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A refinery is completed on time and under budget

Valero and Darling Ingredients have finished a SAF conversion project on time and under budget, providing a counterpoint to a string of busted clean fuels projects.

Valero and Darling Ingredients have successfully completed the construction of their sustainable aviation fuel (SAF) production facility in Port Arthur, Texas, ahead of schedule and under budget, marking a milestone for the SAF market.

The plant, Diamond Green Diesel, a JV between the companies, has capacity to produce 470 million gallons per year of renewable diesel, and has now been updated to allow for upgrading of half (235 million gallons) of the production to sustainable aviation fuel.

The early mechanical completion – it was originally set for early 2025 – sets the plant up to be one of the largest producers of SAF in the U.S., if not the world. Calumet through Montana Renewables has a production capacity of 30 million gallons per year, with plans to expand to 300 million gallons in the next few years. Meanwhile Phillips 66 has designed its Rodeo Renewed refinery to produce more than 300 million gallons per year of SAF, though is not yet producing meaningful quantities.

The completion comes after ugly bankruptcies for Fulcrum Bioenergy and Vertex Energy, and amid struggles for Bakersfield Renewable Fuels, a California renewable diesel project.

Valero’s Chief Commercial Officer Gary Simmons emphasized Valero’s growing commercial arrangements for SAF with airlines like Southwest and JetBlue, alongside freight carrier DHL.

“When we made the decision to fund the project, we said we expected it to exceed our minimum return threshold of after tax, 25% – still confident with the contracts we have in place and the volumes sold that we’ll do that,” Simmons said.

Upcoming legislative changes, such as California’s Low Carbon Fuel Standard (LCFS) adjustments, are expected to strengthen incentives for Valero’s products beginning in 2025. 

Senior Vice President Eric Fisher remarked on how the Inflation Reduction Act (IRA) further enhances Valero’s position, as it transitions from a blenders tax credit to a production tax credit, which benefits domestically produced products over biofuels imports.

“The IRA with the switch from the blenders tax credit to the production tax credit does create a lot of tailwind for us because that will switch from $1 for everyone to a CI base where we’re the most advantaged,” Fisher said, “and it does not allow importers to qualify for the credit.”

Valero’s use of waste oils gives the company an advantage over biodiesel and vegetable oil-based renewable diesel. Waste oils, especially sourced through Valero’s partnership with Darling, are more cost-effective and provide a resilient supply chain, with access to feedstock from South America and Europe. “The world is recognizing that waste oils are still the most advantaged,” Fisher said.

Looking ahead, the expected increase in Renewable Identification Numbers (RINs) will provide further support.

“As the blenders tax credit goes away,” Fisher said, “biodiesel will be significantly underwater without an adjustment to the RINs. So the last piece that I think is positive is the expectation that RINs will have to go up to offset the loss that biodiesel and vegetable oil renewable diesel takes as we migrate to the PTC.” He added: “There’s a lot of expectation that RINs will increase. That won’t happen overnight, but if that does, it is a significant tailwind to Diamond Green Diesel and renewable diesel.”

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