PBF Energy considering renewable diesel project at Chalmette, Louisiana, refinery

New York — PBF Energy is considering a renewable diesel project at its 190,000 b/d refinery in Chalmette, Louisiana, as it seeks to mitigate the high cost of meeting the Renewable Fuel Standard, a company executive said Feb. 11.

"Chalmette is well-positioned on the Gulf Coast with excellent access to water, rail and truck logistics," said PBF President Matthew Lucey on the fourth quarter results call, adding the project was still in the development phase.

"Additionally, it also happens to have an idled hydrocracker with an ample supply of hydrogen that would allow for a 15,000 b/d to 20,000 b/d project, which would be capable of processing any renewable feedstock to come onstream in half the time and at half the cost as other projects that have been announced in the marketplace," he added.

The project would be the first renewable diesel project for PBF, following a trend set by other refiners like Phillips 66, Marathon, and HollyFrontier which have plans to shut down refineries to repurpose them into renewable diesel plants.

However, some analysts were concerned about the project going forward.

"Given weak balance sheet position, lack of feedstock suppliers, and no prior expertise in creating RD [renewable diesel], we do not see this as a viable project which can complete with [Valero/Darling] RD projects on the [US Gulf Coast]," wrote Credit-Suisse analyst Manav Gupta in a research note.

Valero Energy, a first mover among refiners in the renewable space, has a long-term partnership with feedstock supplier Darling Ingredients. Called Diamond Green Diesel, the joint-venture is expanding its USGC RD production.

RFS impact

As a merchant refiner, PBF Energy does not blend renewables into the gasoline, diesel and jet it produces so it needs to buy credits. The company has been hurt by the rising price of renewable fuel credits, or RINs, needed to meet its renewable volume obligation, or RVO, as mandated by the Environmental Protection Agency's RFS.

CEO Tom Nimbley on the call noted that RINs prices have doubled since the third quarter and risen 10 times since last January.

"The RFS remains a broken program, which brings specific harm to independent merchant refiners like PBF," he said.

PBF's total 2020 RINs expense was $325 million, while in the fourth quarter the company expensed "just shy of $145 million" for RINs, chief financial officer Erik Young said on the call.

For 2021, Young estimates PBF's liability in terms of number of RINs to range between $550 million to $600 million, with the caveat "we do not know the RVO for 2021." The EPA missed its statutory Nov. 30, 2020 deadline to release the 2021 RFS RVOs, leaving refiners without mandated targets for the year.

So far, first-quarter-to-date RINs prices are averaging 92 cents/RIN and $1.08/RIN for ethanol and biodiesel RINs, compared with the average price of 43 cents/RIN and 64 cents/RIN, respectively, in 2020, according to S&P Global Platts price assessments.

Credit incentives

PBF will continue to actively manage its RINs costs, as it has in the past, but the addition of a renewable diesel project and the ability to produce renewable diesel will provide some RINs protection, Lucey said.

"What it comes with is RINs, LCFS credits, blender's tax credits. The reality is that all these things are needed to make it economic because you're turning a product that is more expensive because you have to buy a lot of this stuff to get BTU content," he added.

Almost all of the renewable diesel produced in the US is sent to California, where the state's Low Carbon Fuel Standard credits provide additional economic incentive to produce and blend renewable diesel on top of the $1/gal federal Blenders Tax Credit.

So far in the first quarter of 2021, US West Coast RD prices with credits are averaging $4.28/gal compared with the 5 cents/gal loss for producing RD without credits included.

In California, where PBF has two refineries, the plans are to use its logistics to "play a significant role [for] third parties in the distribution of renewable diesel as it enters the state," said Lucey.

About 18,250 b/d of RD was shipped from the US Midwest and USGC to the USWC from January through November 2020, by rail and tanker, according to the Energy Information Administration.