From Fossil To Renewable: California’s Diesel Transition & The Future Of Refineries

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In a current article, California Refineries Shut as Gasoline Demand Slips into Everlasting Decline, I wrote that diesel consumption in California had not declined whilst gasoline demand slipped. Jeremy Martin from the Union of Involved Scientists reached out to me to level to some information I’d missed. I reviewed it and noticed that renewable diesel plus biodiesel now provide greater than 70% of diesel consumed in California. Fossil diesel consumption has declined quicker than I believed. That modifications how we should always take into consideration the state of refining, the function of refineries, and what their future could be.

Renewable diesel and biodiesel are sometimes lumped collectively, however they differ in how they’re made, how they carry out, and the way a lot emissions they keep away from. Biodiesel, additionally known as FAME biodiesel, is made by chemically reacting fat or oils with an alcohol, often methanol, in a course of known as transesterification. It has oxygen within the molecule and sometimes must be blended with petroleum diesel in lots of engines.

Renewable diesel is made by hydroprocessing or hydrotreating fat, oils, or waste lipids in a means that produces molecules a lot nearer to petroleum diesel. It’s a drop-in gas, which means engines and infrastructure constructed for normal diesel can use it with out modification. In accordance with CARB’s lifecycle research, renewable diesel can cut back greenhouse fuel emissions by about 65% in contrast with petroleum diesel relying on feedstock similar to waste oils or tallow, whereas biodiesel’s emissions reductions differ extra relying on feedstock and mixing ratio.

Refineries can not simply change the essential yields they get from crude oil, and heavy crudes particularly ship a comparatively mounted gasoline-to-diesel ratio. With California’s demand for fossil diesel shrinking whereas renewable diesel fills the market, refiners are left with a surplus of petroleum diesel they can’t promote in state. The response has been to export that diesel into different markets, usually in Latin America or Asia, the place demand for center distillates is stronger. This retains refineries working however reduces margins, since exports are often at decrease costs than home gross sales and add transport prices. The structural imbalance between what California wants and what refineries are designed to provide is without doubt one of the forces eroding their long run viability.

Among the many two refineries mentioned, the Phillips 66 refinery in Los Angeles is certainly closing. It has been confirmed that the 139,000 barrels-per-day LA space facility will start winding down operations in early September 2025, and everlasting closure is predicted by October 2025. The Valero refinery in Benicia is an even bigger concern for policymakers as a result of it accounts for a big share of Northern California’s refining capability. Valero has introduced its intent to shut or restructure the Benicia refinery by April 2026, citing excessive regulatory prices and declining demand. However there are energetic discussions in Sacramento about state funding or regulatory aid to maintain it working.

Retaining Valero open is extra politically and virtually essential as a result of the Los Angeles area has extra refining capability general than the Bay Space, so lack of Benicia would produce higher provide disruptions, particularly in Northern California. Analysts estimate that the mixed closures of Phillips 66 LA and Valero Benicia may take away roughly 17% of the state’s gasoline refining capability.

The gas coverage framework referred to as the Low Carbon Gas Customary is central to all of this. Below LCFS, gas producers are required to cut back the lifecycle carbon depth of fuels bought in California. Renewable diesel and biodiesel earn credit when their CI is beneath the benchmark. These credit might be traded. The extra demand there’s for low CI fuels the higher the value on fossil fuels or gas pathways that don’t meet CI targets. California’s LCFS pathways present that renewable diesel from used cooking oil, tallow, or waste lipids usually performs higher, with decrease CI, than feedstocks like soybean oil. Biodiesel’s CI relies upon strongly on feedstock, vitality utilized in processing, land use, and transportation.

There are danger factors on this transition. Renewable diesel provide relies on feedstock which may be restricted, or develop into dearer, particularly waste oils or fat. Scaling up renewables dangers feedstock shortage or competitors with different makes use of similar to meals or worldwide markets. Biodiesel could face limits on mix ranges or efficiency in chilly climate. Regulatory and allowing burdens stay excessive. Additionally refinery closure or conversion faces massive capital prices, labor impacts, and local people penalties.

The financial implications are clear. Refineries constructed for gasoline and fossil diesel have product slates optimized for these markets. As diesel is displaced, their potential to regulate output issues. Refiners could shift to processing extra renewable diesel themselves, or importing it, or changing present refining models. For Phillips 66, shutting LA means misplaced jobs, misplaced native refining throughput, and elevated imports. For Valero Benicia, the stakes are increased for Northern California given its function in provide and since maintaining it open is beneath energetic negotiation.

The outstanding rise of renewable diesel in California is finest understood as a bridge relatively than a everlasting resolution. The credit and incentives beneath the Low Carbon Gas Customary created a powerful marketplace for drop-in replacements that may very well be used instantly in heavy obligation engines, however that displacement is short-term. Over the subsequent decade, battery-electric vans will start to scale in precisely the identical means that passenger automobiles have already got. The economics of charging infrastructure, battery pack measurement, and complete price of possession are bettering yr by yr, and when fleets start adopting electrical vans in quantity, the impact on diesel demand will probably be unmistakable. Diesel has lagged gasoline in its decline as a result of there was a prepared substitute in renewable diesel, however as soon as electrical freight and supply automobiles hit the highway at scale, fossil and renewable diesel alike will fall. One of the best estimate is that this may path gasoline’s decline by about ten years, giving California a short lived interval of excessive renewable diesel penetration earlier than a long term contraction in general diesel consumption.

One other issue shaping refinery futures is that the identical waste oils, fat, and plant-derived lipids that now move into renewable diesel will probably be diverted to different sectors beneath coverage stress. Aviation is pushing arduous on bio-sustainable aviation gas as a result of there aren’t any near-term alternate options for long-haul flights. Maritime transport can also be starting to mix bio-fuels to satisfy worldwide decarbonization targets. As extra of California’s low-carbon feedstock provide is redirected towards these makes use of refiners will probably be pressured to reconfigure models as soon as once more. That shift would add one other layer of adjustment for the state’s remaining refineries, which must stability smaller gasoline markets, declining fossil diesel, and rising exterior competitors for renewable feedstocks.

Going ahead, diesel displacement seems prone to improve beneath present coverage stress. Electrical vans will play a job. Renewable diesel capability could improve. However fossil diesel is prone to shrink extra quickly than most forecasts assume. Getting the technical particulars proper issues. I bought the diesel incorrect earlier than. It issues for coverage, for markets, for refining jobs, for gas safety.