Good morning. Our next presentation is Valero. We are extremely happy to have the CEO and Chairman, Bill Klesse, with us. Without further delay, let me welcome Bill to share with us his insight.
Thank you, Paul, and good morning, everybody, and thank you for coming. With me today is Joe Gorder. Joe is our Executive Vice President and Chief Operating Officer. Next to him is Ashley Smith, our Vice President of Investor Relations. And down front is Matt Jackson, also in our Investor Relations group. We have a very large deck, and I would encourage you to take a look at that deck. We have a lot of info in there about the industry as well as about Valero. And we give you a lot of data. We talk about hydrocrackers. We show you where the liquid volume gain is in there. So we show you a lot of information. We had the golden age of refining back in 2005, 2006, 2007, part of 2008. And it was terrific, the most terrific time in my career.
I will tell you, as you look to the future, it looks very bright. The difference here is, in the golden age of refining, it was about boiling oil, process as much oil as you could process. Today, it is about location, location. And if you have the right location, then you run as much oil as you can run because location matters a lot. And where is that location? It is actually the United States for reasons I will get into, and it is between the mountains, between the Appalachians and the Rockies. And that is where we have a huge advantage, frankly, in refining petrochemicals, all of these energy-type businesses because of what is happening in the United States. Safe harbor. For some of you that know Valero, a little bit redundant, we have 15 refineries now.
It says 16, but we have elected in Aruba to turn it into a terminal of about 3 MMbpd of capacity, 6,800 branded units. We are a refining and wholesale marketing company with the retail, which we have now decided to separate in a tax-efficient way. We are in the corn ethanol business, have 10 plants that are very well located. We are not making any money in ethanol today. We have made money in that business, but it is still profitable to blend ethanol. But we are not making it at the ethanol plants converting corn. And we have a green diesel project. Our project in Louisiana makes renewable diesel, which fits under the California regulations.
We have all this B2, B5, but renewable diesel, we believe, is also going to continue to be part of the fuel mix as we think E10 will continue to be part of the fuel mix. Our footprint. We cover most of the U.S. The blue area represents where we have marketing. Where there is that V in the area, it is actually a branded marketing program. The ethanol plants in green, you can see, are very well located, well-positioned. We have Pembroke in the U.K. We have our Quebec refinery, and I mentioned to you that Aruba is turning into a terminal. You can see over on the side our detail. We are a complex refiner, heavy complex refinery, but we run a lot of light sweet crude, which we will discuss more.
Over the last several years, we have had a very detailed and articulated to many of you our Atlantic Basin strategy. This chart shows some of the refined product flows. Red is diesel fuel. The black line is how gasoline moves. Clearly, gasoline and diesel are moving into Latin America. Obviously, Mexico has been taking a lot of products. To Europe, is systemically short diesel, will continue to be that way, so diesel will move there. West Africa is short gasoline. You will actually see some cargoes move from the U.S. Gulf Coast to West Africa in the future. But we have an Atlantic Basin strategy. We want to do more business in the Atlantic Basin. And as I go through this presentation, you will see why. But the key thing to remember as I start the talk, exports are very important to the domestic refining business.
In addition to our announcement the other day of Aruba turning into a terminal, we have announced that we are going to separate our retail business. Now, this is the company-operated retail in the U.S., and it is our branded retail business in Canada, which also includes a home heat business as well as a Cardlock business. But we are separated into two separate companies, Valero Energy and then probably our retail holdings company. Yet each will have better focus, better align. The business model is slightly different. Refining, very capital intensive. Retail is obviously people intensive. But the basis for this logic is the chart at the bottom of the page. This is a delta chart in EBITDA multiples. You can see here that going back to 2006, and we use Couche-Tard and Casey's where their multiples are relative to refining.
Valero, relative to Valero refining or just relative to Valero. It shows in a way, when you look at our peer group, that we are not really getting much credit for the refining business, if any at all, for the retail business, if any at all. You come over and look at it today, you can see that this EBITDA multiple is quite large, and we think we are going to add somewhere between $1.6 billion- $2.5 billion of value here to our shareholder that is not being recognized. Remember another thing, most of you in this room, you are not retail investors. When I go on these road shows, I really never get a question about retail. It just indicates that Valero trades as a refining company, and it is a piece of our business that the shareholder does not see the value.
With the multiples where they are, we elected that we should separate it in a tax-efficient way. Just to give you a little more insight into this business, in the U.S., there is 1,027 company-operated. 2/3 basically are in Texas, a very good place to be doing business. In Canada, it is 775 units, most of them in Quebec. But it is a little different business model, as I mentioned a second ago. We company operate 250 of those units, but the way the business model works there, we actually control the street price. So it tends to operate as a company-owned network. Even though we have dealers, agents, and other people involved, we manage the street price. Retail has been a steady contributor for us. On the chart on your left is EBITDA, and as I mentioned, includes our Home Heat business as well as Cardlock for Canada.
That is in the red, the U.S. in the blue. You can see the EBITDA contribution. On the right are the number of units that are involved. It has been relatively steady in the U.S. and been declining slightly in Canada. Now, if we switch back to refining and take a look at where Valero is, we think we are very well positioned to take advantage of some of the changing market trends that are going on. In the Atlantic Basin, there has been closures. I know some of the refineries are coming back to life, but certainly Trainer is, Marcus Hook is shut down and not coming back. Hovensa is shut down, not coming back. Coryton in the U.K. is gone. There have been reductions in the Atlantic Basin. Trainer is going to start up here and come back, and Philadelphia Refinery never did actually shut down.
But the Atlantic Basin has lost capacity over the last few years. Exports, the U.S. can export into growing and undersupplied markets, and we will talk some about the competitive of why the U.S. is able to do this. It is a very unique development that has happened just in the last couple of years. We have abundant oil. These shale oils, unconventional oils and gas are changing everything about the competitiveness of the U.S. This low natural gas is a huge competitive advantage for U.S. manufacturing businesses. And obviously, splits are growing in the world, and Valero has its projects, which we will talk some more about, are clearly in the right direction, the right project for the right time. Now, the world continues to grow. We are the first company to admit that Japan, U.S., Western Europe are not growth markets for refined products.
The world continues to grow. We have shown here that in 2011 and 2012, we expect these markets, the U.S., Western Europe, and Japan, to continue to decline. However, the world is growing. That growth, as we know, is in China, Far East, Middle East, Latin America. So we acknowledge that we're not in growth markets. Very key point. Demand increases are not part of our story. Refining capacity is being added. As you look at this chart, there is no question that capacity is being added in excess of demand. However, not all the plants past this time period, in the 2016, 2017, 2018, 2019 period, are going to be built. The costs are huge. Some of you may have seen the Brazilian refinery that's being built. They're now talking about this plant being $20 billion.
The Mexican Tula refinery that they're talking about building, they've allocated $1 billion in their budget. That refinery is anywhere from $12 billion- $20 billion. So these plants are not going to all be built, and they're going to be later, past this period. But during this time period, these plants are pretty well going to come online. So yes, capacity is being added that's in excess of the demand growth over the next couple of years. What has happened, though, is we've clearly had plants shutting down, as I mentioned, some of the others. You can see this trend here in the Atlantic Basin and then some in the rest of the world. Many of you have seen the Australian refineries. They're talking about shutting some down there.
The other important point, and you see this in the news as well, is the poor reliability that many countries experience in refining. They just do not operate their plants at a level that you would expect companies like Valero, Marathon, and the rest of us to operate our plants. They just don't do it. So what has happened here is, even though you have this nameplate capacity, the facts are it doesn't run. These closures that have happened in the Atlantic Basin have clearly influenced the markets, and you would expect this. Supply tightens, demand's relatively constant, down a little. So in this chart, we have the two color tones and comparing this year, the quarter to last year, the quarter. The one is the Gulf Coast, 5-3-2 against LLS, and the one on the right is against Brent, New York Harbor.
You can see a clear trend here that margins have improved in these areas here over the last several quarters. We expect this trend to continue. Now, shifting to exports. For the U.S. refining business, this is absolutely key. We've mentioned demand. Demand has not recovered from the Great Recession. It just doesn't seem that it's going to do that. We have higher prices. We have high unemployment, relatively. CAFE standards are coming. So this is why when we speak, we just do not see demand in the United States making a recovery. Diesel has not recovered. It's dropped about 500,000 bpd. We did have a mild winter, so you have to take that into consideration, but it just isn't recovering in the U.S.
This has been a huge change in what has happened, and what this allows all of us refiners to do is to operate at much higher operating rates and much more efficient levels. Valero's share of the export market's 20%-25%. You know that we give our volumes 150,000 bpd - 200,000 bpd of diesel, somewhere between 50,000 bpd and 100,000 bpd every month of gasoline, we've been exporting. The markets are pulling this. It's not the way some people have represented it. The markets are actually pulling it, and we actually make more money going to the export market as opposed to the import market. The U.S. still imports gasoline on a net basis, but we are a large exporter as a country now of diesel fuel. Remember, location matters very much, as we stated.
Just looking at the chart at the bottom of the page, PADD 2, 3, 4 have higher utilization. The Mid-Con, Gulf Coast, Rocky Mountains. The West Coast is higher, although there are issues on the West Coast with very high unemployment in California, for instance. If you then look at what's happening, and then we'll get behind the reasons why, but you can see looking at the red boxes, being Europe as well as PADD 1, they are at disadvantage in crude costs, just the competitiveness of the basin, so that what happens is their operating rates have been lower. A huge advantage to the U.S. refining is obviously in the Mid-Continent. Remember, location matters. All this oil that's being produced, we do benefit. Valero benefits from it in the Eagle Ford area. Obviously, with our refineries in the Texas Panhandle and Oklahoma run these crudes.
To put that whole conversation in perspective, and I try to remind people all the time, and this is our industry, but for Valero, our cash operating cost is about $0.09 a gallon across our entire system. You pay $4 at the pump and you're saying, "What could you possibly be talking about?" It's $0.09 a gallon. Valero breaks even about $0.15 a gallon, counting interest payments and everything on a cash basis. You can see that it's a very, very efficient business and all of our competitors are the same. They're in that range anyway. We're all very, very efficient. When you start talking about $1, $2, $4, $5, $10 discounts in crude oil, it is a huge competitive advantage. You'll see when we talk about natural gas in a couple of slides, a huge competitive advantage.
Looking at this chart, now we go to what is happening in part of the oil production and the heavy up projects that are occurring in the Upper Midwest at BP and Marathon. The green represents the heavy up conversions, which are going to free up light sweet crude, and you have the increasing production. For Valero, looking at that orange line, we see imports now at about 500,000 bpd, and they're going down rapidly. Before you know it here, there's just so much light sweet crude that into the U.S. Gulf Coast, you're not going to be importing light sweet crude. We think that happens next year. There's lots of takeaway capability being built, and this is why we have a little different view on these differentials than some of our peer group.
If you look at this chart, we have the orange line representing that 500,000 bpd. Then if you come and look at that black line, this is an estimate of the increase, the shale oil production that we expect by 2016. Now you come back and you say, "Well, what's it today?" It's about 1.2 million or so, 1.3 million today. Take the Eagle Ford, it's going to be close to 500,000 bpd at the end of the year. The Bakken, 600,000 bpd today, going to go higher by the end of the year. But by 2016, it could be around 3 MMbpd. Yet you can see how much takeaway capacity is being built. Seaway will be done next year. Longhorn's done next year. There's a couple other pipelines that are going to be done.
Every one of us in this business are buying rail cars. We should all be in the rail car business. Lead times now are a year. Barge, it's a year. Because it's been harder to build pipelines out of the South Texas area. The Eagle Ford, there's been a lot of pipelines built. But if you get out of South Texas, it's been harder to get things done, as we all know with Keystone, for instance. We know this is the case, and people are moving things by rail and barge, and we're the same as the other guys. Lots of takeaway capacity. What happens? The spreads or differentials are going to narrow closer to the tariff.
You will have Brent, then you'll have LLS, then you're going to have a pricing at WTI at Cushing representing the tariff and maybe some incentive, and then Bakken's going to be another representing what? Rail, because rail's going to be the primary way that those type of crudes move to the market. This chart may be a little bit redundant, but it just shows the rapid change we've had in just a couple of years. This would be the imports of light sweet crude into the Gulf Coast. It used to be around 1.5 MMbpd, and it's down to this 500,000 bpd that I mentioned, and it's going to go lower.
Some of you always say, "Well, Valero is a heavy crude refiner, and all this light sweet crude, you're just not going to be able to capitalize on it." There is some truth in the sense that, yes, our Port Arthur, St. Charles, Texas City, and even our Corpus refinery are heavy crude refineries, or are running heavy feedstocks. They are. But on the other hand, we still think there'll be margin into a coker that's already built or a sunk coker. I do not think after Motiva's project is back up and running here, that you're going to see another company build a grassroots coker on the U.S. Gulf Coast. Now, we still expect the Canadian crude oil to come to the U.S. Gulf Coast. So we still believe into a sunk coker. There will be margin.
But to be honest, if you were going to build a new refinery on the U.S. Gulf Coast today, I don't think any of you would expect us to build a high, complex, heavy sour crude refinery. What you would build is a light crude refinery. No question. But when it's sunk, it's a whole different situation. You could see on this chart, we've got the 5-3-2 at the top. Just looking at some of these differentials, where they are today, we think going forward into a sunk coker, you'll be able to make money. Now we have the ability to run light oil. I mentioned that to you. We can run a lot of it. We're large, so we're in all these different areas. The blue represents the Gulf Coast, then we have Memphis and McKee and Ardmore.
As we get to the end of the year this year in our system, and this excludes Quebec, because in Quebec, there is this Line 9 reversal, and ultimately in a couple of years, we're going to have Syncrude and some Bakken crude that'll actually show up at our Quebec refinery as well by pipeline, not by rail. Pipeline and shipping. You can see here, though, that we are a significant player in this business as well. Then we have projects that we're looking at that'll let us run another couple of hundred thousand bpd here going forward. Now, I mentioned natural gas, and this is a huge competitive advantage to the United States. It is a huge competitive advantage to the petrochemical industry. It is a huge competitive advantage for the refining industry. This is huge.
Remember the numbers I said about cash operating costs? You look at this chart where you see $3 natural gas. You see the natural gas component per barrel. Then you come over here and look at this $9 is about what we're doing in Europe at our Pembroke refinery. Then if you start talking about LNG trades against the oil. So you can see a huge difference. Remember years ago, some of the Indian refiners were gonna come out, and they were gonna crush us? We don't even talk about them anymore. That's because U.S. refining is so competitive. Remember another thing we're not even going to speak about in here is all the NGLs, the natural gas liquids that are being produced with this oil. This is the most significant change in my entire career in this business.
Saw price controls in 1973, the Iranian-Iraqi revolution, the hostages, the price break in 1986, the wars. This is absolutely huge. Three, four years ago, we weren't even talking about what is happening. When you're going to build a new asset, you would tell me you should build it in a consumer-advantaged Far East or recess-advantaged, and you would've said Middle East. I will tell you today, it is the U.S. We have real laws in the United States. If you look at the distillates, it's very important to the future of the business. You can see that distillates have had higher margins, higher growth. I think most of you people know that. The chart on the lower left shows the margins for different time periods here, red being on-road diesel against LLS and gasoline against LLS.
The margins have been better. Of course, demand is growing in the world 2x- 3x . Gasoline in the world is growing, but 2x- 3 x here, distillates are growing faster. Valero, and this has been a long time coming, and we're about to the end. We bought these reactors in 2006. We stopped the project in 2009. It was a tough year here in New York, but it was a tough year in the refining business, too. We were watching our cash. It's been basically a six year project for us, but we're building two very large hydrocrackers. I can assure you this is the right project for the right time. Wish I had them today, but we had reasons that it's coming, but it's coming together now for us. They're very large plants. Huge contribution. These are big jobs for us.
Each is about $1.5 billion, and then there is some associated stuff going on around them in utilities and a few other. We should have the Port Arthur done here and operating in the fourth quarter. St. Charles is probably going to get completed in the first quarter and operating by the second quarter. Yes, we have lost a month or two. We did have a hurricane at St. Charles that shut down the project. We have lost a couple of months on this project there, but they are getting done and coming together. As the pictures represent, they are significant capital projects and very good for us. Just to give you a sense of that, you can see on this chart just some different price sets.
In our appendix, there's all kinds of data on what prices are used and how we get the liquid volume gain. Remember, low natural gas converted to hydrogen in a hydrocracker, and we get that 20% liquid volume gain. If you think about $3 natural gas, gets converted to hydrogen, and then we have ultimately converted primarily to diesel and some gasoline. Looking at 2009, which was a very difficult year in the industry, these two projects, even then, would have contributed over $600 million of EBITDA. Very accretive projects using the 2011 price set actually have been well over $1 a share of contribution just from two projects for our entire refining system. Our yield in distillates is increasing. Remember, the margins are better, the growth rate's better.
Exports are a key part of the future of the refining in the U.S., a key part. You can see what Valero's doing in the chart on the lower left. You see where we are today, about 33%. It moves around a little bit quarterly, but 33% distillate yields, and that's going to 39%. Obviously, with our acquisition of Meraux, which has a distillate hydrocracker as well as a distillate hydrotreater, and how we will operate that facility going forward, you'll see us slide into the 40%, low 40%s. These are 60,000 bpd hydrocrackers we've built, but they can be expanded very economically. You have two things. You have that distillate crack that's working, but you have low natural gas and high oil prices. Converting the natural gas, these are really gas-to-liquid projects to a point as well as just a straight up distillate margin.
Very key for us. We continue to improve. Some of you that have followed us and knew we were a second and third quartile refiner in the industry benchmark surveys, the Solomon surveys. As you can see here, we have been improving dramatically. A major effort in our company to improve. Looking at the bottom chart on the right is mechanical availability. We are now a first quartile.
We calculate these, and it has been a major effort by our people. Reliability is the basis for everything. When you are reliable, you are safer. Every piece of the pie, the puzzle fits together when you are reliable. We have a major effort, and we are diligently working on all of our lower performers here to improve them, including bad actors and things like that. It is a very rigorous effort as well. It is tracked every single month, the metrics that we are pursuing there.
Capital spending, this is a big change for us. Many of you over the years, you know we spent a lot of money on projects. Many of the refineries we bought were underinvested. They were just behind the times. We have made lots of improvements. Some of that is coming to an end, but the orange area is the big difference in us. We have spent economic capital here, and we are about to see the realization of the benefits here. in 2013, we expect our capital spending to fall down. It is $2 billion - $2.5 billion. We are still working our budgets for next year, but it is at least a drop of $1 billion. Today, we are looking at about $3.6 billion. It is true we are a little behind at St. Charles, that hydrocracker.
Some of the capital might slide into next year, but between the two years, this is exactly what is going on. We expect to have much more cash flow available here going forward. We are financially very strong. You look at us with the reduced capital spending, the earnings power that we expect from these projects, those economically driven projects. What have we been doing in the last year? We bought our shares last year. We tripled our dividend, got it back to where it was pre-Great Recession. This year, we bought some shares. We also increased our dividend here in July, and we are also separating our retail business, so we clearly have a shareholder focus. It is actually in the management team's history here, because in 2005, 2006, and 2007, we did not see better opportunities. What did we do? We bought a lot of our shares back.
Sure, the price was higher, but we actually felt that was our best opportunity as opposed to investing the money in some other part of our business. We have cash on our balance sheet, and cash is built in the third quarter. We ended the second quarter $1.3 billion, but we have actually been able to build more cash. We paid off $1.3 billion of debt over the last two years on a net basis. We are very strong financially here and getting stronger. The chart on the lower right shows you how much cash we have returned in the last year, and then this year so far between dividends and stock buybacks. If you think about our priorities here, it is always about safety. You expect that of us. We follow the rules. You expect that of us. But we maintain our investment-grade rating. We are very large.
We think we have to do that. We improve that portfolio. We have a clear goal in the company to be a first-quartile refiner, and we are putting the effort in to make that happen. It's just not words I'm saying here. We have the effort behind this to make it happen. We continue to high-grade this portfolio. Obviously, we had the announcement in Aruba. But if you think about the other things we've been doing, we've added where we think it's strategically the right thing to do. But the portfolio is what we manage as a refiner here with 15 operating refineries. Overall, though, our goal is to increase shareholder value. We believe very clearly that our stock is an excellent buy today. We believe it is undervalued. All the things that we have going on. Obviously, the split or separation of our retail adds value as well.
I gave you those numbers on how we get there. The Atlantic Basin, we can compete very well in the Atlantic Basin. But exports are a very key part of the future of Valero and very key part of the future of, frankly, the U.S. refining industry, because as we all know, products move in these regions, and so you have this whole interaction on pricing in the regions. The hydrocrackers, they take advantage of the low-cost natural gas, and we believe we're going to have low-cost natural gas a long time. This natural gas is so significant. On the slide, I had 600 million BTUs a day is how much we consume. After the hydrocrackers, it'll be 700 million. Every dollar is $600,000 a day. And that's either in cost of goods sold or in hydrogen cost of goods sold or in operating expense. A huge advantage.
That's why there's so many ethylene plants because of the NGLs being announced. That's why people are looking at all these energy-intensive things. There's a huge opportunity here for all of us. But what it makes our industry, it makes us the most competitive place to be refining products, and that is frankly in the U.S. Gulf Coast. We have improved performance. We're returning more cash to the shareholder, and we've been demonstrating that. And I believe that our shareholders are going to benefit from the crude oil and natural gas supply and product trading that you see us doing. And as Paul Cheng did, he published a report, at least on Valero, that shows our stock price at a much higher target, and obviously, our peer group views us the same way. Thank you very much for your attention.
Thank you, Bill. In the interest of time, we're going to move to the breakout session directly for Q&A. The breakout session is Liberty One.