use. That legislation typically requires a growing proportion of the energy used in transport to be renewable, with mandates on the use of advanced biofuels from non-food feedstocks and renewable fuels of non-biological origin (RFNBO). The European Union has mandates on the minimum share of sustainable aviation fuel (SAF), which rises from 2% in 2025 to 6% in 2030 and 70% in 2050. An increasing fraction of the SAF is to be RFNBO based. In the EU, the penalties for non-compliance are severe. Similarly, in the US, demand for biofuels is driven by a portfolio of policies at both the federal and state levels. At the federal level, the US Renewable Fuel Standard (RFS) requires transportation fuels to contain an increasing share of renewable fuels. Oil refiners and importers are required to blend or supply their share of a renewable volume obligation (RVO), the compliance cost of which is measured through Renewable Identification Number (RIN) credit requirements. There are additional credits available, such as the Blenders Tax Credit, which is to be replaced in 2025 by the Clean Fuel Production Credit (CFPC). This provides a $1/gallon credit for blending fuels with greater than 50% emissions savings. Individual US states have their own incentives and regulations. California’s Low Carbon Fuel Standard (LCFS) programme is the most ambitious, requiring a reduction in the carbon intensity of road transport fuels in the state over time. Current biofuels production uses traditional technologies such as fermentation to produce ethanol using corn and sugarcane as feedstock and transesterification to produce biodiesel (FAME) using vegetable oil as feedstock. Fuel product quality specifications, however, have limits on the ethanol content of gasoline and FAME content of diesel, which limits the use of these biofuels. The next phase of renewable liquid supply growth is driven by hydroprocessing technology using waste oils and fats as feedstock to produce HVO/renewable diesel and SAF. Our outlook for margins for waste-based biofuel production remains healthy. In fact, biofuel unit margins for some combinations of feedstock and technology are many-fold better than fossil fuel refinery margins in the longer term. So, refiners can improve their competitiveness by
10 15 20
2021
5 0 -5
-10
0 10203040 50 Chemicals (wt%)
60 70
A O PO AO APO OPO AOPO
10 15 20
2022
5 0 -5
0 10203040 50 Chemicals (wt%) -10
60 70
• Higher value from olefins rather than aromatics, with polyolefins adding the most value. • The higher the yield of chemicals, the greater the benefit of petrochemical integration. • Integrated sites are highly competitive compared to standalone fuels refiners with the flexibility to switch yields between fuels and chemicals. This suggests that a pivot towards petrochemicals needs to be material to capture significant value and position a site in the target quadrant. Such an investment is unlikely to be available to all, as any petrochemical investment needs to be sufficiently large to be competitive against grassroots facilities currently under development. A further challenge is that our closure threat analysis shows that although petrochemicals can add value, that value may not be sufficient to overcome the challenges and losses from a competitively weak refining asset. Liquid renewables offer a path to sustainability and circularity, but not without challenges There are alternative approaches to the development of a business that is robust to the energy transition, as legislation requires the continuous reduction in transport carbon emissions through growing renewable energy Figure 6 Refinery NCM uplift from petrochemicals. Key: A: aromatics, O: olefins, PO: polyolefins, AO: aromatics and olefins, APO: aromatics and polyolefins, OPO: olefins and polyolefins, AOPO: aromatics, olefins and polyolefins Source: REM-Chemicals
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