products		St. Charles		Plantation; Colonial
Three Rivers logistics system
Three Rivers crude system		12		3		110		crude oil		Three Rivers		Harvest Arrowhead; Plains Gardendale; EOG Eagle Ford West

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See notes on page 12.

The following table summarizes information with respect to VLP’s terminals:

Terminal		Tank Storage Capacity (thousands of barrels)		Throughput Capacity (thousand BPD)		Commodity		Associated Valero Refinery		Significant Third-party System Connections
Ardmore logistics system
Hewitt Station tanks		300		—		crude oil		Ardmore		Plains Red River
Wynnewood terminal		180		—		refined petroleum products		Ardmore		Magellan Central
Corpus Christi logistics system
Corpus Christi East terminal		6,241		—		crude oil and refined petroleum products		Corpus Christi East		Eagle Ford Pipeline LLC; NuStar North Beach terminal, Eagle Ford pipelines & South Texas pipeline network
Corpus Christi West terminal		3,835		—		crude oil and refined petroleum products		Corpus Christi West		(same as Corpus Christi East terminal)
Houston logistics system
Houston terminal		3,642		—		crude oil and refined petroleum products		Houston		HFOTCO; Magellan crude; Seaway; Kinder Morgan Pasadena & Galena Park; Magellan East Houston & Galena Park
McKee logistics system
McKee crude system
Various terminals		240		—		crude oil		McKee		—
McKee products system
El Paso terminal		166 (f)		—		refined petroleum products		McKee		Kinder Morgan SFPP System
El Paso terminal truck rack		—		10 (g)		refined petroleum products		McKee		—
McKee terminal		4,400		—		crude oil and refined petroleum products		McKee		NuStar (several); NuStar/Phillips Denver
Memphis logistics system
Collierville crude system
Collierville terminal		975		—		crude oil		Memphis		Capline
St. James crude tank		330		—		crude oil		Memphis		Capline
Memphis products system
Memphis truck rack		8		110		refined petroleum products		Memphis		—
West Memphis terminal		1,080		—		refined petroleum products		Memphis		Exxon Memphis; Enterprise TE Products
West Memphis terminal dock		—		4 (h)		refined petroleum products		Memphis		—
West Memphis terminal truck rack		—		50		refined petroleum products		Memphis		—
Meraux logistics system
Meraux terminal		3,900		—		crude oil and refined petroleum products		Meraux		LOOP; CAM; Plantation; Colonial
______________
See notes on page 12.

Terminal		Tank Storage Capacity (thousands of barrels)		Throughput Capacity (thousand BPD)		Commodity		Associated Valero Refinery		Significant Third-party System Connections
Port Arthur logistics system
Lucas crude system
Lucas terminal		1,915		—		crude oil		Port Arthur		Sunoco Logistics Nederland; Enterprise Beaumont; Cameron Highway; TransCanada Cushing MarketLink; Seaway
Seaway connection		—		750		crude oil		Port Arthur		Seaway
TransCanada connection		—		400		crude oil		Port Arthur		TransCanada Cushing MarketLink
Port Arthur products system
El Vista terminal		1,210		—		gasoline		Port Arthur		Explorer; Colonial
PAPS terminal		1,144		—		diesel		Port Arthur		Explorer; Colonial
Port Arthur terminal		8,500		—		crude oil and refined petroleum products		Port Arthur		Sunoco Logistics Nederland; Explorer; Colonial; Sunoco Logistics MagTex; Cameron Highway; TransCanada Cushing MarketLink; Enterprise Beaumont
St. Charles logistics system
St. Charles terminal		10,004		—		crude oil and refined petroleum products		St. Charles		LOOP; CAM; Plantation; Colonial
Diamond Green Diesel tank		180				renewable diesel		n/a		n/a
Three Rivers logistics system
Three Rivers terminal		2,250		—		crude oil and refined petroleum products		Three Rivers		NuStar South Texas; Harvest Arrowhead; Plains Gardendale; EOG Eagle Ford West

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(a)	Capacity shown represents VLP’s 40 percent undivided interest in the pipeline segment. Total capacity for the pipeline segment is 150,000 BPD.

(b)	Capacity shown represents VLP’s 33⅓ percent undivided interest in the pipeline. Total capacity for the pipeline is 63,000 BPD.

(c)	Capacity shown represents VLP’s 33⅓ percent undivided interest in the pipeline connection. Total capacity for the pipeline connection is 98,400 BPD.

(d)	Portions of VLP’s Memphis logistics system pipelines are owned by Memphis Light, Gas and Water (MLGW), but they are operated and maintained exclusively by VLP under long-term arrangements with MLGW.

(e)	The Diamond pipeline is owned 50 percent by Valero and 50 percent by Plains All American Pipeline, L.P.

(f)	Capacity shown represents VLP’s 33⅓ percent undivided interest in the terminal. Total storage capacity is 499,000 barrels.

(g)	Capacity shown represents VLP’s 33⅓ percent undivided interest in the truck rack. Total capacity is 30,000 BPD.

(h)	Dock throughput is reflected in thousands of barrels per hour.

ENVIRONMENTAL MATTERS

We incorporate by reference into this Item the environmental disclosures contained in the following sections of this report:

•	Item 1A, “Risk Factors”—Compliance with and changes in environmental laws, including proposed climate change laws and regulations, could adversely affect our performance;

•	Item 1A, “Risk Factors”—Compliance with the U.S. Environmental Protection Agency Renewable Fuel Standard could adversely affect our performance;

•	Item 1A, “Risk Factors”—We may incur additional costs as a result of our use of rail cars for the transportation of crude oil and the products that we manufacture;

•	Item 3, “Legal Proceedings” under the caption “Environmental Enforcement Matters,” and;

•	Item 8, “Financial Statements and Supplementary Data” in Note 8 of Notes to Consolidated Financial Statements and Note 10 of Notes to Consolidated Financial Statements under the caption “Environmental Matters.”

Capital Expenditures Attributable to Compliance with Environmental Regulations. In 2018, our capital expenditures attributable to compliance with environmental regulations were $270 million, and they are currently estimated to be $170 million for 2019 and $15 million for 2020. The estimates for 2019 and 2020 do not include amounts related to capital investments at our facilities that management has deemed to be strategic investments. These amounts could materially change as a result of governmental and regulatory actions.

PROPERTIES

Our principal properties are described above under the caption “Valero’s Operations,” and that information is incorporated herein by reference. We believe that our properties and facilities are generally adequate for our operations and that our facilities are maintained in a good state of repair. As of December 31, 2018, we were the lessee under a number of cancelable and noncancelable leases for certain properties. Our leases are discussed in Notes 9 and 10 of Notes to Consolidated Financial Statements. Financial information about our properties is presented in Note 6 of Notes to Consolidated Financial Statements and is incorporated herein by reference.

Our patents relating to our refining operations are not material to us as a whole. The trademarks and tradenames under which we conduct our branded wholesale business — Valero®, Diamond Shamrock®, Shamrock®, Ultramar®, Beacon®, and Texaco®— and other trademarks employed in the marketing of refined petroleum products are integral to our wholesale rack marketing operations.