Latest Market News

California refinery conversions face skepticism

  • Spanish Market: Biofuels, Crude oil, Emissions, Oil products
  • 09/08/21

Wariness of petroleum refinery conversions to produce renewable fuels could complicate California's low-carbon transportation goals.

Skepticism about biofuel's environmental benefits and growing attention to the pollution endured by communities closest to such facilities will challenge Phillips 66 and Marathon Petroleum plans to establish some of the largest renewable diesel plants in the world.

The companies say they remain confident about their projects. But regulators warn that permitting challenges could frustrate California's efforts to transform its transportation fuel mix.

"I think there is a higher bar to meet than what it would have been in the past," said John Gioida, one of five Contra Costa County supervisors who will decide whether to grant final permits for the projects likely next year.

"Communities in the shadow of industry have had to bear an undue burden," Gioida said. "And we owe it to them to reduce that burden, even as part of permitting these projects."

Phillips 66 and Marathon Petroleum plan to wind down decades of petroleum fuel production at their Contra Costa County refineries and shift production to renewable fuels.

Contra Costa County planning officials expect to issue by early September draft environmental impact reports analyzing Phillips 66 and Marathon Petroleum's proposals. The county will take public comment for up to 60 days and must then respond before county supervisors consider approving them, potentially in the first quarter of 2022.

Marathon halted crude processing and converted its 166,000 b/d Martinez refinery to terminal operations last year. The company is targeting 14,000 b/d of renewable diesel production in the second half of next year with an ultimate capacity of 48,000 b/d.

Phillips 66 reached 8,000 b/d of renewable diesel output in July at its 120,000 b/d Rodeo refinery. The company plans more than 50,000 b/d of biofuels capacity when it ceases crude refining there in 2024.

Renewable diesel offers an immediate reduction in greenhouse gas emissions for medium- and heavy-duty vehicles. California anticipates these vehicles will need liquid fuels for decades, even as the state pursues aggressive electrification goals for its transit and light-duty vehicle fleet.

Renewable diesel faces no limits on blending and can move in existing pipelines, terminals and fuel systems. Its production gives refiners credits needed to comply with federal biofuel and California low-carbon fuel mandates.

Renewable diesel made up more than a third of credits generated to meet the state's low-carbon fuel requirements in the first quarter of 2021. Conversions shut refining units and reduce site emissions. Yet the projects raise concerns about the environmental consequences of supplying such massive renewable diesel projects.

Smaller conversions under construction today in nearly every region of the US would expand renewable diesel production to more than 200,000 b/d in 2024, up fivefold from about 40,000 b/d in 2020. Most of these sites will use at least some soybean oil as feedstock.

Oilseed crushing capacity limits the supplies of these feedstocks. But such demand can entice farmers to expand cropland, groups warn.

"These conversions are very much happening in gold-rush mode," said Ann Alexander, a senior attorney with the National Resource Defense Council monitoring the California proposals. "You have state officials largely taking positions that are just uncritically supportive."

Advocates from coast to coast this year have protested the continued use of liquid fuels as extending the burden faced by communities already blanketed by emissions from tailpipes or refinery flares. Converted plants may emit less, but they also can extend the life of a facility for years.

President Joe Biden has given new momentum to a movement broadly labeled as "environmental justice," specifically referencing it while promoting new national electric vehicle and fuel efficiency goals with the support of US automakers and union workers.

"There is no going back," Biden said of the transition to electric.

Members of the California Air Resources Board's (ARB) Environmental Justice Advisory Committee this month expressed frustration with the state's plan for meeting sweeping carbon reductions goal.

Kevin Hamilton, a committee member and co-director of the Central California Asthma Collaborative, voiced concern that the state was unwilling to go further to cut emissions. "There is this sort of inherent need to support as much of this existing infrastructure as can survive without dramatically impacting it in ways that could in fact disrupt it and maybe even eliminate it in California," Hamilton said in a recent committee meeting.

Rejecting alternative liquid fuels risks leaving the state short of tools to meet its low carbon goals, regulators warn. Biofuels cut the state's emissions by 17mn metric tonnes in 2019, according to the board. California's aggressive pursuit of light-duty electric vehicle infrastructure has not kept pace with state targets. And the heavy-duty vehicle fleet faces more significant obstacles to conversion. The state anticipates heavy vehicles will need liquid fuels into the 2040s.

"We can set ambitious targets," ARB deputy executive officer for climate change and research Rajinder Sahota said during a summer workshop. "But if, during implementation, we are putting up hurdles through permitting processes or other kinds of processes that need to happen before you can break ground and actually have that production happen, then we are not actually going to realize those reductions and benefits that we anticipate."

There are other, local reasons to favor transition, supervisor Gioida said. Gioida's district includes Richmond, where Chevron operates a 250,000 b/d petroleum refinery. Gioida served on the ARB board from 2013-2020 and has served on the Bay Area Air Quality Management District Board since 2006.

Last year's shutdown of Marathon's Martinez refinery ended hundreds of union jobs. Losing the refineries mean reducing the local tax base. And in-state production must meet California's tough in-state standards. Planners must take care to ensure communities that have shouldered the greatest pollution burden see greater benefits from carbon reduction, Gioida said.

"There clearly is sentiment in the community to shift production elsewhere," Gioida said. "But I think also there is sentiment in communities to benefit from any new projects."

Refiners must prove the benefits of not cutting straight to zero.

California liquid renewables demand ’000 b/d

Related news posts

Argus illuminates the markets by putting a lens on the areas that matter most to you. The market news and commentary we publish reveals vital insights that enable you to make stronger, well-informed decisions. Explore a selection of news stories related to this one.

09/12/24

Braya may idle Canada RD plant by year-end

Braya may idle Canada RD plant by year-end

New York, 9 December (Argus) — The largest renewable diesel (RD) producer in Canada is weighing whether to idle its 18,000 b/d biorefinery before the end of the year, citing poor margins and uncertainty about US biofuels policy. Braya Renewable Fuels — which began commercial operations in February at a former petroleum refinery in Come-by-Chance, Newfoundland and Labrador — said any potential shutdown would be temporary to see if market conditions improve. The company had previously planned to increase capacity to 35,000 b/d and to also produce sustainable aviation fuel. "Braya plans to retain its permanent workforce if a temporary economic shutdown is required" and "all equipment would be maintained in good condition and in a ready to start mode", refinery manager Paul Burton said. Other Canadian biorefineries have criticized what they see as an unlevel playing field between US and Canadian producers, since ample supply of US-produced renewable diesel has arrived in Canada this year and helped crash prices of federal and British Columbia clean fuel credits. Economics for Canadian biofuel producers could worsen in January when a US tax credit for blenders of biomass-based diesel expires and is replaced by an incentive that can exclusively be claimed by US producers, likely deterring foreign fuel imports. Braya has seen "lower-than-normal margins" recently and "short-term market disruptions" from the looming expiration of that blenders credit, Burton said. A proposal to extend the blenders credit for another year faces long odds in Congress' lame duck session, energy lobbyists have said . Braya has exported more than 2.1mn bl of renewable diesel into the US this year, largely into California, bills of lading indicate. An additional vessel with an estimated 345,000 bl of renewable diesel was scheduled to reach Long Beach, California, last weekend according to data from trade and analytics platforms Kpler, reflecting foreign producers' incentive to rush biofuel into the US before the end of the year. Braya has also criticized policy shifts in California, where regulators recently updated the state low-carbon fuel standard to eventually limit credit generating opportunities for fuels made from soybean and canola oil. In August comments to California regulators, Braya said that it had "entered into tens of millions of dollars of soybean oil feedstock contracts for 2025" and that soybean oil at the time represented "well in excess" of 20pc of its feedstock mix. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German heating oil demand surges before CO2 tax hike


09/12/24
09/12/24

German heating oil demand surges before CO2 tax hike

Hamburg, 9 December (Argus) — Consumers in Germany stocked up on heating oil during the past week in preparation for the CO2 tax hike in 2025, taking advantage of the recent drop in prices. Traded volumes of heating oil, as reported to Argus, rose by almost half last week on the week. Consumers seized the opportunity of low prices — which had fallen by about €4.50/100l since 22 November — to build up their heating oil inventories again, despite storage levels still being unusually high. Privately-owned heating oil tanks were maintained at an average filling level of 60.6pc on 5 December, two percentage points up from 2023, as shown by data from Argus MDX. The continued stocking up on heating oil is largely because of the anticipated price increase from 1 January. Germany's CO2 tax will increase from €45/tCO2eq in 2024 to €55/tCO2eq in 2025. This would result in a price increase of about €2.70/100l for heating oil, according to Argus calculations. But traders are reporting premiums in the range of €3/100l to €4/100l for heating oil in January. Diesel prices could increase by about €3.50/100l in January, Ar gus calculations show. In addition to the CO2 tax increase, the greenhouse gas (GHG) quota, which will rise from 9.35pc to 10.6pc next year, will also impact diesel prices. Diesel for delivery in January is currently trading at between €4/100l and €7.50/100l higher than for December delivery, traders said. As a result, traders anticipate that diesel demand will also increase before the year ends, but it remains low so far. The fill level of industrial diesel tanks has started to recover after hitting a four-year low at the beginning of November. The level was about 53.6pc on 5 December, less than one percentage point below the same time last year. By Natalie Müller Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Shale M&A to pick up pace in 2025 after hitting pause


09/12/24
09/12/24

Shale M&A to pick up pace in 2025 after hitting pause

New York, 9 December (Argus) — A slowdown in shale deals in recent months is set to be reversed next year, helped in part by speculation that oil and gas mergers will have an easier time getting anti-trust approval under president-elect Donald Trump. The $12bn in upstream deals recorded in the third quarter was the lowest tally since the first three months of 2023, just before a record-breaking streak that reshaped the shale landscape and was dominated by blockbuster transactions involving ExxonMobil and Chevron. While buyers have been focused on winning approval from a zealous regulator and pushing deals over the finish line, attention is turning to the billions of dollars of unwanted assets they are likely to want to offload, with companies from ExxonMobil to Occidental Petroleum already active on this front. "You do one of these mega-mergers and now you have to pay for it," law firm Hogan Lovells partner Niki Roberts says. "You pay for it by selling off all the stuff you didn't really want to begin with." One potential upside from the Trump administration may be less attention from the Federal Trade Commission, which has paid closer scrutiny to oil deals in recent months as it cracks down on anti-competitive behaviour. Tie-ups have been delayed while the regulator has sought more details, and two high-profile oil executives were barred from the boards of their acquirers as a condition of approving deals. "The antitrust regulators have been viewed by particularly the traditional oil and gas industry of late as not being friendly to that industry," law firm Sidley global leader of energy, transport and infrastructure Cliff Vrielink says. "You're going to see less resistance to consolidation and you're going to see more people pursuing those opportunities." Oil market volatility has hampered mergers and acquisitions in the past, but observers say price swings are less of a factor these days. And more deals are needed to help companies boost their inventory of drilling locations for as long as cash flow remains king and growing through the drillbit is challenged. Lower interest rates, controlled inflation and regulatory reforms all point to a "robust" M&A market, Sidley partner Stephen Boone says. The majority of deal-making has been focused on oil in recent years, but natural gas is "having a bit of a moment", aided by the surge in demand from a boom in energy-hungry US data centres that are developing and supporting artificial intelligence, Boone says. Privates on parade Private equity is also making a gradual comeback, with teams looking to deploy fresh capital in oil and gas. Quantum Capital Group raised over $10bn in October and EnCap Investments has reloaded with about $6.4bn. "We are just now getting back to pre-pandemic levels of commitment," Boone says. "That bodes towards probably more private equity involvement in the oil and gas space." Fierce competition to get a foothold in the prized Permian basin of west Texas and southeastern New Mexico has sent valuations soaring, and prompted some would-be buyers to look further afield to plays such as the Uinta in Utah and North Dakota's Bakken. "The Permian stays of interest to many because of its consistent returns, but the Permian is a crowded place right now, and so I do think we'll see development of other basins," Roberts says. "But it's all going to depend on price." Close to $300bn in upstream deals were signed in the US over the past two years and this has whittled down the list of remaining targets. But the largest producers may not be done when it comes to seeking out potential acquisitions. "We don't stop looking," ConocoPhillips vice-president and treasurer Konnie Haynes-Welsh told the Rice Energy Finance Summit on 15 November. "We're always looking to be opportunistic." By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Republicans weigh two-step plan on energy, taxes


06/12/24
06/12/24

Republicans weigh two-step plan on energy, taxes

Washington, 6 December (Argus) — Republicans in the US Congress are considering trying to pass president-elect Donald Trump's legislative agenda by voting first on a filibuster-proof budget package that revises energy policy, then taking up a separate tax cut bill later in 2025. The two-part strategy, floated by incoming US Senate majority leader John Thune (R-South Dakota), could deliver Trump an early win by putting immigration, border security and energy policy changes into a single budget bill that could pass early next year without Democratic support. Republicans would then have more time to debate a separate — and likely more complex — budget package that would focus on extending a tax package expected to cost more than $4 trillion over 10 years. The legislative strategy is a "possibility" floated among Senate Republicans for achieving Trump's legislative goals on "energy dominance," the border, national security and extending tax cuts, Thune said in an interview with Fox News this week. Thune said he was still having conversations with House Republicans and Trump's team on what strategy to pursue. Republicans plan to use a process called budget reconciliation to advance most of Trump's legislative goals, which would avoid a Democratic filibuster but restrict the scope of policy changes to those that directly affect the budget. But some Republicans worry the potential two-part strategy could fracture the caucus and cause some key policies getting dropped, spurring a debate among Republicans over how to move forward. "We have a menu of options in front of us," US House speaker Mike Johnson (R-Louisiana) said this week in an interview with Fox News. "Leader Thune and I were talking as recently as within the last hour about the priority of how we do it and in what sequence." Republicans have yet to decide what changes they will make to the Inflation Reduction Act, which includes hundreds of billions of dollars of tax credits for wind, solar, electric vehicles, battery manufacturing, carbon capture and clean hydrogen. A group of 18 House Republicans in August said they opposed a "full repeal" of the 2022 law. Republicans next year will start with only a 220-215 majority in the House, which will then drop to 217-215 once two Republicans join the Trump administration and representative Matt Gaetz (R-Florida) resigns. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US House panel approves river infrastructure bill


06/12/24
06/12/24

US House panel approves river infrastructure bill

Houston, 6 December (Argus) — A US House of Representatives committee has approved a bipartisan bill that authorizes improvements to navigation channels by the Army Corps of Engineers (Corps) and maintenance and dredging of river and port infrastructure projects. The House Transportation and Infrastructure Committee advanced the Water Resources Development Act (WRDA) after several months of political wrangling to integrate earlier versions of the legislation approved by the House and Senate . The bill will head to the full House next week, said committee chairman Sam Graves (R-Missouri). This would be the sixth consecutive bipartisan WRDA bill since 2014 if passed by congress. WRDA is a biennial bill that authorizes the Corps to continue working on projects to improve waterways, including port updates, flood protection and supply chain management. WRDA will also "reduce cumbersome red tape", which will allow for quicker project turnarounds, Graves said. The bill authorizes processes to streamline work, he said. The bill also adjusts the primary cost-sharing mechanism for funding for lock and dam construction and major rehabilitation projects. The US Treasury Department's general fund will pay 75pc of costs, up from 65pc, with the rest coming from the Inland Waterways Trust Fund, which is funded by a barge diesel fuel tax. By Meghan Yoyotte Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Generic Hero Banner

Business intelligence reports

Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.

Learn more