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Refiners turn to bio-based jet fuel

Slumping renewable diesel returns drive fuel makers to overhaul production so they can produce sustainable aviation fuel.

Bloomberg, Content provider

July 6, 2024

2 Min Read
Fueling plane
Bloomberg

By Tope Alake and Barbara Powell

Some U.S. fuel makers are overhauling facilities so they can produce so-called sustainable aviation fuel amid slumping returns from renewable diesel. 

Valero Energy Corp., Phillips 66 and Calumet Specialty Products Partners LP are among producers that have retrofitted renewable diesel plants to also make SAF — jet fuel derived from things like cooking grease. Government incentives aimed at decarbonizing the aviation industry are expected to help improve returns on SAF, which is markedly more expensive to produce, according to BloombergNEF. 

Although SAF currently is a tiny niche in the global market for jet fuel, it’s seen as key to reducing airline emissions in coming decades. The challenge is that it involves costly logistics and a more-rigorous refining relative to green diesel. The process yields smaller volumes of SAF as well as higher output of low-value byproducts like naphtha and propane, said Robert Campbell, head of energy transition at Energy Aspects. All of those factors combined can wipe out any prospect of turning a profit, he added.

“The main risks are simply that there is a very low or zero return on capital invested,” especially when economics favor renewable diesel production, said Robert Auers, an analyst at RBN Energy.

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Less than two years after commencing renewable diesel production at a southeast Texas plant, Diamond Green Diesel is spending more than $300 million to convert roughly half the facility’s capacity to also make SAF. Diamond, North America’s biggest renewable-diesel maker, is a joint venture of refining powerhouse Valero and Darling Ingredients Inc.

Diamond has an edge over many rivals in that Darling is one of the world’s largest collectors of inedible animal fats and used cooking oil. That means Diamond is insulated from supply-chain hiccups that can threaten feedstock access for renewable-fuel makers.

Meanwhile, Phillips 66 recently converted a San Francisco-area refinery from oil processing to SAF and other renewables. The plant that formerly made 120,000 barrels of crude-based fuels a day has downsized to daily capacity of roughly 50,000 barrels of SAF and other products.

Calumet is ramping up SAF production at its Montana Renewables operation, where it makes about 2,000 barrels a day. The company plans to expand that output over the next two to three years.

Green diesel has been such an underperformer that giants like Exxon Mobil Corp., and Cargill Inc. pulled out of renewable investments last year. 

As it stands now, SAF comprises a mere 0.1% of global jet-fuel supplies. That compares with green diesel’s 4.5% share of the worldwide diesel market. Government mandates and subsidies will be crucial to expanding both fuels, analysts said.

SAF is “the only proven way to materially reduce emissions in the hard-to-abate airline sector,” Calumet Chief Executive Officer Todd Borgmann said in May.  

© 2024 Bloomberg L.P.

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