Driving Change: The West Coast’s Journey Toward RD and BD and Its Impacts on Supply

Transportation fuels supply on the U.S. West Coast has shifted dramatically in recent years. Restrictions on crude production and petroleum refinery and terminal permitting, opposition to increased vessel traffic, and proposals to limit refinery profits are all putting downward pressure on fuel supply. These have contributed to Phillips 66’s announced refinery closure and Chevron’s company headquarters relocation out of the West Coast.

The leading causes of the shifts in supply and demand on the West Coast, however, are the regulations adopted to reduce greenhouse gas (GHG) emissions in California, Oregon, and Washington. All three states have implemented Low Carbon Fuel (LCF) and Carbon Cap & Trade (C&T) programs to provide incentives to transition transportation fuels from petroleum gasoline and diesel to lower carbon alternatives. Additional incentives provide for the infrastructure necessary to transition from fossil fuels to electricity.

These GHG-reduction programs have been particularly successful at decarbonizing the diesel pool in each state. In this article, we examine how these incentives have caused dramatic changes to the supply and demand of diesel fuels (petroleum diesel and its lower carbon alternatives) up and down the West Coast.

What’s happened to West Coast diesel supply?
The implementation of state-level LCF and C&T programs, combined with additional incentives for biofuels production at the federal level – the Renewable Fuel Standard (RFS), Biomass-Based Diesel Blender’s Tax Credit (BTC), and the Clean Fuels Production Credit (45Z) among others – has led to an enormous influx of renewable diesel (RD) into the West Coast states. Figure 1 below shows that the total supply of RD into the U.S was about 30 thousand barrels per day (KBD) in 2016 with about 20 KBD into the West Coast which was almost completely into California. By the end of 2024, this volume had increased to 200 KBD with most of it either produced in or delivered to California. This growth is expected to continue into 2025 and beyond.

Figure 1. Estimated RD Supply into the United States and West Coast LCFS = California Low Carbon Fuel Standard | CFP = Oregon Clean Fuels Program | CFS = Washington Clean Fuel Standard

RD is supplied by a variety of sources. In the early days, most of it was imported by Neste from its production facility in Singapore. In the last few years, however, RD production facilities have been built on the U.S. Gulf Coast and Mid-continent, and large facilities have started up in Northern California where refineries owned by Phillips 66 (Rodeo) and Marathon (Martinez) have been converted into RD production facilities. Gulf Coast production is mostly shipped by water to the West Coast through the Panama Canal which has recently been restricted, but some is also shipped by rail. Mid-Continent production is shipped by rail to California, Washington, and Oregon, and some of the Oregon volume is shipped by water to California. Mid-Continent volumes are also shipped by rail to Canada, and this flow is likely to increase in the future with the implementation of the Canadian Clean Fuel Regulations (CFR).

Petroleum diesel destined for export markets
This influx of RD has caused the West Coast to transition from being slightly long petroleum diesel (ULSD) to being very long – even as two refineries have converted to renewable fuel production and as the remaining refiners alter their production to minimize diesel and limit exports. The increase in ULSD exports from the West Coast has been absorbed in the Pacific region, mostly to the west coast of Latin America, but competition into this region has increased from new refineries coming online in China and Africa while Mexico attempts to start up its large new refinery.

What about gasoline and jet fuel?
While fossil jet fuel is not regulated under the state LCF programs, renewable jet fuel (commonly known as sustainable aviation fuel, SAF) is allowed to generate credits. SAF volumes are small but growing.

Decarbonization of the gasoline market segment (i.e., light-duty vehicles) is expected to be achieved via electrification, but this is a lengthy and challenging process; recent sales of electric vehicles have plateaued. Stillwater has modelled this transformation extensively, and significant reductions in gasoline demand will likely be delayed to the end of this decade and beyond due to numerous challenges facing the growth in EV market share.

Since California refineries are expensive to own and operate, it is very difficult for them to be profitable exporting excess gasoline. As a result, their operations become uneconomic when they are required to export large volumes of both gasoline and diesel into the Pacific Markets. (This is a significant factor in the Phillips 66 decisions to convert its Northern California refinery to RD production and close its Southern California refinery before the end of 2025.) Consequently, additional changes to refinery operations over the next decade or longer are inevitable.

Bottom Line:
Transportation fuels supply on the U.S. West Coast has shifted dramatically from petroleum fuels in recent years, and this trend is almost certain to continue. With all of the pressures accumulating in California and the rest of the West Coast, Stillwater’s West Coast Supply & Demand Outlook provides an expert look at exactly how the fuel supply will change over the next 5 to 10 years. Contact us to learn more!