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About Commodity Insights
30 Apr 2021 | 19:09 UTC
Highlights
Learning curve for whole plant conversion
Q1 refining utilization down on turnarounds, polar vortex
Phillips 66 completed its initial renewable diesel project at its Rodeo, California, refinery as it moves forward with its Rodeo Renewed project – the complete conversion of the 120,200 b/d hydrocarbon facility into a 50,000 b/d renewable fuel plant by early 2024, CEO Greg Garland said on April 30
"In April, the company completed its diesel hydrotreater conversion, which will ramp up to 8,000 b/d (120 million gallons per year) of renewable diesel production by the third quarter of 2021," he said on the first quarter results call.
The initial 8,000 b/d renewable diesel hydrotreater, known as Unit 250, started up in early April and is ramping up and running soybean oil, according to Robert Herman, head of Phillip 66's refining segment.
"It came up the first time and has run well," he said, about the diesel hydrotreater conversion from hydrocarbon to soybean oil feed.
Herman said it's been a "good learning curve" around getting the smaller unit in operation as the company works towards full conversion of the refinery. This included testing its logistics supply chain to get soybean oil to Rodeo. The converted hydrotreater unit will ramp up to 9,000 b/d of soybean oil feed in the third quarter with the completion of some of the logistics projects.
Meeting the Renewable Fuel Standard obligations has become pricier for refiners, due to the rising costs of RINs, particularly for refiners who have to buy these credits to meet their renewable volume obligation as mandated by the Environmental Protection Agency.
Currently, Phillips 66 generates about half the RINs needed by liquids blending at its own terminals and buys the rest.
The ramp up of the first renewable diesel unit at Rodeo will help mitigate this not only by creating RINs but by giving Phillips 66 the financial benefit of capturing the federal blenders tax credit and California's Low Carbon Fuel Standard credit.
The renewable volume obligation -- a per-gallon cost of biofuel blending compliance calculated using RIN assessments and blending mandates – is averaging 18.37 cents/gal so far in the second quarter, its highest level since Platts began publishing the number in 2014. This compares with the first quarter RVO average of 15.98 cents/gal.
Phillips 66's 11 refineries ran at 74% of capacity in the first quarter, compared with the 69% in the fourth quarter, due in part to turnaround activity and the polar vortex. Phillips 66 gave no outlook for second quarter runs rather saying it would run at what market conditions supported.
"Our first quarter was a fairly heavy turnaround quarter. Some of that carries into the first month of the second quarter," said Garland.
Garland said Phillips 66 had "couple of FCCs we're finishing up as we speak" and that the company expects to be out of "turnaround mode" in the next week to ten days. He did not identify the plants which were in turnaround.
"And then we've kind of got clear sailing for the rest of second quarter and into the third quarter for gasoline season," he added.
Phillips 66 expects gasoline demand to return with the summer season, and the roll-out of the coronavirus vaccines, particularly in heavy demand states like California, where they expect to see an increase in refinery utilization.
"California has announced opening up mid-June, which should support demand. We are seeing a correlation with the increase in vaccines, the increase in vehicle miles traveled, and demand for gasoline," said Brian Mandell, head of marketing and commercial at Phillips 66.
So far in the second quarter, US West Coast cracking margins for Alaska North Slope are averaging $16.19/b, compared with the $13.15/b in the first, according to S&P Global Platts Analytics margin data.
California diesel demand is also rising, with the increase of imports into the major port of Long Beach and the commensurate trucking demand.
USWC Napo coking margins are averaging $15.27/b so far in the second quarter, up from the $12.33/b in the first, Platts Analytics data shows.