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Valero: Biodiesel expansion 'right down the middle of our fairway'

Valero Energy Corp. executives said during an Oct. 24 earnings call a proposed biodiesel plant at one of its refineries along the Gulf Coast is a logical expansion of its business.

"Strategically, we're a company that really makes motor fuels, and we're a company that takes their environmental responsibilities and sustainability very seriously. So when we look at the opportunities to produce products where there's going to be growth in the market and they are going to have sustainably high margins, we look to renewable diesel," Valero Chairman, President and CEO Joe Gorder said. "It fits right down the middle of our fairway. We feel very good not only about the returns but about the EBITDA contribution we're going to get from this product for a very long time to come."

The company is weighing a new renewable diesel plant at its Port Arthur, Texas, refinery, which would expand its biodiesel production capacity to more than 1.1 billion gallons annually, or 3.0 million gallons per day. Construction of the new plant would begin in 2021 for a targeted in-service date of 2024.

Valero senior vice president of alternative fuels Martin Parrish cited the extension of the European renewable energy directive and California's low-carbon fuel standard as policies supporting the biodiesel market's growth. The renewable energy directive requires that 20% of energy consumed within the European Union is renewable, while California's LCFS requires oil refineries and distributors to ensure the mix of fuel they sell in the state meets greenhouse gas reduction targets.

"Recent elections in Canada would tell us that we're probably going to see a national standard in Canada, too," Parrish added. He said the benefit of locating renewable diesel production at an oil refinery "where we can hit all markets," and the abundance of feedstock supply relative to installed biodiesel production capacity led Valero to select the Port Arthur location for biodiesel expansion.

In the third quarter, Valero's renewable diesel sales volumes averaged 638,000 gallons per day, a 387,000-gallon-per-day increase over the 2018 third quarter.

Valero's yield of non-renewable petroleum products averaged over 125.2 million gallons per day in the third quarter. The company's renewable diesel segment reported operating income of $65 million in the third quarter, versus $1.1 billion for the company's refining segment.