Neste pays $1b to create renewable fuels JV with Marathon at Martinez

Scharfsinn86/iStock via Getty Images

After markets closed Tuesday, Neste (OTCPK:NTOIF) and Marathon (NYSE:MPC) announced a renewable fuels joint venture, whereby the Finnish fuels producer will pay Marathon (MPC) $1b for 50% of its Martinez project. The project is expected to have production capacity of 260mg/y by the 2nd half of 2022, and 730mg/y by the end of 2023. The conversion is budgeted to cost $1.2b.

Neste (OTCPK:NTOIF) is a Helsinki-based refinery that has made a name for itself by converting a majority of its oil refining assets to renewable diesel production. The Company is unique amongst peers, as it has developed sophisticated supply chains to source waste and residues, rather than relying on edible food products for feedstock.

The Martinez refinery has capacity to refine ~160kb/d of crude oil and serves the San Francisco market. Post conversion, at peak capacity, the plant will produce ~48kboe/d. When Martinez is fully converted, local fuel supplies to the market will fall, likely increasing margins for all refiners in the region. Additionally, the Marathon (MPC) and Neste (OTCPK:NTOIF) joint venture will benefit from potentially lucrative renewable fuel blending mandates and California carbon credits.

The transaction is subject to customary closing conditions, including obtaining permits, which depend upon certification of a final Environmental Impact report. The transaction follows Chevron's (NYSE:CVX) acquisition of Renewable Energy (NASDAQ:REGI) Monday. By lowering total refined product supply, while collecting substantial subsidies, refiners have developed a new, highly profitable market and moved aggressively to capitalize in recent years. In the case of this joint venture, the conversion is unlikely to increase food prices, as Neste (OTCPK:NTOIF) is a specialist in sourcing waste and residue, unlike peers who rely heavily on soybeans for feedstock.

Comments

[jacksalmon]

Either MPC is not very sure that this will be a successful venture; or it knows that it can't do the job like Neste can with is proven track record in this business. Otherwise, why cut in some other company on the future returns.

[Shelby500]

Good move for MPC to offload 50% of the risk and tactfully reduce their investment while being able to claim the green mantra when needed.

[sbandara]

730 milligrams per year ;-)

[mrbuseco2]

These renewable fuels have been around for decades and have never gone anywhere. I've been watching the chase for ethanol and bio-diesel for decades. Ethanol takes corn away from pork production, I assume other bio-fuel would have similar adverse affect because you have to compete for grain and with modern efficiency there is not that much waste. A dog that is not barking is methane from livestock sewage treatment. Design your pork and dairy farms with a sewage treatment facility to create fertilizer and capture the methane to provide power. And every city should have methane capture in their facilities as well.

[aochamp]

@mrbuseco2 But doesn't methane contribute to global warming also?

[mrbuseco2]

@aochamp Less so if you capture and burn it. The methane is there regardless, so why waste it? And it is renewable. A quote I saw was methane recycles itself in an 8-year cycle from your fart, to the atmosphere, to CO2 and H20 making the plants grow to you eating the plants and farting again.

[User 14418772]

@mrbuseco2 so we all need to walk around with tubes up our rear ends?