Q&A: Phillips 66 to balance fossil and renewable fuels

Spanish Market: Biofuels, Oil products
14/06/24

With Phillips 66's Rodeo, California, refinery expected to ramp up to over 50,000 b/d of renewable fuels production by the end of this quarter, all eyes are on the refiner for what is next. Zhanna Golodryga, executive vice president of emerging energy and sustainability for Phillips 66, talked to Argus at the refiner's Houston headquarters about how the company looks at investments, its focus on sustainable aviation fuel (SAF) production and why Texas might be the Silicon Valley of the energy transition. The conversation has been edited for clarity and length.

When Rodeo reaches full capacity, it will represent about 3pc of your overall output. What will your fleet look like longer-term and what will be the renewables/petroleum split?

Not all the refineries in our portfolio are created equal, and when we look at them what I call them is "lower-carbon energy hubs". Not low, lower, because it's going to be a combination of everything. We're looking at the assets we have in the portfolio and what we can do to help bring in lower carbon solutions and what can we build out.

Our focus is going to continue to be SAF. We understand the limitations of feedstocks and we have a very strong commercial organization that is now working on providing feedstocks just for Rodeo. But we're also thinking about what we can do to bring in different feedstocks. Energy transition opportunities aren't going to replace our traditional fossil fuel refining. It's an "and", not an "or".

You've highlighted a future focus on SAF. Does that mean a move away from renewable diesel (RD)?

I think we have flexibility to do both and it will be market driven going forward. We have to look at demand but there is demand for SAF globally, not just in the US. Demand for gasoline is not as strong as demand for diesel and sustainable aviation fuel. That is what our focus is and then we want to diversify the feedstock.

What is your outlook for RD?

I think RD is here for quite some time. It's hard to predict what's going to happen by 2050 but I think we will have the demand. It's going to take a long time to electrify all future transportation. I think we have a much better opportunity for now to focus on what we're really good at. That's fuels, renewable fuels.

You have faced activist investor pressure calling for Phillips 66 to focus on its core refining business. How do investors feel about the Rodeo conversion and your future plans?

We have taken a pragmatic approach to the energy transition. We have criteria that we follow prior to taking any projects over the line, specifically the energy transition type projects. They must meet five key prerequisites: the right returns, the right technology that has been proven at scale, the right regulatory environment, preferably involve a partnership and be done at the right time.

We have to prove with Rodeo that this is, as I call it, our license to continue to grow the business. This is our license to operate additional energy transition business. This one is going to be done extremely well.

What are the policy tailwinds and headwinds to your renewables investments?

When we look at our opportunities in our energy transition portfolio, we are building our economic model for them to produce the right returns without any incentives. That is our starting point. On the other hand, the IRA [US Inflation Reduction Act] has been a bipartisan initiative and we think it's going to stand for the greater good of the planet.

We have to think globally, as we have the Humber refinery in the UK. It's interesting for us to see what's possible in the US with the IRA incentives, versus more of a stick in Europe. But the challenge for us is permitting and timing. We probably could have brought Rodeo online sooner if we didn't have to wait for some permits.

Our headquarters are in Texas and Texas is the "energy transition Silicon Valley". I'm repeating someone's words and those are the words of Bill Gates. But I believe that. We're perfectly positioned on the Gulf coast to go to the next phase and build something here.

You've mentioned Phillips 66's 265,000 b/d Sweeny refinery in Old Ocean, Texas, as a low carbon energy hub. Does that mean it is a candidate for renewable fuel conversion or co-processing?

It could be an option, maybe not at Sweeny, but in the Gulf coast, maybe Lake Charles. It's driven by our hardware, just like what we've done at Rodeo.

By Nathan Risser

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