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Chevron (CVX) Shuts Down Biodiesel Plants Amid Market Challenges

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Chevron Corporation (CVX - Free Report) recently confirmed the indefinite idling of two biodiesel production facilities in the U.S. Midwest due to weakening economics for renewable fuels. This decision comes as a significant move for the second-largest U.S. oil producer, which had previously acquired biodiesel maker Renewable Energy Group for $3.15 billion in 2022. The acquisition is aimed toward expanding CVX’s renewable fuels production to 100,000 barrels per day by 2030, adding 10 biodiesel plants and one renewable diesel facility to its portfolio.


The idled plants, located in Ralston, IA, and Madison, WI, have a combined capacity of processing 50 million gallons per year of biodiesel. Despite the potential of biodiesel as a cleaner burning fuel made from agricultural oils and animal fats, its production is costlier than that of petroleum-based diesel. The biodiesel production also generates credits that can offset production costs, making it an attractive option for companies like Chevron. However, the unfavorable market conditions have forced it to idle its plants.

Market Conditions

Biodiesel prices have seen a significant decline in recent months due to increased supplies and a fall in the value of renewable credits. For instance, the price of a blend of 20% biodiesel dropped from $4.80 per gallon of gasoline equivalent in October 2022 to $3.45 last month.

This decline has been exacerbated by President Joe Biden's administration's decision to increase the number of biofuels that oil refiners must blend into the nation's fuel mix over the next three years. However, the plan includes lower mandates for corn-based ethanol, which has further contributed to the fall in credit prices.


Despite the current challenges facing biodiesel production, the production of renewable diesel, another type of fuel produced with animal fats, is expected to reach 230,000 barrels per day this year, according to the U.S. Energy Information Administration. Producers of renewable diesel are expected to generate more renewable credits due to their lower carbon intensity score compared with biodiesel.


CVX's decision to indefinitely idle two biodiesel production facilities in the U.S. Midwest reflects the challenges facing the biodiesel industry, particularly due to changing market conditions and government policies. While biodiesel remains a cleaner alternative to petroleum-based diesel, its production costs and market dynamics continue to present challenges for companies like Chevron. However, the growth of renewable diesel production offers a potential avenue for companies to continue their commitment to renewable fuels while navigating the complexities of the current market landscape.

Zacks Rank and Key Picks

Currently, CVX carries a Zacks Rank #5 (Strong Sell).  

Investors interested in the energy sector might look at some better-ranked stocks like Murphy USA Inc. (MUSA - Free Report) and  Energy Transfer LP (ET - Free Report) , both sporting a Zacks Rank #1 (Strong Buy), and Subsea 7 S.A. (SUBCY - Free Report) , carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy USA is valued at around $8.72 billion. In the past year, its shares have risen 61.5%.

MUSA is involved in the marketing of retail motor fuel products and convenience merchandise, operating retail stores under the brands Murphy USA, Murphy Express and QuickChek.

Energy Transfer is valued at $50.45 billion. The company currently pays a dividend of $1.26 per share, or 8.41%, on an annual basis.

ET is an independent energy company, principally engaged in the acquisition, exploration, development and production of crude oil and natural gas.

Subsea 7 is valued at $4.22 billion. The company currently pays a dividend of 38 cents per share, or 2.77%, on an annual basis.

SUBCY offers offshore project services for the energy industry. It specializes in subsea field development, covering project management, design, engineering, procurement, fabrication, survey, installation and commissioning of seabed production facilities.

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