Chevron has agreed to pay $3.15 billion to acquire Renewable Energy Group (REG), a producer of biobased diesel. The buy will aid the oil and gas firm’s ambition to make 5.8 billion L of renewable fuels per year by 2030 and reach net-zero greenhouse gas emissions by 2050.
The purchase is in keeping with comments Chevron CEO Michael Wirth made in September, when he said that the firm would spend $3 billion on renewable fuels, $3 billion on carbon capture and offsets, $2 billion on hydrogen, and $2 billion on emissions reduction through 2028.
REG currently produces close to 2 billion L of biobased diesel per year, made from raw materials such as used cooking oil and purpose-grown oil crops. Buying REG, and completing projects like a planned expansion of REG’s facility in Louisiana, will get Chevron about halfway to its 2030 renewable fuel goal, says Jim Lane, editor of Biofuels Digest. Chevron made around 15 billion L of petroleum diesel in 2020.
Chevron anticipates profits from REG will reach more than $500 million per year by 2025. The cash should allow for additional biofuel investments before 2028 without overshooting Wirth’s spending plan, Lane says.
Though REG is well-regarded in the biofuel business, it has struggled to attract capital at times because of the uncertainty of US tax incentives for green fuels, Lane says. “Chevron has the size and capital structure to give stability to REG should, for example, renewable fuel tax credits get hung up again in Congress,” he says.
The investment shows that the oil and gas industry is serious about renewable fuels, according to Joanne Ivancic, executive director of Advanced Biofuels USA, an advocacy group. “Chevron understands the powerful renewable fuels market forces in California—and that they could spread around the country,” she says.
“I’m expecting this is an early step toward consolidation of transportation fuels—renewable and fossil,” Ivancic says. Big oil, she says, is looking to establish control of renewable feedstocks as biofuel becomes competitive with fossil fuel. “If you think about it, soybean fields, canola fields, and other lipid sources are like the easy-access oil fields.”