US refiners accelerate transition to renewable fuels production
Reduced demand for finished petroleum products as a result of the coronavirus (COVID-19) pandemic, alongside business strategies increasingly aimed at ensuring long-term operational competitiveness by reducing costs of compliance with federal and state low-carbon fuel regulations, are encouraging US conventional refiners to accelerate investments in renewable fuels production.
During the last year, operators have announced a series of projects to add renewable fuels capacity to their portfolios either through conversion and modification of existing manufacturing assets or construction of grassroots plants.
This article presents an overview of recently proposed renewables projects, both planned and already under way, by US refiners.
Major overhauls, modifications
In mid-August 2020, Phillips 66 announced plans to permanently cease processing crude oil at the 120,000-b/d Rodeo, Calif., portion of its San Francisco refining complex, and convert the plant into a renewable fuels refinery as part of an investment strategy in the operator’s energy transition to ensure long-term viability and competitiveness (OGJ Online, Aug. 13, 2020).
Known as Rodeo Renewed, the proposed $750-800-million project will involve construction of new pretreatment units as well as repurposing of existing hydrocracking units to enable production of 680 million gal/year of renewable diesel, renewable gasoline, and sustainable jet fuel for the California market from a feedstock of cooking oil, fats, greases, and soybean oils delivered from global sources via the plant’s flexible logistics network of marine and rail terminals. Combined with production of renewable fuels from an unidentified project also in development, the converted Rodeo plant, once fully operational, would produce more than 800 million gal/year (50,000 b/d) of renewable fuels, making it the world’s largest plant of its kind.
Alongside the Rodeo conversion project, Phillips 66 said it also will shutter the Rodeo carbon plant and 44,500-b/d Santa Maria refining site in Arroyo Grande, Calif.—which converts heavy crude oil into high-quality feedstock for further processing into gasoline, diesel, and jet fuel at the Rodeo refinery—in 2023, with an associated 200 miles of crude pipelines also to be taken out of service in phases starting in 2023.
Following reconfiguration, Phillips 66’s San Francisco refining complex—which consists of the Rodeo plant and the Santa Maria refinery—would no longer produce fuels from crude oil, resulting in anticipated 50% and 75% reductions in greenhouse gas (GHG) and sulfur dioxide emissions, respectively.
The project also would enable Phillips 66 to generate credits under the California Low Carbon Fuel Standard (LCFS), which is designed to reduce GHG emissions and decrease petroleum dependence in the state’s transportation sector by encouraging use of cleaner low-carbon fuels and incentivizing production of those fuels. Already adopted by Canada and Oregon, and under consideration by 10 other US states—the LCFS mandates a 20% reduction in carbon intensity (CI) of transportation fuels by 2030 compared with the regulation’s 2010 baseline year.
“We believe the world will require a mix of fuels to meet the growing need for affordable energy, and the renewable fuels from Rodeo Renewed will be an important part of that mix,” said Greg Garland, Phillip 66’s chairman and chief executive officer.
Phillips 66 is securing permits and completing its environmental impact report on the proposed Rodeo Renewed project, with an already submitted land-use permit application to be open for public comment during spring-summer 2021. Conversion of the Rodeo refinery’s existing diesel hydrotreater—now under way—is scheduled to be completed by mid-2021, with final investment decision on the entire Rodeo Renewed conversion project due sometime in first-quarter 2022.
If approved by Contra Costa County officials and the Bay Area Air Quality Management District, Phillips 66 said it expects renewable fuels production to begin first-quarter 2024.
The proposed Martinez renewables project follows Phillips 66 and Renewable Energy Group Inc.’s (REG) cancellation earlier this year of a joint project to build a 250-million gal/year diesel plant in Ferndale, Wash., due to permitting delays and uncertainties (OGJ Online, Jan. 21, 2020). The plant—which would have been built adjacent to Phillips 66’s 105,000-b/d Ferndale refinery to access the site’s existing infrastructure, including tank storage, a dock, and rail and truck rack access—was to be equipped with REG’s proprietary BioSynfining technology for production of renewable diesel fuel, with planned feedstocks to include a mix of waste fats, oils, and greases, including regionally sourced vegetable oils, animal fats, and used cooking oil.
Marathon Petroleum Corp. (MPC) also revealed in August 2020 its decision to permanently idle crude oil processing at its 161,000-b/d refinery in Martinez, Calif., and 27,000-b/d refinery in Gallup, NM, as part of the operator’s strategy to strengthen its competitiveness amid decreased product demand caused by the COVID-19 pandemic (OGJ Online, Aug. 10, 2020).
In addition to immediate plans to convert the Martinez site into a terminal, MPC said it is evaluating strategic repositioning of the refinery into a 48,000-b/d renewable diesel plant, aligning with LCFS objectives as well as MPC’s own GHG-reduction targets.
Despite cost-cutting measures due to COVID-19, MPC also confirmed in August that construction remains ongoing at the operator’s previously announced project to convert its former 19,000-b/d refinery in Dickinson, ND, into a 12,000-b/d, 100% renewable diesel refinery (OGJ Online, Dec. 20, 2019). Still on schedule to be completed in late 2020, the biorefinery will use a feedstock of corn, soybean oil, and other organically derived feed to produce LCFS-compliant renewable diesel that will be sold into the California market. In late 2019, MPC secured WorleyParsons Ltd. to deliver detailed engineering services and procure equipment for the proposed conversion.
In June 2020, HollyFrontier Corp. announced it will permanently cease crude processing activities at its 52,000-b/d refinery in Cheyenne, Wyo., and convert the plant into a renewable diesel refinery by 2022 as part of the operator’s increased focus on expanding and integrating its renewables business (OGJ Online, June 2, 2020). Approved by the company’s board of directors on May 29, the proposed Cheyenne conversion project will involve repurposing the refinery’s current footprint and a portion of its existing assets to enable production of 90 million gal/year (6,000 b/d) of renewable diesel.
According to the current project timeline, HollyFrontier—which started winding down traditional petroleum refining operations at the Cheyenne refinery on Aug. 3 to begin work on converting certain unidentified units and hardware at the site for renewable diesel production—said in its Aug. 6 earnings report for second-quarter 2020 that the renewable diesel units (RDU) remain on schedule for completion during first-quarter 2022.
HollyFrontier’s decision to proceed with the conversion project—which will cost between $125-175 million—was primarily based on expectations that future free cash flow generation in Cheyenne would be challenged due to lower gross margins resulting from economic impacts of the COVID-19 pandemic, weaker crude prices, forecast uncompetitive operating and maintenance costs, and the anticipated loss of the US Environmental Protection Agency’s small refinery exemption. The project is also part of the operator’s broader plan to spend $650-750 million between 2019-22 to make the renewables segment a larger part of its financial and operational future.
In addition to announcing the Cheyenne conversion, HollyFrontier also said it will build a pretreatment unit (PTU) at its 100,000-b/d Navajo refinery in Artesia, NM, where construction is set to begin on a new 120-125 million-gal/year (about 9,000 b/d) RDU to be operated by HollyFrontier subsidiary Artesia Renewable Diesel Co. LLC (OGJ Online, Mar. 23, 2020). Designed to increase flexibility and upgrading of renewable feedstock by treating degummed and unrefined soybean oil, bleachable fancy tallow, and distillers corn oil, the proposed PTU—due for completion in first-half 2022 at a cost of $175-225 million—will cover about 80% of HollyFrontier’s total feedstock requirements for its renewable diesel plants.
Based on current market conditions, HollyFrontier will have combined capacity to produce more than 200 million gal/year of renewable diesel to help meet demand for low-carbon fuels. The company will also be able to cover the cost of its annual EPA-regulated renewable identification numbers (RIN) purchase obligation under EPA’s Renewable Fuel Standard (RFS) following startup of the Cheyenne conversion project and $350-million Artesia RDU, which likewise is scheduled for commissioning first-quarter 2022.
HollyFrontier said expansion and integration of its renewables operations also will help the company’s long-term competitiveness by increasing its ability to comply with and benefit from expanding federal, state, and global requirements and incentives in the renewables sector, including California’s LCFS as well as the US Department of Energy’s biodiesel mixture excise and biodiesel production and blending tax credits.
In its Aug. 4 earnings call for second-quarter 2020, CVR Energy Inc. told investors its board of directors has authorized engineering studies and preparation of final cost estimates for a project that would convert an existing hydrocracker at subsidiary Wynnewood Refining Co. LLC’s (WRC) 74,500-b/d refinery in Wynnewood, Okla., to allow for production of renewable diesel.
Designed to take advantage of excess hydrogen capacity at the site and help offset rising costs of RIN compliance, the proposed $100-million project—including tanks, a rail terminal, and a staging facility—would enable 6,000-7,000-b/d of renewable diesel production using a primary feedstock of readily available, extremely low-CI refined soybean oil from Washington, said David L. Lamp, CVR Energy’s chief executive officer and president.
Based on CVR Energy’s plan to expedite the project to take advantage of the biodiesel mixture excise tax credit—which, through Dec. 31, 2022, would ensure a $1/gal federal income tax credit for each gallon of biodiesel produced from soybean oil feedstock—the company would pay off the entire initial investment in about 18 months. It would also be positioned to make provisions for other additions and revamps to allow processing of virtually any renewable feedstock, according to Lamp.
With final investment decision (FID) on the project scheduled by end-September 2020, renewable diesel production from the proposed hydrocracker conversion—which would retain the unit’s flexibility to return to conventional hydrocarbon processing should economics support doing so—could begin as soon as June 30, 2021, Lamp said.
Alongside the hydrocracker conversion project, Lamp said CVR Energy also is evaluating a $50-million investment at Wynnewood involving a potential revamp of the refinery’s existing diesel hydrotreater that would enable the unit to regain about 9,000 b/d of crude processing capacity as well as equip it to produce renewable diesel. Without disclosing further details, Lamp said FID on the diesel hydrotreater revamp—which depends on further improvements in crack spreads—likely would be delayed until about third-quarter 2021. If approved, however, the project could be completed as soon as third-quarter 2022, according to Lamp.
Back on the US West Coast, Global Clean Energy Holdings Inc. (GCEH) in June 2020 let a contract to Haldor Topsoe AS to provide process technology for GCEH’s previously announced plan to convert its recently purchased 70,000-b/d Bakersfield, Calif., refinery into a 15,000-b/d renewable diesel plant (OGJ Online, June 9, 2020). Haldor Topsoe will license its proprietary HydroFlex renewable fuel technology as well as supply basic engineering, proprietary equipment, and catalysts for the refinery revamp, which—once completed—will enable renewable diesel production from both proprietary camelina oil and traditional biofuel feedstocks. Fuel production from the retooled refinery will meet California LCFS, as well as comply with ASTM D975 diesel specifications, resulting in major reductions of carbon dioxide emissions due to its lower CI.
Alongside processing GCEH’s patented fallow-land varieties of camelina—which, traditionally grown in rotation with wheat, is cultivated as an alternative to leaving land fallow to avoid displacing or competing with food crops—the HydroFlex unit will process a slate of additional nonpetroleum renewable feedstocks, such as used cooking oil, soybean oil, and distillers’ corn oil.
The contract award—the value of which was not disclosed—follows GCEH’s May 7 purchase of the idled Bakersfield refinery from Delek US Holdings Inc. subsidiary Alon Bakersfield Property Inc. for $40 million. With the former oil refinery already equipped with a large portion of the equipment needed for production of renewable diesel, the conversion project will involve a full turnaround and refurbishment of existing equipment to enable production from renewable feedstocks.
Now under way and scheduled to take 18-20 months to complete, the revamp and conversion project will be executed primarily by local trade unions through Primoris Services Corp. subsidiary ARB Inc., which is serving as engineering, procurement, and construction contractor. Due for startup in late 2021, the revamped refinery will not process petroleum of any kind.
Greenfield construction
Upon completing sale of subsidiary Equilon Enterprises LLC’s (dba Shell Oil Products US) 157,000-b/d dual-coking refinery and integrated logistics assets at Martinez, Calif., to PBF Energy Inc. in early February 2020, Royal Dutch Shell PLC said the two companies are jointly moving forward with their plan to review feasibility of building a renewable diesel project involving repurposing of existing idled equipment at the Martinez refinery to create a renewable fuels production plant (OGJ Online, Feb. 3, 2020; June 12, 2019).
While further details of the grassroots Martinez renewables project have yet to be revealed, Shell—which plans to maintain a large presence in California with continued investments in its upstream and new energies businesses—said that by 2025 it expects to have ongoing investments in a smaller, core set of refineries, a key advantage of which will come from further integration with Shell trading hubs and from producing more chemicals and other products resilient in a lower-carbon future.
At the US Gulf Coast, Valero Energy Corp. subsidiary Diamond Alternative Energy LLC and partner Darling Ingredients Inc. in late 2019 began advanced engineering and development cost review for what will become the first renewable diesel plant in Texas (OGJ Online, Sept. 9, 2019).
To be built in Port Arthur, Tex., near Valero’s existing 395,000-b/d refinery and operated by the companies’ 50-50 joint venture, Diamond Green Diesel Holdings LLC, the proposed plant would have design capacity to produce 400 million gal/year of renewable diesel and 40 million gal/year of renewable naphtha. FID on the project is due in 2021.
Earlier in 2019, the partners confirmed they would invest a combined $1.1 billion to expand Diamond Green Diesel’s existing 275-million gal/year renewable diesel refinery in Norco, La. (OGJ Online, Apr. 25, 2019).
Now under way, the 400 million-gal/year expansion of the refinery—already North America’s largest renewable diesel plant—will increase renewable diesel production to about 675 million gal/year to make it the second-largest plant of its kind in the world (OGJ Online, May 6, 2019). Scheduled to be completed in late 2021, the project involves construction of a second renewable diesel plant and renewable naphtha finishing installation (Train 2) adjacent to the Diamond Green Diesel refinery’s existing Train 1.
Addressing the $550-million investment in its portion of the Diamond Green Diesel refinery—which will process edible and inedible bionutrients such as animal fats, used cooking oil, and inedible corn oil into renewable diesel both compatible with petroleum-based diesel and transportable via pipeline—Valero said it expects margins to be supported by expanded renewable fuel mandates and carbon pricing.
Robert Brelsford | Downstream Editor
Robert Brelsford joined Oil & Gas Journal in October 2013 as downstream technology editor after 8 years as a crude oil price and news reporter on spot crude transactions at the US Gulf Coast, West Coast, Canadian, and Latin American markets. He holds a BA (2000) in English from Rice University and an MS (2003) in education and social policy from Northwestern University.
