Adds detail on ExxonMobil investment.
Petroleum refiners have committed billions of dollars to speed up expansions beyond the oil patch and into bean fields.
Oil major Chevron's $3.2bn acquisition of US biofuels company Renewable Energy Group (REG) disclosed this week tipped the scales on a new wave of investment rushing through the feedstocks sector. The rush to convert under-performing oil refining equipment to produce more lucrative renewable diesel for the US brings established energy traders into unfamiliar markets.
"It is an area that we do not — to be completely blunt, we do not have deep expertise," Chevron chief executive Mike Wirth said. "We have been moving into these markets, but REG brings decades of experience and people that relationships, insights, technical understanding that we simply do not have."
US refiners have plunged into renewable diesel production to balance federal environmental obligations, extend the life of less competitive equipment and capture state and federal incentives for the drop-in diesel fuel.
Refiners leverage assets already connected to power and logistics networks and their operating expertise. Valero, Phillips 66, Marathon Petroleum, BP, Chevron and HollyFrontier have already converted or partnered on facilities to produce renewable diesel in the US.
A federal blender's tax credit — slated to expire at the end of this year — and state low-carbon fuel standards (LCFS) along the west coast help make renewable diesel competitive with conventional supplies. But refiners comfortable wringing margins from a dizzying array of petroleum feedstocks must now enter global agricultural markets.
Few elected to do that alone.
The REG acquisition would roughly double Chevron's renewables feedstock access already bolstered in early February through a joint venture with agribusiness giant Bunge. Neste this week announced a $1bn investment in Marathon Petroleum's planned renewable diesel conversion in Martinez, California, which Neste says would make it the first company to produce the fuel in Asia, Europe and North America. Marathon previously created a soybean processing joint venture with US agribusiness ADM.
Valero partner Darling Ingredients has pursued a $1.1bn acquisition of fats and oils collector Valley Proteins to buttress supplies to their Diamond Green Diesel joint venture, the largest US producer of renewable diesel. ExxonMobil in late February acquired a 25pc stake in Global Clean Energy Holdings (GCEH), which plans to produce renewable diesel from camelina feedstock processed at a converted Bakersfield, California, refinery. The major also acquired a 33pc interest in a GCEH feedstock subsidiary.
US independent refiner CVR Energy expected its fertilizer business and farm belt operations to lead to a partnership with a feedstock supplier for renewable diesel plans in Oklahoma and Kansas. But not all refiners want to split projects. HollyFrontier said it had looked at about 20 proposed oilseed crush projects that lacked sufficient benefits for the vertical integration.
"We have not seen returns that are clearing any sort of hurdle, which is pushing us back toward just an outright lifting or an offtake agreement," HollyFrontier Renewables president Tom Creery said.
Farmers' market
The jostling will transform the flows of fats and oilseeds. LCFS markets prize used cooking oils and collected fats as low-carbon feedstocks. But the US collects nearly all of the available domestic supply, meaning there is little room to grow that feedstock alongside renewable diesel demand.
The fuel will instead shrink US soybean exports or even flip the US to a net importer, and draw opportunities for canola or other oils in as feedstocks, according to agribusiness firms.
"There is going to be a daisy chain effect that goes on, which, frankly, is actually supportive for the entire vegetable oil complex," ADM chief financial officer Ray Guy Young said.
Farmers will explore additional production options, including cover crops or varietals enhanced to boost oil potential, according to Bunge.
"I think it is going to take, kind of, everything to supply that industry," chief executive Greg Heckman says. "We think we are right in the bull's-eye of that."
