Vale — Key Risks

Razor-Thin and Volatile Refining Margins Are the Core Business Risk

Valero makes money on the "spread" between what it pays for crude oil and other feedstocks and what it sells its finished products for. This spread swings wildly based on global supply, OPEC+ production decisions, competitor capacity additions, and demand shifts — all beyond Valero's control. Because Valero buys feedstocks before it sells products, even short-term price swings can cause meaningful inventory losses.

The Renewable Diesel Business (DGD) Faces a Policy and Cost Squeeze

Valero's Diamond Green Diesel joint venture is caught between rising costs and shrinking incentives. U.S. tariffs have made foreign feedstocks more expensive for DGD, while the U.S. and foreign countries have not symmetrically applied duties to imported finished renewable diesel — putting DGD at a competitive cost disadvantage in key markets. Proposed EPA rules (RFS Set II) could also reduce the number of RINs (compliance credits worth real money) generated per gallon DGD produces, directly cutting revenue.

RIN Credit Prices Are Unpredictable and Can Hurt Both Refining and Renewable Diesel

Valero is both a buyer of RINs (as a refiner obligated to blend renewable fuels) and a producer of them (through DGD). The price of these credits can spike or collapse based on EPA rulemaking, small refinery exemptions, and production levels. The EPA recently granted exemptions to many small refineries, potentially flooding the market with returned RINs — adding another layer of unpredictability to Valero's compliance costs and DGD's revenue.

California-Specific Regulations Pose an Outsized Threat to Refining Operations

California has enacted some of the most aggressive fuel and emissions regulations in the U.S., including SBx 1-2 (a profit margin oversight law) and the LCFS (Low Carbon Fuel Standard), which now caps credits for certain renewable diesel feedstocks at 20% per producer. Valero has already flagged strategic actions around its California operations in its financial notes, signaling these rules are materially affecting its ability to profitably operate there.

Low-Carbon Fuel Incentives Are Unstable and Vary Widely Across Regions

A significant portion of Valero's renewable diesel and SAF (sustainable aviation fuel) sales depend on government programs in California, Canada, the U.K., and the EU. Canada is now limiting how much imported renewable diesel qualifies for credits; the U.K. added new feedstock requirements for SAF starting in 2025; and the OBBB (a new U.S. tax law) restricts the clean fuel production credit to fuels made from North American feedstocks only, starting in 2026. Any one of these changes alone is manageable — together, they are compressing DGD's margins significantly.

Climate Litigation and Strict Liability Laws Are a Growing Financial Threat

Valero has already been named as a co-defendant in lawsuits in Oregon and California. More broadly, states like New York and Vermont have passed laws making fossil fuel companies strictly liable — meaning regardless of fault — for costs tied to climate-related infrastructure needs. Other states are considering similar legislation, and the legal trend is moving toward larger damage awards in jurisdictions where Valero operates.

Labor Disruptions at Unionized Refineries Could Halt Production

Workers at five U.S. refineries, plus facilities in Canada and the U.K., are covered by collective bargaining agreements with staggered expiration dates. A strike or work stoppage at even one major refinery could meaningfully reduce output and increase costs, and the filing notes such events have occurred in the past.