Phillips 66 to convert refinery to renewables: Update

Market: Biofuels, Emissions, Oil products
12/08/20

Adds details and context throughout.

US independent refiner Phillips 66 plans to convert its San Francisco refining complex to the largest renewable fuels production site planned in the US.

The company over the next three years will idle crude processing at its 120,000 b/d San Francisco refinery and convert units in its Rodeo plant to produce 52,000 b/d of renewable fuels. The plans would halt crude processing at the refining complex by the end of 2023 to shift to renewable diesel, naphtha and jet fuel production in early 2024, pending regulatory approval.

Phillips 66 joins a wave of refinery conversions to renewables picking up speed after efforts to slow the spread of Covid-19 sharply reduced transportation demand. Marathon Petroleum earlier this month said it may convert its idled 166,000 b/d refinery in nearby Martinez to begin 48,000 b/d of renewable diesel production in 2022. Marathon said today that it continues to evaluate that project. HollyFrontier ceased crude processing this month at its struggling 52,000 b/d refinery in Cheyenne, Wyoming, refinery, with plans to convert the facility to 6,000 b/d of renewable diesel production in 2022. And CVR Energy is on a fast track to convert one of its units at the 73,000 b/d refinery in Wynnewood, Oklahoma, to renewable diesel production, while continuing to process crude oil.

State and federal incentives in California extend practical advantages for renewable diesel. Unlike biofuels such as ethanol and biodiesel, renewable diesel is chemically identical to petroleum diesel. That means the fuel can move in existing pipelines and other transportation options, and faces no blending limits in fuel systems. The distinction reduces the barrier to entry for an otherwise costly fuel. Producers may process renewable diesel from soybean oil, used cooking oil, animal fats and other feedstocks.

A federal tax credit extended last year through 2022 offers a $1/USG incentive for each renewable diesel or biodiesel gallon blended into the US transportation supply. The fuel generates 1.7 credits used to comply with federal blending mandates called the Renewable Fuel Standard, compared to 1 credit per gallon for ethanol and 1.5 credits per gallon for biodiesel. The fuel also generates credits under California's low carbon fuel standard, which vary in value depending upon the feedstock used.

Phillips 66 had previously considered a smaller conversion before deciding to halt petroleum processing completely. The company now plans what it said would be the largest renewables facility in the world. Production capacity at the site would surpass Valero's joint venture Diamond Green Diesel facility in Norco, Louisiana, where expansion work underway would bring the output to 44,0000 b/d next year, from 18,000 b/d currently.

"Quite frankly, the Rodeo refinery is uniquely positioned to become a renewable diesel plant," Phillips 66 executive vice president of refining Bob Herman said. "With its current infrastructure and location, the plant really lends itself to producing a lot of renewable fuels."

Extended shutdown

The San Francisco complex connects crude upgrading units in Arroyo Grande to refining units almost 200 miles away in Rodeo. The combination allows the complex to run a full gamut of crudes, from heavy, acidic and sour Canadian output, sour Opec imports and light sweet domestic production. Opec sour barrels averaged the highest share of imports to the facility over the past five years, according to the Energy Information Administration (EIA).

But a 2015 pipeline break disrupted supplies to the landlocked Arroyo Grande facility, and local regulators rejected rail and waterborne proposals for supply alternatives.

Phillips 66 declined to comment on specific operating margins for the San Francisco complex, but said its performance had worsened over the past three years. "Crude feedstock costs have been even more expensive than the price for benchmark crude," Herman said.

Phillips 66 plans to convert units in the Rodeo end of its complex and to shut the Arroyo Grande units in 2023. Associated crude pipelines would be taken out of service beginning in 2023.

The refinery produces 65,000 b/d of distillates, compared to 60,000 b/d of gasoline, making it one of three Phillips 66 refineries in the world tilted toward diesel. Rodeo also is a key supplier of US west coast 2pc sulphur petroleum coke. City officials earlier this year restricted coke movements through a key Richmond terminal, a decision challenged by companies including Phillips 66 and headed to oral argument in a federal court next week.

Refinery closings by Marathon Petroleum and Phillips 66 would leave Chevron and newcomer PBF Energy to continue petroleum refining in the immediate San Francisco area. Valero's 145,000 b/d refinery in Benicia, California, also supplies the northern California market.

Phillips 66 describes Rodeo as an export facility to Latin America, potentially tightening supplies along the west coast of Latin America, as well.

By Elliott Blackburn

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