Big Oil Goes Green; Renewable Fuels Take Center Stage

We’re just two full months into 2022 and, my oh my… how quickly things have changed. The Covid-19 pandemic, which reshaped every aspect of the entire world over the last two years, has now disappeared even faster than it escalated in 1Q2020, and WTI crude oil prices—which dropped to just $16/barrel in April 2020—are over $120 as of this writing.

Up is now down, and down is now up. "Rumors of the death of fossil fuels are greatly exaggerated,” to quote Mark Twain.

Global fossil energy prices are skyrocketing amid growing geopolitical turmoil and the Russian invasion of Ukraine. Where global oil and natural gas prices ultimately settle is anyone’s guess, as this is a highly fluid situation. It is worth noting, however, that on a world scale the ownership of a barrel of crude oil changes on average about 15 times from the wellhead where it is produced to the consumer’s point of purchase. And transit times vary from 10-20 days around the world.

It’s also a predicament that demonstrates the necessity of expanding the global energy portfolio to include an increase in renewable feedstocks and energy innovations. While we can’t attain this transition overnight, our continued reliance on fossil energy sources leaves us exposed and disadvantaged in times of crisis. And if we’ve learned anything over the last two years, crisis is the “new normal.”

But the transition is happening. Major global oil producers are facing increasing pressure from governments and the global investment community to mitigate their carbon impacts and develop solutions to address climate change. Two important new biofuel projects were recently announced that have the potential to drive momentum in the renewables sector.

Neste & Marathon JV

Finnish fuels refiner Neste recently announced a $1 billion investment in a joint venture with Marathon Petroleum Corporation. The project will make Neste the world's first and only renewable fuels producer with a global capacity.

Marathon and Neste plan on converting Marathon's Martinez, California refinery into a renewable fuels production facility to make biodiesel from residues. The strategic partnership is expected to advance the current project objectives of delivering low-carbon intensity fuels to support California's climate goals.

Per Marathon, “The Martinez facility is currently targeted to have a production capacity of 260 million gallons per year of renewable diesel in the second half of 2022, with pretreatment capabilities to come online in 2023. The facility is expected to be capable of producing 730 million gallons per year by the end of 2023.”

Chevron

Chevron Corporation, second-largest US oil and gas producer, recently announced that it is buying biodiesel maker Renewable Energy Group (REG) for $3.15 billion. This marks Chevron’s largest investment yet into the alternative fuels sector.

Renewable Energy Group is an early pioneer in the renewable fuels sector. The company utilizes a global integrated procurement, distribution and logistics network to operate 11 biorefineries in the US and Europe. In 2020, REG produced 519 million gallons (1.7 million metric tons) of cleaner fuel delivering 4.2 million metric tons of carbon reduction.

The transaction is expected to accelerate progress toward Chevron’s goal to grow renewable fuels production capacity to 100,000 barrels per day by 2030. After closing, Chevron’s renewable fuels business, Renewable Fuels - REG, will be headquartered in Ames, Iowa—where Renewable Energy Group has been based since 2006.

The market is now responding to both the physical reality of supply and trading vast volumes of oil and gas as well as ESG initiatives. These energy companies are now driven by energy economics seeking to include renewable portfolios in their mix of products. All stakeholders—from equity and debt owners to customers—want reliable and affordable energy that results in less impact to the environment.