Chevron Halts Operations at Two Midwest Biodiesel Plants Amid Profit Decline
On March 1, Chevron confirmed the indefinite idling of two biodiesel production facilities in the U.S. Midwest, citing unfavorable market conditions. The decision to idle the plants in Ralston, Iowa, and Madison, Wisconsin, comes in the wake of challenging circumstances in the biodiesel sector, marked by a decline in prices and renewable credits, prompting Chevron to reassess its operations.
As the second-largest oil producer in the United States, Chevron ventured into the biodiesel market in 2022 with the acquisition of Renewable Energy Group for $3.15 billion. The strategic move aimed to expand Chevron’s renewable fuels production to 100,000 barrels per day by 2030. The acquisition included 10 biodiesel plants and one renewable diesel facility, positioning Chevron as a key player in the renewable fuels landscape.
Biodiesel, derived from agricultural oils and animal fats, is known for being a cleaner-burning alternative to petroleum-based diesel. Despite its environmental benefits, biodiesel production is more costly than traditional diesel manufacturing. The industry is also influenced by market dynamics, and Chevron’s decision to idle the two biodiesel facilities reflects the challenges posed by a slump in biodiesel prices and a decline in the value of renewable credits.
In recent months, biodiesel prices have faced downward pressure due to an increase in supplies, resulting in a drop in the value of renewable credits to a three-year low. The price of a blend containing 20% biodiesel decreased from $4.80 per gallon in October 2022 to $3.45 per gallon of gasoline equivalent last month.
President Joe Biden’s administration has emphasized the importance of biofuels, increasing the required blending of biofuels into the national fuel mix over the next three years. However, lower mandates for corn-based ethanol, as proposed in the plan, have contributed to lower credit prices, impacting the overall economics of the biofuels industry.
While biodiesel faces challenges, the production of renewable diesel, another environmentally friendly fuel produced from animal fats, is expected to reach 230,000 barrels per day in 2023, according to the U.S. Energy Information Administration. Producers of renewable diesel tend to generate more renewable credits due to their lower carbon intensity score compared to biodiesel.
Chevron’s decision to idle biodiesel plants underscores the complex dynamics in the renewable fuels sector, where market conditions and regulatory changes can significantly influence the viability of production facilities.
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