Good morning. Our next presentation is Valero Energy. We are extremely happy to have the senior management team. The speaker will be the CEO and Chairman, Bill Klesse. Without further delay, let me welcome Bill.
Well, thank you, Paul, and good morning. With me today is Joe Gorder, our President and Chief Operating Officer, Ashley Smith, our Vice President of Investor Relations, and Matt Jackson, our Investor Relations Specialist down here in front. For all of you that own Valero stock and have followed us over the years, we appreciate the ownership of our company, and we thank you very much for your interest. We have a very extensive handout. I think most of you have picked one up. There's a lot of data in there in both the body and the appendix. I would encourage you to look. There's info on Valero, but there's also a lot of info on the entire industry. Valero is a large independent refiner. We have 16 refineries, 2.8 million barrels a day of capacity.
About 2.3 million of that is crude oil and the rest is other feedstocks. 7,300 branded outlets with the multiple brands as you can see on the slide. We're unique in this business as we're an ethanol producer. We're the third largest ethanol producer from corn and have a very well-positioned business in the upper Midwest. We also have just started up a renewable diesel project at our St. Charles refinery in partnership with Darling Ingredients, and that business does renewable diesel, which is different from biodiesel as it fits into other regs. Also, we now have about 10,500 employees. This is about half of our employee base as we spun off our retail operations, which I'll talk a little more about. Here's our footprint. We have the refinery in the United Kingdom, in Wales, in the upper right corner.
Then you can see here where we market, where our refineries are located. We have the Quebec refinery in Canada, and the green represents our ethanol plants. More than 50% of our capacity is on the U.S. Gulf Coast, and crude supply is moving our way. In this conversation and having to do a lot with our industry, if you think about refining in the U.S., the advantaged refineries are largely between the Rocky Mountains and the Appalachian Mountains, down that entire corridor in North America. It's very, very important location today drives many things. When you think about our company, generally, this is what we are doing. There's three main areas. As I said, location is so important. Things are coming our way. There's this exploit, this North American resource advantage. Whether it's natural gas, crude oil, or NGLs, natural gas liquids.
We are doing a lot of logistics work. Where you don't have the location, you have to overcome it with logistics. We have railcars, pipelines, terminals, tankage is being added, dock facilities with more processing of light oil. Exports have to grow. The U.S. is not a growing market for refined products. We look at other opportunities, and they're bolt-ons. They're project opportunities where we have synergies or can bolt this onto our existing hardware. Alkylation, reforming, methanol, BTX extraction. We're already in some of those businesses. Unlock the potential. We spun off our corner stores. It's now CST. We still own 20%, but 80% was spun to our shareholders. We are evaluating an MLP, and that process continues to move forward and returning cash to our shareholders. We have raised our dividend several times, and of course, we're concentrating value by buying our stock.
You think of the key trends, the first four are macro trends, the oil production increasing dramatically. Natural gas liquids, condensates, all of this is going up dramatically. Infrastructure's being added. Natural gas is a uniqueness to North America and is a huge competitive advantage for refining as well as petrochemical industries. Distillates continue to grow. Even at Valero, we've made investments to take advantage of distillates growth in the world, which has a higher margin. What this is resulting in is U.S. Gulf Coast is very competitively advantaged to export into the growing and undersupplied markets. We're taking market share in the Atlantic Basin, taking it from Western Europe, and replacing, in the sense, shut down facilities. The Atlantic Basin, though, is an opportunity for Valero. Production, you all have forecasts.
I'm sure you're going to other meetings here where the companies are talking about the opportunity that they have. I know your forecasts are up. Every year, this forecast has gone up some more. It is clearly this is one that we've used. By the color code, you can see the type of oil that is coming. The Gulf of Mexico, we shouldn't forget, is in this orange-yellow, and the Gulf of Mexico is going up. By 2020, some forecasts have it at 1.9 million barrels a day of production. North America, U.S. production is going up dramatically. This purple line is non-Canadian imports, and obviously, they are dropping dramatically and will continue to drop as we go out into the future years. Our entire industry is investing in logistics with the U.S. Gulf Coast being the designation.
Now, obviously, there's rail to the West Coast, there's rail back to the East Coast, but lots of crude oil pipelines are being built, and the focus of these pipelines is toward the U.S. Gulf Coast. You can see how much. When you think about the pipelines and the capacity additions, we've had the Permian Express, we've had Longhorn, we have Seaway, we have Keystone XL's, the southern leg, which is getting done. We have BridgeTex. We have many other companies looking at bringing this oil from the whole mid-continent Canada down toward the U.S. Gulf Coast. We see that this pricing will, like in Houston, it's going to be less than LLS. It's a loose market, getting looser every day as more and more oil is coming to the Gulf Coast. I forgot we have the Seaway expansion as well.
Valero is in a very good position here. In our chart, you can see how the oil is moving to the Gulf Coast, this is how we view the future. Then we put on here this line that shows the light sweet crude imports into U.S. Gulf Coast, and it is falling dramatically, as you know. Some people have asked us this morning, "When do you think it is going to go away?" Except for opportunistic situations, I am sure by next year there is going to be enough capacity on the Gulf Coast that light sweet crude imports into the Gulf Coast are not going to happen, except for an economic situation. We have lots of opportunity to get this price advantage crude oil. We have strategies and things that we are doing. Our refineries are linked to many of these crude pipelines.
St. Charles Refinery. If you do not have the pipeline connections, that is in New Orleans area. We are building a rail rack. We are also barging down the Mississippi, as other companies are, to get this advantage crude. We are doing about 35,000 barrels a day. The advantage with rail and barging, depending on where you pick the crude up, you can get neat crude, and there are advantages of not having to deal with the diluent. On rail, for sure, we can load neat into coiled and heated cars. At Benicia, we had represented that we were going to have a rail rack by the end of this year. However, we are having help by several groups that think we should do an environmental impact assessment just to build a rail siding.
Since we are going to have to do that, this project is now delayed while we do that. In Quebec, we just started up a rail facility. We unloaded our first train the other day. We are also involved in the reversal of pipelines. We are involved in the Enbridge Line 9, and we are working on docks so that we can move crude oil from Corpus Christi area to our refinery at Quebec. We talk about this. This is our view. We are saying in 12 to 24 months, but it is our view. We put on here the representative cost. As an example, in the West Coast, if you look at railing crude oil to Washington area, what has clearly happened on the West Coast is the Washington refineries are far more competitive today than they were a few years ago.
The premise of this chart is that the East Coast is going to be the balancing point for North American light sweet crude oil versus imports. You come up into the U.S. East Coast area where you can take West African or other Brent price crude oils, North African, into that market, or you can bring Gulf Coast crudes into there. This is your balancing point on the East Coast, and then the differentials all begin to work back. If it is $5 or $6 to ship from the Gulf Coast to the U.S. East Coast on a U.S. flagship, you get those numbers. Obviously, we can ship from the Gulf Coast to Canada on a foreign flagship, and told you that is about $2 a barrel. You can see how these numbers work back.
Then you just go from the Eastern Gulf to St. James, back to Houston, back to Corpus Christi, and all the numbers tend to work along here. Remember, the U.S. Gulf Coast has 7 million to 8 million barrels a day of refining capacity for the country. This is how we see the future. One other thing to remember on the U.S. Gulf Coast, you can still build and do projects. Switching to natural gas, this is a huge competitive advantage for North America, whether it's the refining industry, manufacturing industry, petrochemical industries, it doesn't really matter. It's a huge competitive advantage. Here for refining, we gave you some numbers in the chart. You can see if you have $4, it's about $1.11 a barrel in our operation. Then it's about 50/50 between cost of goods sold and expense, but it's still cash.
The delta between there and LNG, say, into India or somewhere at $16 per Mcf. Say the delta's $3 a barrel, that's $0.08 a gallon. That overcomes any freight disadvantage. This is one reason why natural gas and the low price in North America is a great opportunity for refining and allows us to compete in the export markets. When you look at distillates are the product that is growing. The chart on the lower right shows the demand in the world, and you can see it's growing at about 2x gasoline. Gasoline is still growing in the world. You can see what's actually happening here in that distillates are growing faster. It is a bigger market. If you go over to the chart on your left, you can see that the margins are much better against Brent.
They continue to be that way. Of course, we are making more and more distillate every day in the Valero operation. Looking at refining in the last few years, it has changed dramatically. The chart on your lower left is a huge change in this business. This is actually huge. If somebody had told you the United States refining industry was going to be an exporter, and they had told you that five years ago, I'm sure you would have looked right past them. It is unbelievable what has happened, and it's partly because of the Great Recession, which we all lived through. Demand in the U.S. has not recovered. When we look at demand going forward, we see gasoline, sure, with a better economy, might come up.
Housing industry gets going, come up a little bit, but demand is not part of our story because you have CAFE and you have other things happening. Diesel, sure, it'll increase some, but the world is where it is growing. We don't see this growth. You have to be able to export in this business for some of the reasons I've mentioned already. If you look at the chart on the right, you can see there are advantage places. Actually, we could make the West Coast red as well, although the entire West Coast is not exactly the issue because I already mentioned the Washington refineries are getting an advantage here in crude. To put it in perspective for you, Valero's cash operating cost in its entire system, about $3.70 a barrel. That's your cash operating. Very efficient business. That's $0.09 a gallon.
I tell people that and they say, "Well, I'm paying $4 at the pump." It's $0.09 a gallon is our cash operating cost, a very efficient business. If you get crude delivered to you at a couple of dollars less than some other market, it's a huge competitive advantage. What you have on our chart in the lower right is what we believe is happening in this business between the Rockies and the Appalachians. That is your sweet spot in refining, and they have obviously higher operating rates. I mentioned the Atlantic Basin. Some of the trade flows here are color-coded for you with gasoline and diesel. Clearly, Valero believes we're very well-positioned with our Pembroke refinery, Quebec refinery, and of course, the U.S. Gulf Coast. These products move. I have a little more on this, but Europe is systemically short diesel.
Gasoline has been going to Mexico, the Caribbean, down into Brazil. Diesel fuel has actually gone into Brazil. We move products from Quebec. Part of our business is trading. Remember the natural gas comment. It allows you to overcome some of the disadvantages because of the favorable position, that being freight. We can overcome it. The world continues to grow. Even though I mentioned United States demand is really relatively flat, the world grows. We're growing about 1 million barrels a day in the world, a little more. You can see we gave you a forecast number for 2014 being in the green, the non-OECD. The U.S., just a little bit of growth, primarily diesel and a couple of other products. Europe, very flat here for sure. You see the world is still 1 million or so barrels a day of growth.
It's not all coming up roses because there's refining capacity being added in the world, as you can see, and refining capacity is being added in excess of that demand slide. You have to be very efficient. You have to have some competitive advantages here. We expect significant crude additions, capacity additions coming into the marketplace. These tend to be in the emerging places where demand is growing, the Middle East, Asia, Latin America, and our chart at the bottom shows you where this new capacity is coming on. What does that mean? Some of the markets like Brazil, Mexico, Ecuador, Peru, some of this capacity will be built, but not all of it. It's very expensive. When you talk about a 230,000 barrel a day refinery costing $12 billion-$15 billion.
We talk about the Brazilian refinery, which is four years late and is now costing $20 billion. It's so much money to build new capacity that a lot of this will not be built because the U.S. Gulf Coast, and thus the Gulf of Mexico, there's excess products, and that's why products, I think, will move to those markets and not all that capacity will be built. The Saudis will build, the Chinese will build. You'll have those come in. There will continue to be shutdowns, and where's the place that's long refining, very long, and doesn't have competitive advantage? Western Europe. Western Europe is at least 1 million-2 million barrels a day long. Switching back to Valero, we have our capital spending here. In 2012, we spent $3.4 billion. Capital spending has fallen.
This year, we're in this $2.85 to $3 range, somewhere right in that range. Our capital spending has creeped up in 2013, one because our St. Charles hydrocracker carried over into this year. We spent a couple hundred million dollars that we were not anticipating. Our Diamond Green Diesel project slipped into this year. We've added some rail cars. We've added purchases of some more working the logistics assets. It's creeped up, and next year we're giving you guidance of around $3 billion will be our budget for next year. A lot of it focuses on logistics because you have to have the logistics for the crude oil supply side and the marketing side. Looking a little more at that growth component, that orange on the previous slide. On 2014, it's $1.5 billion, and in 2013, it's $1.335 billion.
The two pie charts show you where that economic or discretionary capital is being spent. We give you how much is in logistics, which as I mentioned, is obviously sizable. You can see our hydrocrackers in 2013. Now they go down. We're still working a project at Meraux to convert it to make more diesel fuel. You can see here that looking at our capital spending, it's gone from 50% discretionary to about 67% discretionary. The returns on the economic projects, excluding the logistics, but talking about these projects, they're all exceeding 30% returns, and that's an IRR basis. Talking some more about logistics, you can see here, we have to be able to get the crude oil to the plants that's developing in areas that were not connected. Pipelines, rail unloading, rail cars. We bought 5,300 rail cars.
We have to be able to load the products more efficiently. Also, as I mentioned, we're going to be able to load ships on our own dock in Corpus Christi for crude to send to Canada. All these assets that we're doing in this area, though, do have the potential to drop into an MLP. As this slide shows you, we are looking very seriously at MLP, as we have disclosed. We're having to do what the other companies have had to. Even though these businesses are profit centers within us, they're not really set up as standalone, so we're having to go through, fix our tariffs, fix all of this stuff as the others had to do. Our timing continues to move forward.
Our board has not approved this transaction, but everyone is aware of the investor interest in us doing this, and of the cost of capital benefits. I would expect our timing is the first quarter of 2014. The hydrocrackers are a big part of our business. We spent about $1.6 billion on each one of them, so about $3.2 billion. The strategy or the basis is low natural gas price, high oil. You go from natural gas to hydrogen to liquid, so they're a gas to liquid project, and then the strong distillate demand. You get a volume lift of about 20%. We've shown you in the past how that all happens in one of our appendix slides. These are very good projects for us.
We had to build new gas plants at each of the refineries, so we are able to handle more gas and running lighter oils as well. The Port Arthur is 57,000 barrels a day by permit. It is performing very well. The St. Charles is 60,000 barrels a day. We were going to expand those right away. We are waiting on a permit at Port Arthur. At St. Charles, we have so much work that we have actually pushed those off to about 2018. However, we are continuing with our Meraux conversion, which was the reason that we had bought that refinery in the first place. We had this plan to convert it to a basically hydrocracking, distillate-producing refinery, and that continues, and we will have that in 2015.
Even though this is a little different, we have our Diamond Green Diesel project with Darling, as I mentioned, and that is up and running as well. As other companies, we are trying to figure out how to run more light sweet oil. It is coming to us very quickly. We have this strategy to replace some of the feedstocks we buy by running more. The chart on your right shows Houston and Corpus Christi. These are two refineries where we have more conversion capacity than crude oil capacity. We are actually going to build crude toppers or crude fractionators there that will reduce our feedstock requirement, which prices at basically world prices. We are going to generate feedstocks based on this crude oil that is coming to the U.S. Gulf Coast, Houston and Corpus Christi, which will be advantaged to St. James, which will be advantaged against Brent.
These have very, very good returns, as you can imagine. They are going to cost us somewhere in the neighborhood of about $350 million. We have the permits for these, so they are moving forward quickly. We have other opportunities at Port Arthur and Meraux to run more light sweet oil, and us, like other companies, are clearly figuring out how to run more of this oil. Most of the conversation we have had today is about swimming in light sweet oil on the U.S. Gulf Coast, and I would tell you that companies are figuring out ways to run more. It is still going to be discounted to the world market. It is going to push up the East Coast. It is going to push into Canada. But we are doing things just as other companies are.
We have also announced that we are looking at a methanol project at our St. Charles refinery. We have a lot of hydrogen capability there, which means you make syngas, CO. We are already in the BTX business. People forget that benzene, toluene, xylene. We are in the propylene business. We are in the sulfur business. We are in the asphalt business. We are in all these other business. We spent a lot of time talking about gasoline, diesel, and jet, but we are in all these other businesses. This is a nice little bolt-on for us. We think this project in the U.S. is an importer. The chart at the right shows some of the numbers. New Orleans is the biggest area where you import methanol. With low natural gas prices, making methanol in the United States just makes good sense.
Because we have so much capability here in hydrogen and syngas, we are going to take the syngas, we will buy some hydrogen at great numbers. We will go ahead and be able to do this project for about 50% of the cost at a grassroots plant. The U.S., as I said, imports. You can see the size of the business. We think this is a great opportunity for us to bolt something onto our assets at our St. Charles refinery. And we believe this will have well over a 30% return for Valero. The other areas we are looking at is alkylates. Remember, in a refinery, you make a lot of alkylate. We have hydrofluoric products, alkylation units. We have HF. We have sulfuric acid alkylation units. The chart on the upper right is the basis of what is going on here. This is natural gas liquids. Liquids.
We talk about crude, we talk about natural gas, but here is a chart on natural gas liquids. If you just look at that between 2009, 2010 versus this forecast, you can see here by 2020, that is up 1.5 million barrels a day in the liquids business. The propanes, the ethanes, the butanes, the pentanes, they are coming, and they are going to be at distressed pricing. What happens here is we are going to expand our alky unit at Houston. This is a sulfuric acid unit, and we think the returns will be well over 30% here. As the chart in the lower right gives you an idea, because you are taking butylenes, amylenes, and you go ahead and react them with isobutane, you make alkylate. Look at the spreads. Look what is happening to these spreads.
I think as you go through time, you are going to see more gasoline made from some of these NGLs than from crude oil. We have returned cash to the shareholders. Those of you that follow us, we spun off our retail. We say that was about a $3.50 value for our shareholder. We still have 20%, which we will sell. We have to sell within 18 months of the spin. Most likely, it will be sold by the end of the year. We have raised our dividend numerous times. In the last 2.75 years, we bought 41 million shares or about 8% of our stock. We are an investment-grade credit. We paid off debt over the last couple of years. Our debt to cap is about 19%. The chart in the lower right is only cash, and it shows you how much cash we have returned to the shareholder.
It does not include the retail spin that I just mentioned. Very shareholder-focused here on returning cash to you, our shareholders. The core of our company, this is a refining and wholesale marketing company that has some ethanol and has petrochemical opportunities in some in businesses. But we are improving our operations. Many of our refineries were purchased, and we have been improving them. Our goal is first quartile in a Solomon Index surveys, which is an industry benchmarking. Yes, it bounces around. Very small differences separate these categories because U.S. industry is very efficient, but Valero will be in its portfolio of first quartile refining. And mechanical availability, the one on the lower right, is key. As you can imagine, if your refineries are reliable, then your safety performance, your environmental performance, your regulatory compliance are all better. And that is the last point on this page.
You, as our shareholders, expect us to be all over this item. It doesn't get much press until something goes wrong. If we look at the third quarter versus the second quarter, yeah, gasoline's pretty weak on the Gulf Coast, for sure. Remember, our business is always seasonal. It's always volatile. This is the business. It's a commodity-driven business. Those fundamentals changes that are happening, they are solid. Natural gas, crude oil, NGLs, they're all happening in that corridor. Pipelines, it's all happening. But yes, we have today, gasoline looks very weak. Gulf Coast has already switched to higher vapor pressure, so you see the big delta, the New York Harbor. New York Harbor will switch here, 15th, I think. You can see at the bottom in blue and red. Obviously, the Gulf Coast is a little better because of why? The heavy sour crude discounts have widened.
Some of the other markets are weak. We give you a little guidance, though, saying the third quarter capture looks about the same as the second quarter. We believe that this is a volatile business. It's not for the weak of heart here. But we believe we're an excellent buy. We believe this corridor of U.S. refining is so well-positioned to be a survivor in a market that's not really growing, right? The U.S. market's not growing, yet we have a very bright future. The oil, the gas, we think it's common. The infrastructure being built by us and others, no question about it. The Gulf Coast is the best place. Remember what I said, you can still do things on the U.S. Gulf Coast. Natural gas is a huge competitive advantage, and today it looks like our resource base in North America, it's almost unlimited.
Now, you hate to use words like that, but this technology breakthrough is just absolutely the biggest thing in my career. We think we can competitively export. We have a balanced approach to investment and returning cash to our shareholder. We're being very selective on projects, yet I do feel it's our job to add shareholder value here. It just happens to always be long-term. These are capital-intensive, long-term projects. We unlock value by the retail. We're working the MLP and have that. We're growing our dividends, and we've been concentrating value. But we will add shareholder value, but it's a long-term commitment that has to be made. Thank you very much for your attention.