Summary
Refiner Phillips 66 and biomass-based diesel producer Renewable Energy Group announced that they are planning to build a "large-scale" renewable diesel facility near one of the former's refineries.
The proposed facility will represent a rare investment in advanced biofuels by a company in the oil and gas sector, let alone a refiner.
California's Low Carbon Fuel Standard makes West Coast renewable diesel production financially attractive, however, and demand for the biofuel can be expected to steadily increase given recent developments.
While unusual, the proposed collaboration makes sense when viewed from the perspective of the West Coast's transportation fuels market.
Refiner Phillips 66 (PSX) and biomass-based diesel producer Renewable Energy Group (REGI) announced last week that they are planning to build a "large-scale" renewable diesel facility in the state of Washington. The announcement of the planned facility, which will be co-located with the refiner's Ferndale Refinery at the time of its expected 2021 completion date, represents a notable departure from the broader refining sector's historical resistance to advanced biofuels, which compete with refined fuels for U.S. market share. Renewable Energy Group's interest in the facility is obvious given that the company is America's largest biodiesel producer and has operated its 75 million gallon per year [MGPY] Geismar renewable diesel facility since 2014. The interest of Phillips 66, on the other hand, requires a more complicated explanation that is important for investors in West Coast refiners to understand.
