The "Drive" to Renewable Fuels

March 15, 2021

The “Drive” to Renewable Fuels

With an increasing number of oil and gas companies committing to be net-zero by 2050, it is clear that the demand for renewable energy is not going away. Throughout the last century, the US petroleum market was bumpy but robust, with substantial increases in domestic demand and industrial growth, despite fluctuating crude oil prices. Today, crude oil prices have stabilized, and domestic demand growth for gasoline has been near-flat for the last twenty years. (1) Advances in vehicle fuel efficiency in that period coupled with the more recent increased popularity of battery-powered vehicles have limited the market's growth. In the United States, government mandates have reduced refinery margins with environmental regulations, bio-fuels requirements, and fees.

The Refinery Affect

Large US refineries along the Gulf Coast have leveraged their economies of scale, strong local markets and efficient transportation systems to give them advantaged profitability despite these challenges. However, smaller inland refineries, especially those that have prioritized the production of gasoline over diesel, have been less fortunate. The continuing requirements for biofuel credits, elimination of some waivers, and steeper drops in fuels demand due to the COVID pandemic have exacerbated these challenges. For many such refiners, renewable fuels production provides an attractive path to improved economics.

Renewables to the Rescue

There are at least three potential paths refineries may take to enter the renewable fuels business. As one of a handful of EPC contractors that have studied these options in depth, we are able to assist a refiner in evaluating which route presents the biggest opportunity: convert their existing refinery to produce renewable fuels, adapt their refinery to co-process renewable feedstocks, or build a grassroots renewable fuels facility.

Option 1: Converting an existing refinery for renewable fuel production

Converting existing hydroprocessing units to renewable fuels production capability is a low-risk alternative. It may be accomplished quickly and relatively inexpensively; and it is reversible. Many such conversions have been executed in 12-18 months and they bring a quick economic boost to the refinery. The trade-off for this revamp approach is limited production capacity and feedstock flexibility due to metallurgical considerations, hydrogen supply and reactor size.

- A renewable feedstock, whether it be vegetable or seed oil or animal fat, requires at least four times more hydrogen than that used in hydrotreating petroleum fractions. Fortunately, many US refineries have excess hydrogen production capacity installed in past years when heavier crudes were processed more frequently.

- The physical size of the hydroprocessing reactors will limit renewable fuels production capacity. Recycle needs in renewable fuels production typically substantially de-rate the capacity of hydroprocessing units as compared to petroleum fraction processing.

- Some vegetable and animal fats are acidic and corrosive, and most existing hydroprocessing units do not have sufficient metallurgy to accommodate them. This factor limits the feedstock flexibility of renewable fuels plants executed by a revamp of existing units.

    Option 2: Co-processing (to accommodate both renewable and petroleum feedstocks)

    A viable option for some international refineries is modifying their existing hydroprocessing units to enable them to co-process vegetable or animal fats with petroleum fractions. While this has benefits in many countries, the US regulations do not currently provide much advantage to this approach. A recent report from the US Department of Energy relayed that there are still significant gaps that exist in our understanding of coprocessing; but co-processing could be a viable option for some locations and should still be considered for renewable fuel production. (2)

    Option 3: Building a grassroots renewable fuel plant

    The most impactful means of taking advantage of incentives in renewable fuels production is to build a grass-roots renewable fuels plant. Grassroot plants may be designed for optimal feed flexibility and production capacity. Of course, grassroots plants also require a larger initial investment and require more time to design, to purchase equipment, and to construct. Additionally, many of the same states that incentivize renewables production are some of the most difficult states in which to obtain construction permits.

    Despite these challenges, the growing demand for renewable fuels and the strong economics produced by the lucrative incentives to produce them – which often are enhanced by the ability to run a variety of feedstocks – make the investment, schedule and permitting challenges of grassroots plants less of a roadblock. Proof of this is evident in the increasingly common announcements of new projects, many of which are progressing towards fruition.





    Let's talk business