IIR Energy Sees $7 Billion in Downstream Spending During the Energy Transition

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--This year could be a big one in terms of refinery overhauls, and the bulk of new spending on energy transition pathways is targeting renewable diesel, a senior downstream analyst said.

"The energy transition at the refinery level seems to be targeting industrial, manufacturing and commercial transport with the focus on renewable diesel," said Hillary Stevenson, a senior director at the energy division of Industrial Info. "Of the nearly $10 billion in spending on energy-transition upgrades and overhauls downstream in North America, some $7 billion of that is going toward renewable fuels."

Click on the image at right to see planned 2023-24 North American environmental, social and governance (ESG)-related refining spending.

Of the dozen or so refinery overhauls Stevenson is watching, five are converting to renewable fuels of some kind. Idled in late 2020, the largest switchover will come from Shell plc's (NYSE:SHEL) (London, England) Convent refinery, with its 240,000 barrels per day (BBL/d) in nameplate capacity. Subscribers to Industrial Info's Global Market Intelligence (GMI) Refining Plant Database can click here for the plant profile.

The U.S. refining segment is responding to federal mandates on renewable fuels, while at the same time catering to strict state-level mandates like those in place in California.

Chris Egby, a refining and licensing manager at Shell, said that most refineries can co-process feedstocks, but the industry is changing and the transition will be slow.

"The challenges and risks are different," he said. "It's not a step change, but it's a gradual change towards a product that is completely renewable."

A global push toward a net-zero future is incentivizing the push toward renewable fuels. Investor pressure has as well, as Shell was sued by shareholder ClientEarth for allegedly going against an energy strategy that would align with some of the benchmarks outlined in the Paris climate accord.

Shell, in a progress report on its energy transition, nonetheless claimed that its carbon intensity declined by 3.8%, relative to a 2016 benchmark, beating the 2% average globally for the industry.

Apart from Shell, Stevenson said she expects similar overhauls from the likes of Marathon Petroleum Corporation (NYSE:MPC) (Findlay, Ohio) and Phillips 66 (NYSE:PSX) (Houston, Texas).

"We see about 200,000 BBL/d in renewable diesel online today, though there's the potential for at least triple that should all planned projects and investments materialize by then," she said.

On Monday, Houston-based Vertex Energy announced it completed its first-ever commercial sale of renewable diesel from its production facility in Mobile, Alabama. The sale was for 110,000 barrels offered to a California subsidiary of Japan's Idemitsu Apollo Renewable Corporation.

Vertex is running relatively low volumes, however, at 7,700 BBL/d, but aims for an incremental increase to 8,000 BBL/d by the end of the second quarter.

Elsewhere, the Tidewater facility in British Columbia became Canada's first standalone renewable diesel facility when construction was completed in mid-June. Production there too is low, at 3,000 BBL/d per day, but it's helping the broader province reach its sustainability goals.

Using feedstocks such as canola, the facility should be able to produce a form of diesel that has a carbon footprint that's at least 80% lower than petroleum diesel.

Renewable diesel is unique compared with other alternative fuels in that it's chemically equivalent to diesel drawn from fossil fuels. It is a "drop-in" fuel that can be delivered through pipelines and used without blending.

Renewable diesel could face headwinds in the U.S. market due to recent legislation on sustainable aviation fuels, tacitly robbing the diesel market of the necessary feedstocks. But challenges are apparent for just about any product evolving during the energy transition.

It's an exciting time for refineries during the energy transition, Stevenson said, and while some uncertainty is to be expected, researchers at IIR Energy maintain that the bulk of new investments in downstream capacity will target renewable diesel.

Industrial Info Resources (IIR) is the leading provider of industrial market intelligence. Since 1983, IIR has provided comprehensive research, news and analysis on the industrial process, manufacturing and energy related industries. IIR's Global Market Intelligence (GMI) helps companies identify and pursue trends across multiple markets with access to real, qualified and validated plant and project opportunities. Across the world, IIR is tracking over 200,000 current and future projects worth $17.8 Trillion (USD).