August 7, 2023 [Energy Intellegence]- Renewable fuels capacity in the US downstream sector is poised for massive expansion over the next three years. Conventional refiners are completing projects to transform shuttered plants into sustainable fuel refineries while existing renewable diesel (RD) producers are shifting their production toward SAF. Plants owned by Marathon, Valero and World Energy have new SAF volumes coming on line that will propel exponential growth in overall US capacity.
Marathon CEO Mike Hennigan said during a second-quarter earnings call that construction work is progressing at the Martinez plant near San Francisco. He said that pretreatment capabilities will start to come on line in the second half of 2023. By the end of this year the facility will have an expected capacity for 730 million gallons of renewable diesel and sustainable aviation fuel. Hennigan noted that “At that point, Martinez will be among the largest renewable diesel facilities with a competitive operating profile, robust logistics flexibility and advantaged feedstock slate — and a strategic relationship with Neste.”
World’s Largest Supplier
Valero CEO Lane Riggs touted the record operating income and sales volumes achieved in the second quarter at its Diamond Green Diesel plant in Port Arthur, Texas. That plant currently produces mainly renewable diesel but is undergoing reconfiguration for SAF production, catering to an airline industry that is snapping up every available gallon to achieve net-zero goals. Riggs said the refinery’s SAF project at Port Arthur is progressing on schedule. Once completed, the plant should have the capacity to upgrade 50% of the current 470 million gallons of annual renewable diesel production into SAF. Valero is shouldering half of the $315 cost for the upgrade, which should be finished in 2025. Riggs pointed out that, “With the completion of this project, Diamond Green Diesel is expected to become one of the largest manufacturers of SAF in the world.”
There are still many challenges along the road to commercialization as the nascent SAF market evolves. Valero’s Vice President of Renewables Operations Eric Honeyman described some of these hurdles: ”I think that airlines are still very much in an educational phase” of adopting SAF at commercial scale. He points out that airlines are starting to understand the role of credit markets and government incentives [under the IRA and Renewable Fuels Standard] that help bring SAF prices more in line with conventional jet fuel. But since airline usage of SAF is purely voluntary, some carriers are still finding their way through all the complexities of how the SAF acquisition process works as well as logistics to deliver volumes into the wing of aircraft. He says that, “There are still a lot of details being worked out as to how SAF will physically move into the market and how it will be priced.” Valero’s forecast sees robust growth in SAF demand through 2030. Honeywell thinks there “is a lot of upside to this outlook” provided airlines and suppliers are able to resolve all the details of setting up and implementing a SAF contract.
RD versus SAF Conundrum
The RD versus SAF conundrum for renewable fuels producers was evident in remarks by Phillips 66 executives. The conversion of its Rodeo refinery near San Francisco into a renewable fuels facility will also make it one of the world’s largest producers, with annual capacity for 800 million gallons (50,000 barrels per day) by 2024. The firm’s Vice President for Refining Rich Harbison said that, “As it is designed, the project will be able to produce SAF. What’s really missing from the whole equation is the market indicator to do that. As soon as that is in place, we will quickly shift to SAF production. The facility will have capacity to produce 20,000 b/d of SAF on the backbone of 10,000 b/d of renewable jet blended with traditional crude-oil based jet production.” The Phillips 66 CEO Mark Lashier pointed out that while SAF will be an important component of their path toward renewable fuels, the economics at the Rodeo plant currently favor renewable diesel.
Marathon, Valero’s Diamond Green Diesel and Rodeo Renewed will join the ranks of World Energy. World Energy owns the first and currently only one of two plants in the US that produces SAF at commercial scale. The Paramount plant near Los Angeles that feeds LAX airport is undergoing an expansion that will lift its SAF output to 30 million gallons per year with the help of a new UOP catalyst in 2024. Annual SAF production will rise to 275 million gallons by early 2026. World Energy has announced that it is planning a similar scale SAF plant on the site of a defunct biodiesel plant that it owns in Houston. That facility will add another 275 million gallons once it is commissioned in 2027, pushing total SAF output up to 550 million gallons. That will put World Energy more than halfway to achieving its goal of having a 1 billion gallon SAF capability by 2030.
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