The Chevron CEO, Mike Wirth, was interviewed recently by Alix Steel at Bloomberg. A couple comments caught our attention here at Vegas Renewable Diesel Inc. (VRD).
The Future of Petroleum Refining in the United States
The headline news was Wirth's statement that he does not believe that another crude oil refinery will ever be built in the United States. Any oil company thinking of building a major new refinery would have to commit one billion dollars; figure on a decade of planning, permitting, and construction; and then need multiple decades to get a return on the investment. Up against the hostile regulatory environment toward petroleum, nobody is going to take on a commitment like that. Chevron has grown its oil drilling capacity by 10% in the last year, but have done it in a way that makes the most parsimonious use of new capital.
At VRD, we agree that the age of major new oil refining projects is over. We believe in a future of mini refineries located near supplies of feedstock, a diversity of feedstocks (waste petrochemicals, sewage/manure, seed oils, natural gas, and more), and servicing locals clients. Read about our concept for an ideal mini refinery as we have on display today in Las Vegas.
Chevron Acquisition of Renewable Energy Group
Chevron's other growth strategy is to make opportunistic acquisitions at attractive prices. Chevron is closing soon on the purchase of Renewable Energy Group (REG), confirming a trend of major oil companies getting involved in renewable fuels. REG is the world's largest producer of renewable fuel with 11 biorefineries in the US and Europe. Another such acquisition was recently announced by TotalEnergies, which is acquiring 50% of Clearway Energy Group. Clearway is developing a variety of solar, wind, storage, and renewable fuel projects and is reckoned as the 5th largest producer of renewable energy in the US.
The Renewable Feedstock Problem
But we wonder if Chevron understands what they've gotten themselves into with the REG acquisition. At VRD, we regard the current renewable fuel industry as a kind of government supported sham. Remove those generous government supports per gallon ($1 IRS blender's credit, RIN credits mandated by the RFS, and California's LCFS carbon credits), and this renewable house of cards will collapse. You can see the problem right on REG's website, where it explains its "flexibility" in feedstock. Every feedstock listed is problematic.
Firstly, you must understand that petroleum is a wonderful, energy rich substance. It is no mistake that it has become the basis of our modern economy. The various plant materials that renewable fuels are made of have far less energy potential. This introduces problems of land use and transportation. A greater and greater percent of available land must be devoted to these renewable feedstocks, elbowing out room for food crops and the natural environment. And these biorefineries need to draw their feedstocks from a vast territory, introducing the problem of burning a lot of diesel fuel - even if renewable - on the road between farms and refineries.
Let's look at the feedstocks REG states that they depend on:
Vegetable Oils (Soybean, Canola, Corn) - These are food crops. Use of these oils sets up a food versus fuel competition, driving up the prices of both. The US is a major food exporter. If food export volume declines, world hunger can be expected to grow.
Rendered Animal Fat and Used Cooking Oil - These are food wastes and making fuel out of them is a perfectly good solution. They are relatively expensive to collect and aggregate. And their supply will always be fairly limited - dwarfed by total fuel demand. We might add into this category fish waste as used by Neste Oil at its Singapore biorefinery. But again, this is a limited resource.
Algae and Cover Crops - These are future potential feedstocks that REG is researching - as has the Department of Energy for many years now. We think algae is a dead end. Despite years of research, nobody has made a commercially viable refinery based on algae. If you do the math, the entire world would have to be covered in algae ponds to begin to put a dent in fuel demand, but even then you'll find that in the real world, things eat the algae. Cover crops may become a marginal solution that might as well be pursued to the extent that food crops continue to be used in biofuels.
Indeed, REG spells out the risks of its feedstock strategy very clearly. Quoting directly from their website:
"Contracts and Hedging: The prices for feedstocks and bio-based diesel, including the value associated with government incentives, can be volatile and are not always closely correlated. Low-carbon feedstocks are particularly difficult to risk manage given that such feedstocks are not traded in any public futures market. To manage feedstock and bio-based diesel price risks, we utilize forward contracting, hedging and other risk management strategies, including the use of futures, swaps, options and over-the-counter products."
A Diesel Refining Solution Out of Las Vegas
Timothy D. Wetzel, Founder and Inventor at Vegas Renewable Diesel Inc. (VRD), states:
"I’m in agreement with the CEO of Chevron. There is a war against crude oil. The last major oil refinery was built in the US in 1977, and no further ones of this size will ever be built. This puts tremendous value and importance on VRD's model: a mini refinery. Several mini refineries placed strategically can form a supply chain to enhance the depleted inventories of diesel. Society doesn’t realize that the inventories of diesel are being depleted and will soon be gone. It is up to alternative refineries such as Vegas Renewable Diesel to come into the market and be ready to provide this supply of diesel."
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