US petroleum refiners discuss biofuel projects, markets in Q3 financials
Amid significant drops or losses in income for the third quarter of 2024, three U.S. petroleum refiners who also manufacture renewable diesel provided newsworthy updates on their biofuel operations and market outlooks in recent quarterly financial releases and conference calls.
Valero
Valero Energy Corp. reported net income attributable to Valero stockholders of $364 million for the third quarter, down significantly—86 percent—from $2.6 billion for the third quarter of 2023.
The company’s renewable diesel segment, which consists of the Diamond Green Diesel joint venture with Darling Ingredients, reported $35 million of operating income for the third quarter compared to $123 million for the third quarter of 2023, nearly a 72 percent drop.
Segment sales volumes averaged 3.5 million gallons per day in the period, which was 552,000 gallons per day higher than the third quarter of 2023.
The sustainable aviation fuel (SAF) project at the Diamond Green Diesel plant in Port Arthur, Texas, was completed in October.
The SAF project is expected to be fully operational this year, providing the plant with the optionality to upgrade approximately 50 percent of its current 470-million-gallon renewable diesel annual production capacity to SAF.
The SAF project was completed on schedule and under budget, according to the company.
Phillips 66
Phillips 66 reported earnings of $346 million for the third quarter, down 65 percent from the $1 billion in reported earnings in the previous quarter (Q2).
Third-quarter earnings included a legal accrual of $605 million in the marketing and specialties segment, costs related to the planned shutdown of the Los Angeles Refinery of $41 million in the refining segment, and an impairment of $28 million in the midstream segment.
At its fully converted biorefinery in Rodeo, California, Phillips 66 produced 44,000 barrels of biofuels per day in the third quarter.
The company acknowledged the higher premium for SAF and, while Phillips 66 has already successfully produced SAF at the Rodeo complex, it will not be producing renewable jet fuel in the fourth quarter.
Instead, the company is running through higher carbon-intensity feedstock in anticipation of the federal clean fuel production credit (45Z) taking effect in January, even though the U.S. treasury department and IRS have yet to issue any real guidance on the incentive.
The 45Z credit, which was passed under the Inflation Reduction Act, provides greater incentive for fuels that offer more greenhouse-gas reductions and lower carbon intensity.
“We are still in start-up mode for the renewable segment,” said Brian Mandell, an executive with Phillips 66 on the company’s third-quarter earnings call.
Mandell said he thinks renewable diesel margins, which have been slim, will improve going into the fourth quarter and beyond.
“We think margins are going to strengthen for a number of reasons,” he said. “Feedstock prices remain depressed. A number of plants continue to struggle. Some of the renewable diesel production will be converted to renewable jet production like some of our competitors on the Gulf Coast, and we will do that as well. There were less imports into the U.S. and a tighter West Coast CARB diesel market with our refinery production issues. We’ve been seeing renewable diesel from our competitors come from the Gulf to the West Coast. And then just the stronger credit markets, with the tightening of those credit markets and the disincentivizing of biodiesel production. So, all those things together I think will drive renewable diesel margins stronger as we go forward.”
CVR
CVR Energy Inc. announced a net loss of $124 million in the third quarter compared to net income of $353 million in the same period a year ago.
EBITDA loss in the third quarter was $35 million compared to $530 million in EBITDA during the same period in 2023.
“CVR Energy’s 2024 third-quarter earnings results for its refining business were impacted by reduced refining throughputs attributable to unplanned downtime at both facilities partially caused by external power-supply outages during the quarter,” said CEO Dave Lamp. “The board’s decision to suspend the quarterly dividend reflects its concerns on just how long the current margin environment will persist in light of the company’s large, planned turnaround at its Coffeyville refinery in the first quarter of 2025.”
For the third quarter, CVR Energy processed approximately 20 million gallons of vegetable-oil feedstocks through the renewable diesel unit in Wynnewood, Oklahoma.
Lamp noted that the HOBO spread weakened slightly from the second quarter of 2024 with lower diesel prices, although this was offset by higher prices for D4 RINs and LCFS credits, which helped drive a positive result for the quarter.
“We are pleased with the third-quarter results from the Wynnewood renewable diesel unit with this being the first full quarter of operations with the RD unit with a pretreater,” Lamp said, adding that discussions with interested counterparties related to the potential conversion of the renewable diesel unit in Wynnewood to 100 percent SAF are ongoing.
“As we said before, we would not expect to move forward with the conversion without developing an offtake structure for SAF that would provide us downside protection and minimize our reliance on government credits,” he said.
When asked about the possibility of the Wynnewood hydrocracker being put back into conventional petroleum service, Lamp said, “It goes back to the discussion of how short we are on RINs. And even with a small-refinery waiver for Wynnewood, we’re still substantially short on RINs. What the hydrocracker does in renewable diesel service is provide us with relatively low-cost RINs ... And I think that’s a strategy we’re going to continue to play out. This quarter, we did make money in renewable diesel, and I think with the setup we have and with the pretreater now, we’re experiencing good yields. Our biggest issue really is catalyst life, and we continue to explore that.”
Lamp railed against U.S. EPA in its handling of small-refinery exemptions (SREs) under the Renewable Fuel Standard.
“Regarding the RFS, the situation remains incomprehensible,” he said. “No less than three federal courts including the United States Supreme Court have told EPA in no uncertain terms that small-refinery hardship exemptions exist to protect small refiners who suffer disproportionate economic harm. Both the Fifth Circuit and the D.C. Circuit called EPA’s denial of most hardship petitions arbitrary and capricious vacating those denials and remanding them back to EPA. Incredibly, despite this expressed statutory obligation to rule on hardship petitions within 90 days, EPA has done nothing, even though almost a year has passed ...”
Lamp added, “EPA's egregious conduct has left pending petitioners hanging in limbo for years and the financial impact of their actions threaten the very existence of small refineries like ours. That a U.S. federal agency can be allowed to flagrantly and repeatedly violate the law without recourse shakes the very foundation of our government. No one is above the law, including EPA. So, I call you out Administrator Regan. EPA has broken the RFS, violated the law persistently and ignored very clear direction from the courts. This must stop now.”
CVR Energy continues to seek relief in court not only through securing SREs “that Wynnewood deserves,” Lamp said, “but to force EPA to remedy the root cause of small-refinery harm.”
Lamp said EPA’s decision to violate the RFS law allows nonobligated parties to produce, buy, sell, trade and hoard RINs, resulting in manipulation of the RIN market.
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