September 27, 2021 [HoustonChronicle] – Sugar Land refiner CVR Energy proclaimed in May that it was shifting from crude refining to the growing demand for renewable fuels.

CVR planned to convert its Wynnewood, Okla., refinery to produce renewable diesel. Just three months later, severe February weather and a summer drought sent agricultural feedstock prices soaring and forced the company to postpone its $100 million conversion project.

“We have reached a point where we are ready to bring the hydrocracker down to complete the final steps of the conversion process,” CVR CEO Dave Lamp told analysts during a conference call in August. “However, renewable diesel feedstock prices have increased considerably, particularly for refined bleached and deodorized soybean oil to a level where the economics do not make sense for us to complete the conversion at this time.”

CVR’s setback underscores the challenges refiners face as the oil industry moves from petroleum to lower-carbon fuel sources to reduce carbon emissions and avert the worst consequences of climate change. Refiners face a conundrum: Continue to refine petroleum and risk climate change fallout, or rely on agricultural products at the mercy of Mother Nature and a warming planet.

“Over the last decade we’ve seen more extreme events,” said Patricia Luis-Manso, head of agriculture and biofuels analytics for S&P Global Platts. “Supply risks are increasing with climate change.”

They also face criticism for helping to boost the price of agricultural products at a time when the world’s growing population needs more and cheaper food.

These supply and climate change risks will have profound implications for refiners along the Gulf Coast, many of which are making the leap to renewable fuels amid growing public and investor concerns about climate change. The Houston area has the nation’s largest concentration of refineries, employing more than 4,800 workers, according to the Bureau of Labor Statistics.

The industry appears to be moving aggressively from petroleum and toward renewables. Houston refiner Phillips 66 is looking to convert its San Francisco Refinery in Contra Costa County, Calif., to a renewable fuels facility capable of producing 800 million gallons per year of a lower carbon fuel made from waste fats, greases and vegetable oils. The Rodeo Renewed project, supported by Southwest Airlines, is expected to be complete in early 2024.

San Antonio-based Valero and partner Darling Ingredients will expand capacity at its renewable diesel refinery Diamond Green Diesel in Norco, La., by 400 million gallons per year. The plant, which will process recycled animal fats, used cooking oil and inedible corn oil into diesel fuel, is on track to be completed in the middle of the fourth quarter of 2021. Valero also is expanding its renewable diesel production capacity at its Port Arthur facility by 470 million gallons per year by the first half of 2023.

Exxon Mobil last month said it plans to produce renewable diesel at its Strathcona refinery in Edmonton, Canada. The refinery, expected to produce about 20,000 barrels per day of renewable diesel, will use locally grown plant-based feedstock.

Chevron this month said it will invest $600 million in a soybean joint venture with Bunge, the world’s largest oilseed processor, to develop lower carbon intensity feedstocks. Marathon Petroleum, the Ohio-based spin-off of Houston company Marathon Oil, is converting an oil refinery in Martinez, Calif., to a biofuel refinery featuring renewable fuels from such biobased feedstocks as animal fat, soybean oil and corn oil.

Royal Dutch Shell and BP also are investing in biofuels, and TotalEnergies last year began producing aviation biofuels. Chevron intends to produce aviation biofuel for Delta Air Lines and track the emissions via Google Cloud.

Pros and cons

Refiners are interested in transforming agricultural products, also called energy crops, into biofuels because they burn cleaner than fossil fuels, releasing fewer pollutants and greenhouse gases such as carbon dioxide.

As countries around the world become more focused on decarbonization policies, setting up low-carbon targets or mandates to adopt low-carbon alternatives to reduce emissions, more refiners have turned to agricultural biofuels. Corn is turned into ethanol, sugarcane is used to produce bioethanol and soybeans are used to make biodiesel.

President Joe Biden in April pledged to reduce U.S. greenhouse gas emissions by at least 50 percent by 2030, in a push by the administration to aggressively combat climate change.

The Renewable Fuel Standard, a federal program that requires transportation fuel sold in the U.S. to contain a minimum volume of renewable fuels, requires that a portion of transportation fuels come from biofuels.

But bad weather is highlighting the volatility of using edible products as bio-based fuels.

In Brazil, the worst drought in almost a century followed by severe frost has reduced the sugarcane crop to the lowest in a decade, causing biofuels output to plunge to a four-year low at 7 billion gallons and sending prices to an all time-high at around $745 per cubic meter.

A severe drought in the Midwest and wildfires in Canada have also depleted food supplies, driving prices to new highs. The U.S. Department of Agriculture predicts the price of soyabean oil will average 65 cents a pound this year, more than double the price of two years ago.

Although new technologies are being developed to help reduce risk, including a variety of seeds that are more resistant to the elements, severe weather events and a finite supply of agricultural products emphasize the need for diversification of emission-reducing efforts.

Some companies are turning to advanced biofuels made from non-food-based feedstocks, including from agricultural and forestry residues, such as corn stalks and husks, and bagasse, grasses, algae and industrial waste.

In Brazil, a recent study from the Roundtable on Sustainable Biomaterials identified that potentially more than 125 percent of the country’s sustainable aviation fuel demand could be produced from bio-residues that are readily available, such as bagasse (the residue left over after processing sugar cane), wood chips and tallow.

But advanced biofuels haven’t reached the affordability and scale that traditional corn ethanol and soybean-based biodiesel have achieved.

In addition, traditional biofuels made from food crops emit only slightly less emissions than petroleum-based fuels once fertilizers, transportation and processing are accounted for, according to Daniel Cohan, associate professor in the Department of Civil and Environmental Engineering at Rice University.

“It will be important to transition to biofuels that are made more efficiently from agricultural and forestry wastes or algae,” Cohan said.

Competing with food

Several U.S. refiners, including CVR, are taking the leap from traditional petroleum-based fuel to biofuels. But, in addition to bad weather and the higher cost of advanced biofuels, the transition also raises the broader question of whether society should be using food to produce fuel.

Demand for biofuels made with agriculture crops as a lower carbon replacement for oil in the energy transition reduces potential food supplies in a world with a growing population. Using corn, soybean and other agricultural products as a replacement for oil comes as the world is expected to add 2 billion people that will need more food, according to S&P Global Platts.

“The more that we rely on food crops for fuel, the more vulnerable we will be to having food or fuel shortages when extreme weather disrupts crop production,” Cohan said. “The hope has always been that we would start making more of our biofuels from other biomass materials rather than from food.”

Yet, petroleum refineries have proven to be an increasingly risky investment amid the global pandemic and as more electric vehicles are hitting highways around the world.

The pandemic, which brought a substantial decrease in demand for motor fuels and refined petroleum products, also contributed to the plight of refiners, with several plants closing last year. As a result, refinery capacity in the U.S. decreased by 4.5 percent to a total of 18.1 million barrels per calendar day at the start of 2021, according to the Energy Department.

Some companies are selling off refineries, including Phillips 66, which in August began seeking a buyer for its Alliance refinery in Belle Chasse, La.

Refiners also are facing the expansion of the electric vehicle landscape, decreasing the need for biofuels. Electric cars and trucks use an electric motor powered by electricity from batteries or a fuel cell.

The shift would have major economic ramifications for the state’s oil and gas industry. Transportation accounts for about a quarter of total U.S. energy consumption and is currently dominated by petroleum products such as gasoline and diesel.

The International Energy Agency has estimated that electric vehicles displaced nearly 600,000 barrels of oil products per day in 2019. That figure is expected to grow to 2.5 million barrels per day by 2030.

“To address climate change, it won’t be enough to merely replace petroleum-based fuels with food-based ones, but instead we’ll need to transition to cleaner options like advanced biofuels, electricity, or cleanly produced hydrogen,” Cohan said.

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