May 05 2022
California regulators unanimously approved two landmark renewable fuel projects planned for the northern part of the state which involves converting petroleum-based refiners into renewable fuel production facilities.
The Contra Costa County Board of Supervisors late May 3 approved the land use permits necessary for both Marathon Petroleum and Phillips 66 to move forward with the conversions of Marathon's Martinez plant and Phillips 66's RodeoRenewed project, which involves repurposing its Rodeo refinery into one of the US's largest renewable fuel facilities.
The Board also approved Marathon's Final Environmental Impact Report, concluding the required environmental review process under the California Environmental Quality Act.
Phillips 66 had received approval for their FEIR in March.
"The latest vote paves the way for Phillips 66 to make a final investment decision on Rodeo Renewed in the coming weeks," said Phillips 66's May 4 statement.
Before announcing the complete conversion of its Rodeo, California, refinery in August 2020 to run completely on renewables, Phillips 66 had planned to convert one unit of the refinery's units– Unit 250 – to renewable service, a move which has proven lucrative as well as instructive for the company to learn about feedstock economics and the LCFS market.
"We're able to get all the volume of out of Unit 250 to the end consumer through our retail and wholesale customers in California," said Brian Mandell, Phillips 66's head of refining on the April 29 earnings call.
With the approval of RodeoRenewed, Phillips 66 plans to produce 50,000 b/d, or 800 million gal/yr, of renewable diesel, renewable gasoline and sustainable aviation fuel beginning in early 2024.
While both refiners are converting refineries to take advantage of federal credits and state credits under the state's Low Carbon Fuel Standard law, they are taking different tacks in reaching their goals.
Marathon recently signed a 50-50 joint venture with Finland's Neste, a global leader in producing renewable diesel and sustainable aviation fuel.
Under the deal, which was contingent on Marathon getting the Final Environmental Impact Report, Neste will provide $1 billion to cover half the projected development costs through completion. The partners will split the output equally with each party responsible for obtaining their own feedstock and selling their share of the plant's production.
"The project will utilize existing process infrastructure, diverse inbound outbound logistics and is optimally located to support California's LCFS goals while strengthening MPC's footprint in renewable fuels. Our intended partnership with Neste also creates a platform for additional collaboration within renewables," said Mike Hennigan, Marathon's CEO on the May 3 results call.
Neste is the largest global producer of SAF, with 100,000 mt/yr capacity, which will rise to 1.5 million mt/yr by end-2023 once the expansion of its Singapore facility is competed.
Marathon expects the plant to start up in the second half of 2022, with production capacity of 260 million gal/yr of renewable diesel. The pretreatment unit is expected online in 2023, giving it greater feedstock flexibility at which time the plant will ramp up to 730 million gal/yr by end 2023.
According to S&P Global Commodity Insights, US renewable diesel production reached the 1 billion gal/yr in 2021 and is expected to grow exponentially as more projects come online.
As more renewable projects come online, the price of the of California's LCFS has been falling as the credit bank is rising, growing by 1 million credits in Q4.
The LCFS is layered into the USWC price of RD and SAF along with the federal blenders tax credit and the value of the RINs, which are the credits used by refiners and other obligated parties to meet the annual renewable volume obligation set by the Environmental Protection Agency's Renewable Fuel Standard.
"LCFS price is proportionally one of the smaller drivers in the overall proposition" said Marathon's Partee, adding the average price of D4 RINs is ranging between $1.70 and $1.80 as well as the $1/gal BTC.
And with Oregon, Washington and Canada beginning new programs based on California's LCFS program RD producers are anticipating greater demand for renewable fuels and opportunities for more regional credits.
Despite low LCFS pricing, Partee said the company is quite happy with results from Marathon's Dickinson, North Dakota, renewables plant which came online last year.
"I think it bodes well for the resiliency .... for RD over the long term," he said.