US major Chevron will purchase renewable fuels producer Renewable Energy Group (REG) in a $3.15bn cash deal intended to extend the reach of its clean energy business.
REG operates 11 renewable fuels facilities in the US and Europe, producing a combined 34,000 b/d of biodiesel and renewable diesel. The company is currently steering an expansion of its flagship, 6,000 b/d renewable diesel plant in Geismar, Louisiana, that would bring total production capacity there to 22,000 b/d by 2024.
"REG was a founder of the renewable fuels industry and has been a leading innovator ever since," said Chevron chief executive Mike Wirth today. "Together, we can grow more quickly and efficiently than either could on its own."
Chevron last year formed a unit focused on clean energy business lines, with a plan to triple its investments in renewables from around $3bn to $10bn through 2028. The so-called New Energies unit has committed to spend $3bn on carbon capture and storage (CCS) and offsets, $3bn on renewable fuels and $2bn on hydrogen. The move to acquire REG will accelerate Chevron's goal to increase renewable fuels production capacity to 100,000 b/d by 2030 and brings REG's feedstock supply and pre-treatment facilities into its portfolio.
Chevron began processing 2,000 b/d of renewable feedstocks for sustainable aviation fuel (SAF) at its 275,000 b/d El Segundo refinery in September 2021 and has promised other "capital efficient conversions" of certain process units across its system. But the company has not yet committed to the kind of full facility conversions that US refiners like Marathon Petroleum and Phillips 66 are navigating in California.
The Chevron acquisition will likely protect the company from an increasingly competitive renewable diesel market as traditional fuels refiners push investments into production of the lower-carbon fuel. REG was facing tighter access to low-carbon feedstocks because of a projected eight-fold increase in US renewable diesel production from 2020 and 2024, as well as uncertainty around $1/USG US blender's tax credits for biodiesel and renewable diesel production that expire at the end of this year.
REG estimates that around 70pc of its renewable diesel and biodiesel feedstocks come from waste oils like used cooking oil, distillers corn oil and tallow. Rising renewable feedstocks prices have pressured the biofuels industry and made facilities with limited processing options less viable, underscoring REG's decision to shut down the 2,200 b/d Houston biodiesel refinery last year. But despite growing competition for supplies, REG's feedstock advantages were a leading motivator behind Chevron's bid.
"We just think [feedstock sourcing] is an area where REG has distinguished itself," Wirth said today on an investor call. "It is an area that we do not have deep expertise, but REG brings decades of experience and people that have relationships, insights and technical understanding that we simply do not have."
Following conclusion of the deal, Chevron will rebrand its renewable fuels business as Renewable Fuels — REG and headquarter the unit in Ames, Iowa. The company last year announced plans for a joint venture with agricultural commodity firm Bunge intended to expand its access to soybean processing facilities, and will now likely headquarter that business in Ames.
The companies intend to close the deal in the second half of this year, following regulatory clearance and REG shareholder approval.
