P66, Marathon RD conversions clear California hurdle

Market: Biofuels, Hydrogen, Oil products
04/05/22

Northern California regulators cleared Phillips 66 and Marathon Petroleum to proceed with converting their petroleum refineries into the two largest US renewable diesel (RD) production facilities, dismissing appeals from environmental campaigners seeking to slow the projects.

The Contra Costa County Board of Supervisors yesterday voted unanimously to authorize land use permits allowing Phillips 66 to convert its 120,000 b/d Rodeo refinery near San Francisco into a 67,000 b/d renewable diesel facility. The regulators also unanimously approved a permit allowing Marathon Petroleum to convert its idled Martinez refinery into a 48,000 b/d renewable diesel facility by 2023.

Environmental justice groups the Natural Resources Defense Council and Communities for a Better Environment earlier this year appealed to the Contra Costa County Board of Supervisors to send the projects' environmental impact reports back to the county's planning commission for more scrutiny.

Environmental campaigners in California have persisted in calling for regulators to impose stricter requirements on the renewable diesel conversions, citing concerns over local community impacts, renewable fuel production hazards and deforestation concerns associated with the harvesting of soybeans, a key feedstock.

But state and county officials have continued to support the companies' visions for the projects, which would create the largest two US renewable diesel refineries within a 20-mile stretch just east of the San Francisco Bay, with Phillips 66 laying claim to the largest such facility in the world. In addition to recognizing renewable diesel's role in reducing hard-to-abate emissions from long-haul trucking, supervisors suggested that stopping local projects would do little to slow the growth of renewable diesel production.

"The fact of the matter is that whether if we approve these projects here in Contra Costa or not, these fuels are going to be manufactured somewhere," supervisor John Gioia said today during a hearing on the appeal against the Phillips 66 Rodeo project. "Our action here approving or denying is not going to stop the manufacture of these fuels."

Renewable diesel production in the US is forecast to increase by 75pc this year and another 25pc next year as planned new capacity comes online, according to the Energy Information Administration (EIA).

Authorization of the land use permit concludes the required environmental review behind the Martinez project, but a few more permits are forthcoming before groundbreaking, Marathon Petroleum said. The Phillips 66 decision paves the way for a final investment decision on Rodeo "in the coming weeks," the company told Argus.

Full production in 2023, 2024

Both the Rodeo and Martinez projects will repurpose existing crude oil refining units to turn soybean oil, tallow and other feedstocks into renewable diesel eligible for federal and state renewable fuel credits.

Marathon hopes to start up production of renewable diesel at Martinez by the second half of this year, with full rates expected in 2023. The company has partnered in the project with Finnish biofuels producer Neste, which will provide $1bn toward the $1.2bn project through a proposed 50-50 joint venture. The joint venture deal should close now that Marathon has secured the land use permit, US bank Cowen analyst Jason Gabelman said.

Phillips 66 has chosen to go it alone on its project for now, with chief executive Greg Garland saying on 29 April that the company "does not really need the expertise that others might need" given its fuels marketing business and forays into renewable fuels production at its 230,000 b/d Humber refinery in Killingholme, UK.

Phillips 66 expects Rodeo to hit full production rates in 2024. The company last year took a minority stake in Shell Rock Soy Processing in Iowa, through an agreement granting it 100pc ownership of the processing plant's 4,000 b/d soybean oil output.

By Dylan Chase

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