Phillips 66 sees strong diesel demand continuing as it approves Rodeo Renewed project in California

High diesel yield a profit as inventories keep low

European refiners hamstrung by excessive pure fuel prices

(*66*) Renewed project receives official inexperienced gentle

Phillips 66 reported strong second-quarter refining outcomes, aided by its higher-than-average diesel yield, as the corporate made the ultimate resolution to transform its (*66*), California, refinery right into a renewables gasoline plant, firm executives stated on the July 29 Q2 outcomes name.

“In refining, we made a final investment decision to move forward with our Rodeo Renewed project to convert our San Francisco refinery into one of the world’s largest renewable fuels facilities,” stated Mark Lashier, Phillips 66’s new CEO.

Lashier, who beforehand served as Phillip 66’s chief working officer and president, stated the project is predicted to price about $850 million and start industrial operations in Q1 2024.

“Upon completion, Rodeo will have over 50,000 b/d of renewable fuels production capacity,” he added.

Renewable fuels is an enormous a part of Lashier’s new development technique for Phillips 66 and the corporate already has a unit with a capability of 120 million gal/yr operable at (*66*) making renewable diesel.

“What we call our Unit 250 is currently producing renewable diesel. It’s performing actually above expectations at this point,” stated Richard Harbison, Phillips 66’s new head of refining on the decision.

According to Phillip 66’s industrial supervisor, Brian Mandell, the corporate has been in a position to run decrease carbon depth feedstock by means of the unit. This has helped maximize the worth of the credit, together with California’s Low Carbon Fuel Standard credit, which have dropped to about $92/mt thus far in Q3 2022, in contrast with the 2021 common worth of $117.68/mt, in line with Platts assessments.

With the drop in credit score costs, the California Air Quality Resources Board is trying to change the scope of their decrease carbon depth targets to assist larger credit score costs, however no resolution has been made but.

“We do think the Rodeo Renewed project is still very attractive,” stated Harbison, including that the pre-treatment unit on the plant, which can afford larger feedstock flexibility, will “put us in a competitive position at the facility.”

“It’s a high return project,” stated Lashier, including “it’s going to be the lowest capital cost per gallon of any renewable diesel facility that we’re aware of.”

Benefits of excessive diesel yield

Phillips 66 reported $3.13 billion in earnings from its refining phase for Q2 2022, operating its methods at 90% of capability with a realized margin of $28.31/b with $223 million in turnaround prices.

During Q3 2022, Phillips 66 expects its worldwide crude utilization price to be in the mid-90% vary.

Q3 pretax turnaround prices are anticipated to vary between $260 million and $290 million as a result of some turnaround exercise deliberate later in the quarter, Lashier stated, however he was optimistic on Phillips 66 refineries’ potential to fulfill tight demand.

“Crude [differentials] are certainly moving in our favor, and our ability to outperform on distillates versus gasoline will certainly be strong,” Lashier stated.

“If you look at the fundamentals around the cost curve between the US and Europe, we just can’t build any inventory with prompt demand where it is. We’re bullish on that outlook as well,” he stated.

European refiners want to run lighter, sweeter crude barrels on the expense of heavier ones as a result of excessive price of pure fuel and better volumes wanted to course of extra bitter crudes. So far in Q3, benchmark Dutch TTF pure fuel costs are averaging at $50.40/MMBtu in contrast with Q2’s common worth of $30.15/MMBtu, in line with Platts assessments.

This is lifting working prices of European refiners to the $10/b to $12/b vary, making US refiners extra worthwhile, however slicing again distillate provide forward of winter.

“It’s hard to see a solver for distillate coming up in the winter. We’re at low inventories. If you look in the US, we’re at minus 20% versus 2015 to 2019 averages,” stated Brian Mandell.

With the beginning of the turnaround season and the return of jet gasoline demand, which is consuming into diesel provide, the market has been tight and distillate provides are anticipated to stay tight forward of the harvest and heating seasons.

“Cost to produce in Europe, as we just talked about, is expensive versus the US so they’re not going to be able to help much. We think there’s about 150,000 [b/d] of Russian distillate off the market, which doesn’t help much either … we’re distillate-heavy in our system. I think that’s going to be a good thing going forward, given our view of distillates,” he stated.

In its 12 refinery system, which has a complete capability of 1.961 million b/d, Phillips 66 has the power to make 916,000 b/d of distillates and 1.023 million b/d of gasoline, in line with regulatory filings.