U.S. renewable diesel and sustainable aviation fuels gain traction

Oil and gas producers are increasingly expanding U.S. operations into renewable fuels, thanks to government mandates and incentives.

Chevron expects an expansion of its renewable diesel project in Geismar, Louisiana, to complete this year.

Source: Chevron Investor Presentation, June 10, 2024. Available via Evaluate Energy Documents.

That will increase total site production capacity from 5,900 barrels to 22,000 barrels per day and double the firm’s renewable fuels production capacity. With the expansion complete, the firm will be approximately halfway to achieving its goal of producing 100,000 barrels per day of renewable fuels by 2030.

Marathon Petroleum Corp. confirmed its Martinez refinery in California, converted to produce renewable diesel, will ramp up to full capacity of 47,600 barrels per day by the end of the year. The plant, which started up in 2023, is run in partnership with Finland’s Neste, after a joint venture agreement was finalized in September 2022.

And in Canada, Imperial Oil’s Strathcona refinery, majority owned by ExxonMobil, said it will produce more than 16,400 barrels per day of renewable diesel from 2025.

Recent progress

Since 2021, renewable diesel and other biofuels production capacity has more than tripled in the United States. Between January 2022 and January 2023, U.S. production capacity for renewable diesel rose 71% to 81,500 barrels per day.

The EIA anticipates 218,000 barrels per day of renewable diesel will be produced in 2024, and 290,000 barrels per day in 2025.

Rising targets under state and federal renewable fuel programs and the renewal of biomass-based diesel tax credits under the Inflation Reduction Act (IRA) are driving growth.

Washington, California, and Oregon all passed initiatives to reduce the carbon intensity of transportation fuels by up to 20%. At least a dozen other U.S. states have some form of mandate or incentive at state level.

SAF

Like renewable diesel, Sustainable Aviation Fuel (SAF) is produced from advanced biofuels and can be made at the same facilities.

The U.S. SAF Grand Challenge, introduced in 2021 by the Biden administration, outline objectives for domestic SAF production, with a target of 9 million tons per year of production by 2030 and 105 million tons per year of production by 2050.

Under the IRA, the U.S. government enacted tax credits for SAF production of up to US$1.75 per gallon through 2027.

Around 1.2 million tons of SAF are currently produced in the U.S. But producers are starting to respond to the IRA incentives.

Chevron has already produced SAF at Geismar and begun co-processing bio feedstock at its El Segundo, California refinery, where it produced its first SAF in September 2021.

Specialist players from outside the traditional oil and gas environment are also starting to move into the field. Earlier this year, sustainable fuel producer Lanzajet opened its Freedom Pines SAF production facility, which will produce 30,000 tons per year of SAF when at full capacity. DG Fuels also plans to produce 600,000 tons per year of SAF from a proposed plant in Louisiana from 2028.

The U.S. possesses the theoretical capacity to produce up to 65 million tons per year of SAF derived from biomass, according to a study by the International Council on Clean Transportation (ICCT).

Canadian SAF

In Canada, the Aviation Action Plan lays out a goal that, by 2030, SAF should form 10% of projected Canadian jet fuel use — the equivalent of around 800,000 tons per year of production.

Canada has the potential to be an international supplier of SAF should an export market develop, according to a recent report from the Canadian Council for Sustainable Aviation Fuels.

“Canada has the feedstock, refining expertise, innovation capacity, and domestic airlines to create a world-leading industry that meets its own needs and exports to other jurisdictions,” says the report, entitled “The C-SAF Roadmap”.

Stronger policy signals are needed to get production projects to a Final Investment Decision, according to the report, including mandates and carbon contracts-for-difference to provide supply-side price guarantees, as well as mechanisms to share price risk on the demand side.

Although the ability for plants to produce both renewable diesel and SAF provides developers with a partial hedge against slow demand growth for SAF, the report notes that one of the biggest challenges for SAF production is competition for feedstocks and refinery capacity from renewable diesel.

“Currently, low carbon fuel standards and regulations primarily target renewable diesel for compliance,” says the report. “Since SAF is more expensive to produce than renewable diesel, specific incentives for SAF are needed to stimulate production.”

Currently no SAF is produced in Canada, although several companies have announced facilities that together would produce 400,000 tons per year by 2030.

Azure Sustainable Fuels said it is planning a 53,000 tons per year plant in Manitoba that will predominantly produce SAF but will also have the capability to produce renewable diesel.