Margin cap threatens Calif renewables: Chevron
A cap on California refiner's profits will curtail renewable fuels investments, Chevron said this week, even as other refiners in the state are nearing completion of billion-dollar renewable diesel (RD) conversions.
California governor Gavin Newsom (D) in March signed SB X1-2 into law, allowing the California Energy Commission (CEC) to gather a broader range of profit data from refiners than was allowed previously, set a maximum gross gasoline refining margin and determine penalties for any refinery that surpasses the margin.
But Chevron thinks a margin cap will further constrain California gasoline supplies and raise prices while making refiners reluctant to fund in-state investments in renewable and petroleum transportation fuels.
"A margin penalty will not only decrease investment in gasoline … it will decrease overall investment by energy companies in California, including and especially in renewable energy," Chevron's president of Americas products Andy Walz said in a letter sent to the CEC this week.
The margin cap seeks to address what Newsom's office views as a "mystery gasoline surcharge" in California, where gasoline prices averaged $2.61/USG more than the national average at their peak last year.
Chevron said it has cut spending in California by over $200mn since 2022 due to what it sees as the state's "inadequate returns and adversarial business climate." The company shelved several early-stage projects in California, preferring to fund investments in other US states, Chevron told Argus.
The company previously called the bill "irresponsible" as it moved through the California legislature. The Western States Petroleum Association warned that refiners have left the state before and could do so again because of the new law.
Still, independent refiner Phillips 66 has spent about $1bn since 2022 converting its Rodeo refinery to produce 55,000 b/d of RD. The facility is expected to begin operations in early 2024.
Marathon Petroleum is also nearing completion of a $1.2bn conversion of its Martinez refinery to RD production.
Chevron said in October that it had finished converting a hydrotreater unit at its 269,000 b/d El Segundo refinery to process both renewable and crude feedstocks. The facility has been processing 2,000 b/d of bio feedstock to produce RD and sustainable aviation fuel (SAF) and expects to up production to 10,000 b/d of RD this year.
California has about 1.7mn b/d of petroleum refining capacity with up to 383,000 b/d of capacity combined being converted to renewable fuels production at Chevron's El Segundo and Phillips 66's Rodeo plants.
Since the 1980s, 29 refineries in California have been shuttered or integrated into other refineries that eventually closed, accord to CEC data.
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