A Rare Bit of Good News for Oil Refiners: ‘Renewable Diesel’
by Tim Treadgold (Forbes) … Until recently renewable diesel was very much a niche product which failed to attract mainstream investor interest.
That could change after a leading investment bank, Morgan Stanley MS -2.4%, took a close look at the opportunities opening up in renewable diesel as U.S. and international oil refiners make early moves to expand business in a declining industry.
“The prospect of higher growth and better returns through renewable diesel is attracting U.S. refiners,” Morgan Stanley said in a research note sent to clients earlier this week.
“We expect carbon reduction efforts to drive incremental demand for renewable diesel, particularly commercial demand.
“Project economics are robust, with returns in excess of 30%-to-40%, supported by government subsidies.”
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The bank said the investment case for renewable diesel was compelling given that typical refining and midstream oil industry opportunities offer lower returns and less growth potential.
First Mover Advantage
“While a niche market that will likely be reliant on policy support for the forseeable future, renewable diesel nonetheless offers an attractive opportunity, particularly for first movers,” the bank said.
The most attractive current entry point for investors are the U.S. oil refiner, Valero, and Neste, a refiner based in Finland.
But other established oil refiners are also moving quickly to snatch a share of the relatively new business, including three U.S. refiners; Philips66, HollyFrontier HFC -3.4% and Marathon Petroleum MPC -1.7%.
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Dallas-based HollyFrontier and Houston-based Philips66 recently announced decisions to convert traditional oil refineries into renewable diesel facilities, according to Morgan Stanley.
Ohio headquartered Marathon Petroleum, the biggest U.S. oil refiner, said it was evaluating the potential conversion of its recently idled Martinez refinery in California into a renewable diesel facility.
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Risks to the case for renewable diesel included capacity overbuild, the ability to secure sustainable feedstock, competition from imports and other low carbon alternatives, and changes in government policy. READ MORE
What’s the Difference between Biodiesel and Renewable (Green) Diesel? 2020 revision (Advanced Biofuels USA)
American oil refineries race to produce renewable diesel ahead of Canadian competition: report
Canadian companies face more regulatory delays than their American counterparts (Fox Business)
Most U.S. Oil Job Losses in Pandemic to Remain at Low Prices (Bloomberg/Yahoo!Finance)
US refiners reach for renewables lifeline as pandemic lays bare excess capacity (S&P Global Platts)
Valero’s Dismal Earnings Had One Important Bright Spot: Renewable Diesel. (Barrons)
HollyFrontier plans to double capex in 2021, boost renewables spending (Reuters)
The future of HVO is bright (Biofuels International)
Excerpt from S&P Global Platts: Once considered an industry scourge, renewable fuels are now becoming a lifeline for some refineries.
CVR is planning to convert the hydrocracker at its 74,500 b/d Wynnewood, Oklahoma, refinery to process soybean oil into renewable diesel to be railed to the California market.
This plan is economically viable because of economic incentives from the $1/gal federal Blenders Tax Credit and California’s Low Carbon Fuel Standard (LCFS) credits as well mitigation of RINs expenses denied by tighter EPA regulations.
Phillips 66 has already said it plans to create the world’s largest renewables fuel facility by reconfiguring and repurposing its 120,200 b/d Rodeo, California, plant from running crude to running used cooking oil, fats, greases, and soybean oil by 2024.
The refiner’s announcement preceded that of California Governor Gavin Newsom, which stated that all cars sold in the state after 2035 be emissions-free, another nail in the coffin to gasoline producers in a state that currently accounts for about 11% of national demand.
This has put renewable diesel and sustainable aviation fuel on the forefront of renewable fuels production that refiners are aiming to produce when they convert their plants.
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