Refiners steady ahead of California diesel changes
State air regulators last week began five years of work on rules that will effectively require renewable diesel to supply half of the state's distillates demand by 2031. The California Air Resources Board intends the requirements to boost renewable or gas-to-liquids-based distillates, part of governor Jerry Brown's call to cut total petroleum use by half from current levels by 2030.
Such plans have not scared independent refiners away from the single largest state fuel market, however. PBF Energy last month specifically cited diesel opportunities as it works to reshape its business and enter the market by acquiring ExxonMobil's only California refinery. Others say they continue to study renewable options.
Pervasive smog forced California toward higher quality gasoline in 1991. US regulations on sulfur content and other contaminants have moved toward the same tight limits over time, but refiners in the state are among the few in the world capable of supplying California's still-tightening standards.
State and federal diesel requirements reshaped that fuel market in 2006. By 2007 Ultra-low sulfur diesel (ULSD) made up 90pc of supply to the region dominated by California, more than a year before the broader US, in part because California required faster adoption. Most US refiners can now make this tougher sulfur specification, although California again requires a slightly tougher standard.
There are not yet enough details on the CARB diesel proposal for a complete analysis, but Western States Petroleum Association spokesman Tupper Hull said it will likely cost refiners money.
"I can tell you that imposing additional fuel reformulation requirements on top of other regulations like the Low Carbon Fuel Standard is creating major challenges for refiners in California and will almost certainly have economic impacts on them," Hull said.
Modifications to refineries, particularly in California, take years of planning. Chevron spent a decade pursuing changes to its 250,000 b/d refinery in Richmond before receiving approval to move forward on construction. Both Valero and Phillips 66 have waited years to build comparatively small rail facilities. But refiners in the state have disclosed no changesin strategy to handle this latest push.
Both Tesoro and Phillips 66 remain in the study phase of any renewable production. Tesoro, is the largest California independent refiner with 25pc of state crude capacity, said it adopts suitable technologies that seamlessly integrate to its existing system rather than pursue its own breakthroughs. Phillips 66 said it was researching alternative fuels and energy but not producing commercial volumes.
Valero already produces renewable diesel at a joint venture plant adjacent to its 250,000 b/d St Charles refinery in Norco, Louisiana, and already ships some of the 10,000 b/d facility's production to California. But Valero was not exploring a new plant closer to market, spokesman Bill Day said.
"We would not build a plant, I would think, in California, just because it's so expensive to build anything there," Day said.
PBF Energy specifically cited a potential $25mn to $30mn per year additional business opportunity in the California diesel market as it discussed its plans to purchase ExxonMobil's 155,000 b/d refinery in Torrance, California. The company declined to comment on its products and regulatory outlook as it works to close the deal in the first half of next year.
Chief executive Thomas Nimbley was confident PBF staff with prior California experience could work through the state's regulatory plans, he said in an early October call discussing the transaction.
"We have the experience in the company to operate in that environment," he said.