Facing wave of closures, oil refiners turn to biofuels
European and U.S. oil refineries face a wave of closures due to plateauing fuel demand, tightening environmental rules and overseas competition, prompting some owners to opt for an easier alternative – converting plants to produce biofuels. The shock of the coronavirus epidemic crushed global oil demand and as some producers, including BP, say it might never recover to pre-crisis levels, the need to close refineries has accelerated. The International Energy Agency (IEA) said in a recent report that by 2030 around 14per cent of current refining capacity in advanced economies “faces the risk of lower utilisation or closure.” That share could grow to 50per cent in 2040 under a more aggressive transition away from fossil fuels to electric vehicles, the IEA said. Shutting down refineries, some of which are 70 years old, is a costly process which requires dismantling heavy equipment and pipelines and remediating the land. So owners are choosing alternative paths, including converting refinery sites to import terminals, putting them to other industrial uses or, in many cases, switching to cleaner biofuels by processing vegetable oil and waste oils. BP, Total and Eni, outlined in recent months plans to grow their biofuel capacities by two to five fold by 2030 while reducing their global oil refining footprints. The switch is part of companies’ strategies to radically reshape and grow renewables and low-carbon businesses. Other European refiners including Repsol and independent Italian refiner Saras also plan to increase their capacity. Converting refineries to biofuels “makes a lot of sense,” said Rob Turner, partner at PWC specializing in the energy sector. “It allows plans to play a role in the energy transition, creates long-term value and mitigates the costs of a full shutdown and site cleanup.” Although refiners in other developed economies face a similar challenge, it is particularly difficult for Europe where local consumption has been in a steady decline and governments have accelerated efforts to curb carbon emissions. Already, three refineries in Europe have shut down in the wake of the coronavirus epidemic – Total’s Grandpuits plant in northern France, Neste’s Naantali plant in Finland and Gunvor’s Antwerp refinery. Total converted the La Mede refinery in southern France into a biodiesel plant in 2019. Other refiners, whose profits have collapsed due to a sharp drop in demand due to the epidemic, are on the brink. Europe’s biofuel production capacity is expected to grow to around 8 million tonnes per year from the current 3 million tonnes per annum, according to Barclays analyst Joshua Stone. Finnish refiner Neste Oyj, which has invested heavily in renewables and has biofuel facilities in Europe and Singapore, has seen its shares soar in recent months while those of traditional refiners and energy companies dropped. Neste’s shares have gained over 55per cent so far this year while shares of Saras have tumbled 69per cent. COMPETITION In the United States, demand for biofuel is also set to grow rapidly in the coming years due to new fuel quality regulations in states including California. It is set to reach 2 billion gallons per year by 2025 from 21.4 million gallons currently consumed every year, according to Morgan Stanley. There are currently eight projects totalling over 1.1 billion gallons per year of capacity being constructed with targeted completion dates in the next five years. Refiners including Phillips 66 and HollyFrontier Corp have also announced plans to ramp up production. The gap between demand and supply in the United States could lead to a supply shortfall of about 450 million gallons per year, meaning it will need to import biofuels, Morgan Stanley said. With biofuel demand growing sharply on both sides of the Atlantic, prices for feedstock – vegetable oil and oil produced from waste – will likely increase. “An increase of raw material prices is inevitable over the period with so many new biofuel facilities competing for similar sources of feedstock,” Barclays’ Stone said. Profit margins for producing biodiesel will likely erode as a result but are expected to remain robust due to strong demand and their very high starting point at the moment, he said.
Japanese sell out of Australian LNG import project
Australian billionaire Andrew Forrest has taken over full control of a A$250 million ($176 million) gas import terminal in New South Wales, buying out stakes held by Japan’s JERA and Marubeni Corp in a push to speed up the project. Squadron Energy, privately owned by mining magnate Forrest, said on Tuesday it acquired 30.1 per cent of Australian Industrial Energy (AIE) from trading house Marubeni and 19.9 per cent from JERA for an undisclosed price. The deal sees Squadron take full control of the Port Kembla Gas Terminal project that AIE is developing. “Squadron Energy is committed to the expedited development of the gas import terminal with the objective of having the capacity to supply 70 per cent of NSW’s gas needs by late 2022,” Squadron said. JERA, owned by Tokyo Electric Power and Chubu Electric Power, said the liquefied natural gas (LNG) import terminal made sense for a region that faced tight gas supply. “However in our process of selecting and concentrating on business investment projects, we decided to withdraw as a result of a comprehensive internal review,” JERA said in an emailed comment. The company last week set out plans to achieve net zero emissions of carbon dioxide by 2050 to tackle climate change. Marubeni declined to comment. In the Squadron statement, Chairman Michael Masterman said JERA, the world’s biggest LNG buyer, and Marubeni have indicated they would be open to working with AIE in the future, including lining up LNG supplies and building an associated gas-fired power station. AIE has been pushing to reach a final investment decision on the Port Kembla project this year, in order to start importing LNG by 2022, with construction expected to take 14 to 16 months. The project is one of five aiming to import LNG into southeast Australia to fill a looming shortage expected from 2024 as gas supply from the Bass Strait fields off the coast of Victoria rapidly declines.
From CNG to hydrogen, Delhi’s journey towards becoming city with clean air
On Tuesday, Delhi will become the first city in the country to roll out buses run on hydrogen-enriched CNG (HCNG), a fuel cleaner than CNG. However, HCNG is only an “interim” technology and the aim is to finally have hydrogen-run buses in the capital. A four-tonne-per-day compact reformer-based HCNG production plant will be inaugurated at the Rajghat-I bus depot of Delhi Transport Corporation (DTC) on Tuesday by Union minister for petroleum and natural gas Dharmendra Pradhan and Delhi transport minister Kailash Gahlot. From Tuesday itself, 50 buses running on HCNG will hit the capital’s roads. The buses will be run for six months as part of a pilot project. After the trial period, a detailed performance report will be compiled incorporating the fuel economy and the emissions data of the trial buses run with CNG and HCNG fuel mixtures. The report will be submitted to the Supreme Court and Environment Pollution (Prevention and Control) Authority. The apex court had earlier suggested that Delhi could “leapfrog” from the CNG-run to the Hydrogen-run buses instead of procuring electric buses as a solution for Delhi-NCR’s poor air quality. While the technology will take some time to appear in the capital, HCNG will be a step in that direction, even as Delhi government plans to gradually replace its fleet of CNG-run public transport buses with electric buses. The hydrogen fuel cell technology is one of the most efficient and only produces water and heat instead of emissions, making it the cleanest. These buses use hydrogen fuel cells that function like a battery but do not need to be charged. The buses have been developed by Tata Motors and Indian Space Research Organisation, but are not easily available in the market yet. While a source in Delhi government said the possibilities were being explored, HCNG would help the city achieve reduction in emissions. It can be used in engines of the existing public transport buses in Delhi without any major modification. Also, re-fuelling of HCNG blends in vehicles can be achieved with minimum modifications in the CNG infrastructure. The apex court had said hydrogen buses were running successfully in other countries and their procurement might not be a problem as the Tata group has started manufacturing these vehicles in India. Delhi government officials, however, said creating a fleet of purely hydrogen-run buses would take some time while it just needs to modify existing CNG-run buses for adopting HCNG. Delhi government is also looking at inducting 2,000 electric buses in Delhi’s public transport fleet by the end of 2021. In August, transport minister Gahlot had spoken to R K Singh, Union minister of state (independent charge) for power and new and renewable energy via videoconferencing about installation of charging infrastructure in Delhi-NCR as part of the recently launched electric vehicle policy of the state government. After the meeting, Gahlot said Singh had assured to consider subsidies for 1,000 electric buses in the city under the Centre’s Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India (FAME India) Scheme II, which had a Rs 10,000-crore subsidy outlay. Delhi government plans to induct 1,000 electric buses but their delivery schedule got hampered due the Covid-19 outbreak. DTC also plans to induct 1,000 electric buses in its fleet and in a first-of-its-kind public-private partnership under the build-own-operate-transfer (BOOT) model for the corporation, it is going to induct 300 electric buses by selecting an operator for procurement, operation and maintenance of these buses in an 11-year contract. The company will be paid operating cost per kilometre under the operating expenses (OPEX) model. Though DTC had received bids, the tender is yet to be awarded.