Valero Energy makes money by turning crude oil into fuel people use every day. Its 15 refineries across the United States, Canada, and the United Kingdom process roughly 3.2 million barrels of crude oil per day into gasoline, diesel, and jet fuel. The company also runs 12 ethanol plants that together can produce about 1.7 billion gallons of corn-based fuel per year, and it owns a share of Diamond Green Diesel, which makes renewable diesel and sustainable jet fuel at two plants on the Gulf Coast. Every time a driver fills up a tank, a trucker hauls freight, or an airline burns jet fuel, there is a chance that Valero made that product. The diagram below traces where the money goes.
How Valero Energy Makes Money
flowchart TD
A["Crude Oil & Feedstocks"] -->|"3.2M bbl/day capacity"| B["15 Petroleum Refineries"]
C["Waste & Renewable Feedstocks"] -->|"1.2B gal/year capacity"| D["Renewable Diesel Plants"]
E["Corn Supply"] -->|"592M bu/year capacity"| F["12 Ethanol Plants"]
B -->|"Distillates $55.1B
Gasoline $50.9B
Other $10.2B"| G["Product Sales $122.7B"]
D -->|"Renewable Diesel $2.1B"| G
F -->|"Ethanol $3.2B"| G
G -->|"Operating Cash Flow $5.8B"| H["Capital Investments $6.0B Low-Carbon"]
H --> D
H --> F
G -->|"Free Cash Flow $5.0B"| I["Dividends & Debt Service"]
B -.->|"RINs & Compliance Credits"| D
B -.->|"RINs & Compliance Credits"| F
D -.->|"Low-Carbon Fuels Demand"| B
Five years of financial data tell a story about a business that is highly profitable in good years and much leaner when conditions shift. Revenue peaked at $176.4 billion in 2022, when refining margins were exceptionally wide, then fell steadily to $122.7 billion by 2025. Gross margin tells the same story even more sharply.
What Is a Refining Margin?
A refining margin is the difference between what a refiner pays for crude oil and what it earns selling the finished fuel. When oil prices drop but fuel prices hold steady, margins widen and refiners make more money. When oil prices spike or fuel demand softens, margins shrink and profits fall with them. Valero cannot control either side of this equation.
Gross Margin (%) Over Five Years
Gross margin swung from 2.7% in 2021 to 9.5% in 2022 and back down to 3.7% in 2024. This range shows how much the business depends on forces outside its control.
The cash flow picture shows the same volatility but also something more encouraging. Even in weaker years, Valero generated meaningful free cash flow. In 2025, the company produced $5.0 billion in free cash flow, which it used to return $4.0 billion to stockholders through dividends and share purchases, repay $440 million in debt, and still end the year with $4.9 billion in cash. Net debt fell from $9.7 billion in 2021 to $5.8 billion in 2024, though it ticked back up slightly to $5.9 billion in 2025.
$5.0B
Free cash flow generated in 2025, even as revenue fell and the renewable diesel segment posted an operating loss
The refining business remains the engine. In 2025, the refining segment produced $4.0 billion in operating income, up slightly from $3.97 billion in 2024. But two other segments told a different story. The renewable diesel segment swung from a $507 million operating profit in 2024 to a $156 million operating loss in 2025. Two things drove that reversal: new U.S. tariffs on imported feedstocks pushed costs up by roughly $940 million, and the switch from the old blender's tax credit to the new clean fuel production credit reduced the value of tax incentives by roughly $675 million. The ethanol segment held up better, growing adjusted operating income from $315 million in 2024 to $374 million in 2025.
2024
milestone
Sustainable Jet Fuel Plant Goes Live
In the fourth quarter of 2024, Valero completed a new sustainable jet fuel project at its Port Arthur plant. The facility can upgrade roughly half of the plant's 470 million gallon renewable diesel capacity to produce sustainable jet fuel instead. Airlines including Southwest and JetBlue have already agreed to use the fuel. Valero has invested $6.0 billion total in its low-carbon fuels businesses as of December 31, 2025, and this project represents the most recent major step in that effort.
The California operations added another complication. Valero recorded a $1.1 billion asset impairment loss in 2025 related to its Benicia Refinery, which it plans to idle and shut down by the end of April 2026. California has imposed regulations requiring a 30 percent reduction in the carbon intensity of fuels by 2030 and a 90 percent reduction by 2045, creating costs and uncertainty that made continued operation at Benicia difficult to justify. Losing the Benicia Refinery will reduce total throughput capacity.
$1.1B
Asset impairment loss recorded in 2025 tied to the planned closure of the Benicia, California refinery
There are several specific risks worth naming. The EPA proposed new rules in 2025 that would raise renewable fuel requirements for 2026 and 2027 while also reducing the credits generated by some types of renewable diesel production that Valero uses. If those rules are finalized as proposed, compliance could become impossible or far more expensive. On the trade side, foreign countries have placed tariffs on U.S. renewable diesel exports while not applying the same tariffs to their own producers, squeezing margins from both ends. Texas refineries face volatile natural gas and electricity prices, and some Texas plants have experienced ongoing water supply challenges. These are not hypothetical scenarios. Each one has already affected results.
What Are RINs?
RINs stand for Renewable Identification Numbers. They are compliance credits created under the U.S. Renewable Fuel Standard program. Refiners who produce petroleum-based fuels must retire a certain number of RINs each year to show they have blended enough renewable fuel into their products. Valero both earns RINs through its ethanol and renewable diesel businesses and spends RINs to comply with its refining obligations. The price of RINs in the open market can swing sharply and directly affects profitability.
The structure of the business is worth understanding clearly. Valero earns money from three segments that pull in different directions depending on policy, commodity prices, and trade rules. When crude oil differentials are wide and refining margins are strong, the core business thrives. When renewable fuel tax credits shrink or feedstock tariffs rise, the low-carbon businesses suffer. The two sides of the company do not always move together, and the rules that govern them change frequently.
Valero operates approximately 7,000 branded fuel outlets across the U.S., Canada, the U.K., Ireland, and Mexico, none of which it owns directly. It supplies the fuel and licenses the brand but does not run the stations, which keeps the retail risk off its balance sheet.
$6.0B
Total capital invested in low-carbon fuels businesses as of December 31, 2025, including renewable diesel and ethanol infrastructure
That $6.0 billion commitment is the central tension in the investment case. Valero has built a large and expensive low-carbon platform on the belief that governments will keep mandating cleaner fuels and that the economics of producing them will improve. So far in 2025, that bet has not paid off. The renewable diesel segment lost money. Tax credit rules changed. Tariffs raised feedstock costs. The question is whether these are temporary disruptions or a permanent shift in the economics of low-carbon fuels.
The Bet
Valero's low-carbon fuels platform, which required $6.0 billion in capital investment, generates acceptable returns only if government mandates for renewable fuels remain strong, tax credits stay valuable, and feedstock costs stay manageable. The refining business can fund the low-carbon operations while they find their footing, but only as long as refining margins stay wide enough to generate the free cash flow that pays for everything else. If margins compress at the same time that renewable fuel policy weakens or feedstock tariffs persist, the two sides of the business could struggle simultaneously, and the $6.0 billion already invested in low-carbon infrastructure would generate returns well below what was originally expected.
Open question
Valero sits at the intersection of two energy worlds that are moving in opposite directions. Its traditional refining business is large, cash-generative, and benefits from strong global fuel demand. Its low-carbon businesses are expensive, policy-dependent, and currently losing money. The company has committed $6.0 billion to the low-carbon side and is closing a California refinery under regulatory pressure. Can Valero's refining cash engine stay strong enough, for long enough, to carry the low-carbon businesses through a period of unfavorable policy and tariff conditions, and will those businesses eventually reach a scale and cost structure where they contribute meaningfully to earnings rather than dragging them down?
Compiled · 10-K · FY2025
