Everyone. That was a bit loud. Hope you all have lunch. We are very excited to have Bill Klesse. Valero has been quite a good stock over the last couple of years, and there is a lot of excitement about the space. You have read my decade of free cash flow. I am hoping it is going to come true, but I will let Bill talk about it. He knows much more about it than I do. Thank you very much.
Thank you. Well, thank you very much and thank you all for attending here. Appreciate it. With me, just so you know, is Gene Edwards, our Executive Vice President for Strategic Planning. Ashley Smith, Vice President of Investor Relations. Matt Jackson, somewhere, right here, Investor Relations Specialist. We had an excellent year in 2012. It was a great year, and all the fundamentals seem to be intact. All these E&P guys, you are going to all their meetings, and what Gene and I were just talking about, you need to tell them to keep drilling, keep drilling, because it is really helping. You guys want to try to find a seat? Many of you know our story. This is just an overview. We are a large refiner. We are in many markets. 16 refineries, about 3 million barrels a day at capacity. We have good size.
We have branded wholesale marketing. We are spinning off our company-operated retail, which is about 1,900 stores, but they will still be a branded jobber. We have 10 ethanol plants, so we are very large in the ethanol. We think certainly E10 is part of the fuel mix going forward. We also are finishing up a renewable diesel plant, so it is actually renewable diesel with Darling as our partner out of Dallas.
The diesel we make there will actually fit into the California ranks. Our footprint, for some of you that do not know, is we are in most of the markets. We actually do participate in the East Coast market. We pulled out of that market as a refiner, but because we did buy Pembroke from Chevron, we still are very involved in the Atlantic Basin. With gasoline flowing toward the States and obviously distillates going the other way.
In Aruba, we shut down last year, but we do intend to continue that as a terminal operation. You can notice in the lower box, and this is all in this handout that we gave you can see that we have high complexity. Just a little update on our potential spend of retail, and in the back, in the appendix, there are some financial numbers. You can see the number of sites, about $400 million of EBITDA. CST Brands is going to be the name. We are going to spin it off to the shareholders. Valero will extract some cash, about $1.1 billion. Clearly, we are returning value, though, as you can look at the chart on the bottom, and you can see the baseline there is Valero's EBITDA, and then that is the delta that at least could start in Casey's trade on a multiple of EBITDA.
We think there's a lift here. Looking at the numbers, there's a lift somewhere between $1.5 billion-$2 billion. If you divide by our shares, we think it's a $3-$5 lift of value that's not recognized in our stock today. Because of the sheer size of our retail, all the engineers in the room, financial people would say it should be calculated in our EBITDA, but the reality of it is refining overwhelms retail. We don't think the market gives us any value. Frankly, when I speak to all of you, I never get a question about retail. We think that we are returning real value to the shareholder by doing this. Just a little more on it. It will be one of the largest independent marketers, 1,900 stores. There is 1,000 in the U.S., about 800 in Canada.
We own a lot of stores in the United States, so it's a very strong asset package. Of course, there's some card locks, a home heat business, and some other things. It will be a well-positioned, strong competitor. Repeating the scale, but 61% of the sites are in Texas. Obviously, the Southwest, the U.S. sites. Obviously, the Southwest is a stronger market. I mentioned this financial performance. It's actually page 30 or slide 30. We think there's a lot of growth opportunity. New to industry is coming into these markets. In the Eagle Ford, for instance, any new store you're building down there, huge volumes. We have an excellent leadership team over there, so we think it'll be quite successful. Switching back to the refining business, that should happen, we believe, on the retail spin in the second quarter.
We're waiting on our private letter ruling from the IRS. Of course, we're filing the SEC documents. Everything should be done and ready to go here in the second quarter. Switching back to refining. The first four items here are really industry points, so the whole industry is benefiting from this. Largely, in a way, this is between the mountains. It's between the Appalachians and the Rockies, as you think about it, where this real benefit is coming. But the Atlantic Basin, there's been closures. We're competitively exporting product. The magnitude of products from the industry being exported, what does it tell you? We can compete. That's the U.S. industry. This is one of the manufacturing businesses in the United States that actually can compete on a worldwide basis. Our situation is even getting better for that.
Abundant oil and gas, that's why I was kidding earlier. Tell those E&P guys keep drilling. We like it. Low cost natural gas, a huge advantage for all of us. What's unique to Valero is we have some self-help, almost these growth projects that are coming in that are changing our output and upgrading natural gas, and we think they're absolutely the right projects. Then, of course, we're spinning off the retail to our shareholders as well. Looking at these closures, there's been a lot of closures. Capacity closures in the Atlantic Basin, so the East Coast, Caribbean, Western Europe. More recently, Hess announced they're going to shut down their catalytic cracker at Port Reading. Tesoro announced they're going to shut down Hawaii in April. Australia, they're shutting down refining.
Western Europe is the weak link here, and we expect more refineries to shut down in Western Europe. You get low utilization in some of these markets as well. People don't run those refineries quite as efficiently as we can in the U.S. There's a very good chart in the appendix that shows operating rate, for instance, of the Mexican refineries, and you'll be quite surprised how low it is. Atlantic Basin is a key part of our strategy. Valero is a merchant seller, so in the sense of we sell a lot of product into the Gulf Coast spot markets, merchant markets, which tend to then be the Atlantic Basin. The red line is diesel or jet distillates, and the black line is gasoline, and this is how it's moving in the Atlantic Basin.
This has been something we've talked about for several years, that we see part of our future as being very competitive player in the Atlantic Basin. Obviously, gasoline goes to South America, West Africa. Distillates are flowing all different ways, as the chart shows. Just in general, to put it in perspective for you, the U.S. is consuming 3.7 million barrels a day of distillates, in that range. A mild winter, but around there. We're exporting as an industry, 1 million barrels a day of distillate. It's very, very important. We tell all the people that invest in our stock, come to our meetings, that exports are a key part of the future for the refining industry, and certainly a key part of the future for Valero. Now, if you look at this slide, we have the Gulf Coast discounts.
You can see from the fourth quarter to the first quarter being in blue and red. On your left are the gasoline crack and the distillate crack, and then you have the discounts on the right. Yes, the numbers are a little less than they were in the fourth quarter. It's still very early in the year, frankly. The other thing I would point out to you, some markets have firmed up quite significantly and to the better, and those have been the propylene markets, the other chemical markets. Remember, Valero sells BTX as well as propylene, and they have firmed up significantly. Obviously, starting out a little slower than maybe it was in the fourth quarter, but we're still very optimistic that all the fundamentals are there for a very good year again in the refining business. So, continuing here with the overall theme.
World oil consumption continues to grow. If you just look at this chart, the growth has been less than the initial numbers at the beginning of every year. But if we look at 2012, it was about 700,000 bpd of increased oil consumption in the world. The business does grow. The growth obviously is in the developing world. The OECD, ex-U.S., that's Japan and Western Europe, you would expect that to be less. Of course, the U.S., we continue to have lower demand. Part of that, of course, is high prices. Part of it is, of course, we still have a relatively slow economy. It may be growing, although I saw the fourth quarter, it actually may have contracted. We have a slow economy here, and we sell fuel. Over 80% of Valero's output is gasoline, diesel, or jet.
This is a fuel-oriented company. As we look to 2013, just a lot of the numbers, you have your own numbers that you've seen. We see demand a little better. China went through a slump last year near the end. They seem to be coming back. We think world demand growth is going to be higher than it was last year. On the other side of the equation, because Valero, we're not going to give you half the story. World capacity is growing as well, and you can see on this chart there's a lot of additions. These are pretty firm because they're under construction. You can see in the Middle East, you can see the color code there with the Middle East being blue. These projects are coming in.
We moved Motiva's plant into 2013 here, so that's in the 2013 number, even though the downstream units had already been running for most of the year. You can see that a lot more capacity is being added than demand on the previous slide, and we're well aware of that. That doesn't take away from the competitiveness of the U.S. business. As we look at this, we would tell you that some of these announcements that are a little further out in Brazil, Mexico, Colombia, the Brazilians, in my opinion, are not going to build five refineries for $50 billion-$60 billion. They're having trouble building one refinery, and they're already at $20 billion. The costs are running away from people building capacity, so I don't think that's going to happen.
You have such an excess of capacity in the U.S. Gulf or the Caribbean that it just doesn't make sense for these people to do it. I don't think you're going to see all of this built. Obviously, the Venezuelans have trouble with their refining. The Curaçao refinery limps along. To me and to us in the industry, we see that there is an opportunity for our business to be able to export into these markets. We're very efficient, which we'll show in a couple more slides. Clearly, capacity is being added, and the Chinese tend to be adding capacity that, in a way, offsets their demand growth. They're really, in a way, taking care of their own business. This is why we say drill, baby, drill. We're not in the business, but the oil production continues to grow. It's coming.
It's eventually gonna get to the Gulf Coast, and we've got another slide to show that. Clearly, production's very quickly. In this slide, we've tried to show the blue is this increased production of light oil here. The green is the heavy up. I know BP, we had BP's project here in 2013, and we read the news yesterday, I guess it says it might be a little later. That may be moving here, but that's what the green represents mostly. A year and a half ago or so, two years ago, we had 1.5 million barrels of light sweet crude coming into the Gulf Coast. Now it's down to 500,000 bbl. That's the line, the orange-yellow line there. It's come down quite a bit. Some still comes in because of logistics.
If you go to the Eastern Gulf, there is still light sweet crude imported light sweet crude. This is going to change very quickly as these logistics keep getting added. Rail capacity pipelines are being added very quickly. We put in a line here that shows that the black line. The dotted line is an estimate of production in 2016. However, we are the first to acknowledge that every forecast that you have gotten in the last year or two, the production numbers are actually higher. I mean, it is every single one. You can see here this takeaway. The Bakken, it seems to be primarily rail. There is a lot of rail being added. Cushing, we expect Keystone South, I will call it, will get done by the end of the year. There will be a lot of takeaway capability from Cushing. West Texas, these pipelines are getting done.
They will be done sometime this year. A lot of takeaway capacity from the Permian Basin in West Texas. A lot of capacity is being added to pull barrels, at least from Cushing and West Texas to the U.S. Gulf Coast. Which then brings to the next comment, the Bakken and some of these others, Niobrara, these different places, where does that oil actually wind up going? Because the bottleneck is going to move from Cushing to the U.S. Gulf Coast here very shortly. You can see a lot of capacity. Every one of us that you have talked to are buying rail cars. Can you believe a guy like me is talking about rail cars? We decided to put in, because in every meeting we have, and we have done some of these in the last month, we want to talk about these differentials.
In the next 12-24 months, and we do this at great risk, because now you got a piece of paper that says what we think. We have the assumption that eventually the clearing point moves to New York Harbor. As you look at this chart in the handout, it is in your handout, but as we go through time, we debottleneck Cushing. Now it is very long in the Gulf Coast. Enterprise has already said they have had trouble moving some of the oil from Freeport. The bottleneck is becoming Houston. Ho-Ho gets done, starts to move barrels over toward Louisiana. Other transportation assets are being added. You are starting to move the oil along the Gulf Coast. You push out the rest of the imports. Then all this light oil has got to go somewhere else.
Refiners like us are trying to figure out how to run more light oil. Everybody is trying to get more light oil into their plants because it is in our economic interest. The pricing, it makes it attractive. This is why you have heard Valero say for quite a while that LLS is going to go below Brent. We have been talking about that. I know it bounces all over the place, but eventually this is going to happen. Now we move it to the Gulf Coast, then you move it along the Gulf Coast. Then what is going to happen, some of the companies, it is to the East Coast are shipping crude oil up to the East Coast. On this map, you can see we can ship crude all the way to Quebec, our Quebec refinery. You also have the other Canadian refineries.
You can get a license to export U.S. crude to Canada. You can use a foreign flag ship, that is why we put down $2 there versus the numbers you are hearing on the East Coast, four to five, really four to six, I guess. We put five to six. You keep coming back and back. You have New York Harbor clearing against Brent. You have transportation you have to add to this. You look, it is going to be rail. We have 14, it is probably more like 14-17 because you are getting all different numbers of railing Bakken over to the east. You are going to clearly take Canadian crude to California. I think it is obvious this is going to happen. We, Valero, are working on this just as well as all the rest of the guys because we see the numbers.
This is a crude-driven advantage for the refining industry in the United States that then has to export because we do not have the U.S. demand. That is why when somebody asked a question about exporting it, we have to be able to export. You can see how we backed it up. You get to St. James as the price point for LLS. We say, hey, a buck or two back to Houston, a buck or two back to Corpus Christi.
We put the tariffs to all over here. If a pipeline gets built from Bakken to Cushing, you are not going to use rail. There is a lot of rail capability in Cushing. It will be pipeline, it will fall in half of that, and then you will adjust this again. But this is how we think it is going to shift. It is going to shift to the east.
Once you have supplied all the Canadian refiners, once you have supplied all the East Coast refiners, once all these refiners are supplied, and let us say there is still more oil coming, well then, of course, something will have to get addressed. But this is many years into the future here. This is going to keep moving along these lines. In Valero, if you look in our appendix, we are actually going to balance out some of our own capacity.
We are going to add some crude capacity to run some light oil at a couple of our refineries where we buy feedstocks. Because in the history of the business, you made the money conversion units, not in the crude fractionator. But if you are long crude oil, where do you make the money? Fractionating it. That is exactly what we are doing. Keystone North or South is getting done north.
I think we are still supportive of it because we want the heavy oil to come to the Valero. We want the heavy oil to come to the U.S. Gulf Coast. We think that is where it should go. We have cokers. We think it all actually fits, quite frankly. Whether it gets approved or not is a little bit academic because what the industry is doing is obvious. We are all buying rail. Rail is going to move a lot of stuff. However, we are very supportive. We think it should happen. Frankly, I still think that Canada is a very strong ally of the United States, and for us to say you cannot build a pipeline is some of you may know me, it is utterly ridiculous. Not to mix words. Back to Valero, because many of you ask us, how much crude can we run?
Well, we've given you numbers. We're running about 500,000 bbl in the Gulf Coast, including Memphis of light crude. We have some other capability to do different things, but we're like every company. We get smarter every day. We see where the bottlenecks are. We can move more around, and you put another 1,000 bbl here and you back out this, 2,000 bbl there, 5,000 bbl there, and I think you're seeing all of us do exactly that. Because the crude oil that's coming is light. Somebody asked me earlier that sure, it changes the premise that Valero had for years that heavy crude oil was where to be. It's obviously a different world that we're dealing in today. Natural gas is huge. This is a huge competitive advantage that's really limited to North America.
To put it in perspective, you can see here at $3 natural gas, the cost per barrel versus an LNG steel at 15. To look at us and when you pay $3.50 a gallon of gasoline, you think I'm lying to you. Our cash operating costs are about $0.09 a gallon. That is Valero's cash operating cost, $3.60 or so a barrel. All of our competitors are going to be in this range. That's our whole portfolio, $0.09 a gallon. When you start talking about numbers that you have here, for our portfolio, $1 per Mcf is equivalent to $0.25 a barrel, either in cash expenses or cost of goods sold hydrogen, okay? If you have an $8 advantage per Mcf, $2 a barrel cash cost, that'll offset all the shipping. We can ship stuff a long way for $0.08 a gallon.
This is why it's so unique to the U.S., and this is why the U.S. can have a manufacturing resurgence, because it's not just this, it's the petrochemical industries, it's any energy-consuming industry. Very, very unique to our country. Distillates are where we want to be. You can see they're growing faster in the world. On the chart on your left is the margins. We got it for a couple different years. You can see the margins have continued to be much better for distillates. Over on the right, 2012 was a little different because there was a few things slowing down. Frankly, distillates are growing two times or so faster than gasoline is in the world. Thus, we have higher margins, we have higher growth, the business is bigger. Europe is systemically short.
Distillate is where we want to be. Of course, that is a reason that is Valero's a little different than the other guys, because we have built these projects that you follow us, those of you that follow us, the Port Arthur hydrocracker 57,000 bpd plant. We started up in December. This is 2,400 pounds PSI. 2,400-pound unit makes very high cetane clean diesel. It's two things. It takes advantage of the distillate margin, but it's also gas to liquids. Natural gas to hydrogen to liquid. We have about a 20% liquid volume gain. Looking at it's very, very profitable. We started up the one unit. The second unit at St. Charles, they're kind of clones, will start up for us in the second quarter. We have an increasing distillate yield. Valero's unique here.
You can see that by the black bars. We will be up here as soon as we get St. Charles running 39%. Coming down our gasoline to distillate ratio is going to get, the next couple of years as we expand these units, to about 1:1 . Very unique for a U.S. refiner. We continue to improve our operations greatly. Many of the refineries we purchased over the years were under-invested in.
We have major efforts to improve mechanical availability, which leads to everything else. We have some refineries of first quartile. This is a major effort in the company. Person asked me, "You are going to see this on the bottom line?" It is very hard for me to answer. You, if you own our stock, you want a safe operation. You want a reliable operation. You want an environmentally compliant. That is the kind of thing that we are doing.
We would have been first quartile this year in mechanical availability. Monroe has been a little bit of a struggle for us. We will be getting there as we do it. Capital spending is falling. We finished those big projects are finishing. We will drop capital spending down about $900 million. We came out a little less in 2012 than we gave guidance. Some is carried over because we are about a quarter behind at St. Charles.
Clearly, we will be in this $2.5 billion range, and about $200 million of it in there is with retail, so we will adjust this as we spin off. Our capital spending has fallen. Our 2014, we give guidance that says we are going to be in about the same range. We are very strong financially. We have been raising our dividend. We raised our dividend just a week ago. We bought shares, so we are paying $0.80.
The chart on the lower right shows you we have been returning cash to the shareholder in dividend and in stock. We are paying off debt. We are an investment-grade company. Paid off $180 million of debt in January. We will pay another $300 million off in June. The retail spin to the shareholder clearly shows we are adding value. We are returning cash to the shareholder. Looking at us, you can see Valero, obviously, you expect us to run a safe operation, compliant operation. We are completing our big projects. These are the biggest projects in Valero's history. We continue to work our portfolio. Many of you know that we do this. We look for opportunities that we bolt on, and we continue to return cash. This is a long-term business, capital-intensive business, so we are always in the sense of having to deal in long-term shareholder value.
We believe we are an excellent buy still at $45 or $46. We have had quite a run. Excellent buy. We expect to give you value with this retail, as I explained earlier. Atlantic Basin capacity continues to close. We are very competitive as an industry. There are focal points moving our way. The hydrocrackers differentiate us from the other guys, and we are returning cash to the shareholder, and I made it. Well done.
Well done, Bill.
Thank you.
Thank you very much. A lot to cover in half an hour. Any questions from the audience?
Well, we have a very extensive handout. In the appendix is many, many, like the hydrocracker definitions, shows you how it works on the volume game. Ashley and Matt have put a very. I told a few people that don't follow our industry that closely, if you read our whole handout, we tell you an awful lot about it.
Yeah. You talked in one of the great slides which I'll have from Nick from you still, Nick is English, about the logistic costs in the Gulf. It feels like in the early part of this move that the cost could be higher than the cost that you've presented. Or do you feel reasonably comfortable about $1 to move around the Gulf, $5-$6 to move up to the East Coast?
Yes, very clearly. I think Phillips announced that they were going to move barrels to the East Coast for $4.50 or so. If you inquire today, it's $5 or $6. I think Ho-Ho Pipeline tariff is $2.50, or at least their indicated tariff. So from St. James back to Houston, we put $1 on that chart, but I think it'd be $1, $2, $3. You can see what's happening. You have all these bottlenecks occurring because basically the industry didn't move barrels this way for a long time. If you go back far enough in history, they did, but not in the recent time. We just put down how we think it's evolving, but it can move several dollars. I've had one person tell me it's going to be $10.
It's just what price for oil, if you're producing it and you have it and somebody's got to move it or somebody has to refine it. Why is WCS $40? It's because the game has changed in refining from excellence and all of this to today, location, and in location, you offset by logistics. It's very interesting. In the golden age of refining, it was all about boiling oil. So it's a very different market we're in.
One other point probably worth bringing out. In the fourth quarter, obviously, a very strong earnings, a lot of that due to availability of some cheap, heavy crude. To what extent are you currently benefiting from, say, the light crude growth, and how much do you think you still have to come, really? Are we in the first, second innings of this overwhelming of the Gulf?
Well, I think we are in the very early stages because, as I said, every forecast shows more and more oil is coming. We did have very strong earnings in the fourth quarter. We did have not just the Maya indicator discount, but we had some other oil that we had purchased from some of the other producers at very favorable numbers. Now you get into this year, we still have things coming our way. The Maya discount narrowed, as I showed on the slide, so it is down some, but we still have good coking economics, and so you are able to coke here and be profitable. On the light sweet crudes, we backfilled all that we used to bring in foreign crude, so it is all out of our system now. Somebody asked me on our earnings call, we do this because it is in our economic self-interest.
At Memphis, we actually bring Bakken to St. James and ship it back up pipeline, and it still weighs in cheaper because that was the deal we made. We are, like everyone else, streamlining our logistics here. We are adding rail, we are adding rail capability to unload. I think there is huge potential because at the end of the day, somebody needs to run this oil in North America, because at least today, it cannot be exported from North America.
Thank you, Bill. Just to keep it moving on, we will have to-