Phillips 66 Renewable Fuels Strategy: $1.25 B Rodeo Plant, 800 M Gallon Capacity, DHL Express Deal, and Policy Risks (2021 to 2026)

Renewable Fuel Economics, Phillips 66 $380 M Loss Despite 40, 000 BPD Output

The conversion of legacy petroleum refineries into large-scale renewable fuel facilities is now operationally proven but remains economically precarious, with financial viability critically dependent on government subsidies. Phillips 66 exemplifies this dynamic, having successfully converted its Rodeo, California, refinery into a plant producing at a rate of 40, 000 barrels per day (BPD). However, this operational achievement is overshadowed by significant financial headwinds, as the company’s renewable fuels segment posted a $380 million loss in 2025, exposing the high costs and reliance on a volatile policy environment.

• Between 2021 and 2024, the strategy was defined by capital commitment and construction. Phillips 66 made its final investment decision (FID) in 2022 for the “Rodeo Renewed” project, dedicating billions to transform the 120, 000 BPD crude oil facility into a 50, 000 BPD renewable fuels hub, and reached full capacity in June 2024.
• From 2025 onward, the narrative shifted from construction to financial performance. Despite the plant demonstrating production rates near its nameplate capacity, the high cost of feedstocks and operations, combined with the market structure for environmental credits, resulted in the segment’s losses nearly doubling from $198 million in the prior year.
• The core challenge is the cost gap with conventional fuels, which is currently bridged by incentives like California’s Low Carbon Fuel Standard (LCFS). These credits can be worth approximately $3.32 per gallon for renewable diesel, making the segment’s profitability a direct function of regulatory policy rather than standalone market economics.
• The planned expansion into Sustainable Aviation Fuel (SAF) in 2025 introduces further economic complexity. SAF is more expensive to produce than renewable diesel and currently benefits from a less favorable subsidy structure, intensifying the need for new, supportive policies like California’s proposed SAF tax credit.

$1.25 B Investment, Phillips 66 Renewable Fuels Capital Program

Phillips 66 executed a highly concentrated capital strategy, focusing the bulk of its sustainability investment on a single, large-scale project rather than a diversified portfolio of smaller initiatives. This approach accelerated its entry into the renewable fuels market but also concentrated its financial risk into one asset whose profitability is not yet proven.

• The cornerstone of the company’s investment is the $1.25 billion capital expenditure for the conversion of the Rodeo Renewable Energy Complex, which was part of a broader $1.2 billion capital program for the Renewable Fuels segment over three years ending in 2025.
• While the renewable fuels segment absorbed significant capital, the company also pursued enterprise-wide cost efficiencies, achieving a $1.5 billion run-rate cost reduction by 2025 through business transformation initiatives, a crucial step to offset high-cost transition projects.
• The financial results from 2025 reveal the immediate return on this investment has been negative. The $380 million loss in the renewable fuels segment stands in sharp contrast to the company’s overall adjusted earnings of $4.4 billion, highlighting that the sustainability-focused segment is currently a drag on corporate profitability.

Table: Phillips 66 Key Sustainability-Related Investments

Phillips 66 Secures 4 Key Offtake Agreements for SAF and Renewable Diesel (2021-2026)

To de-risk the massive output from its Rodeo facility, Phillips 66 has proactively secured a series of commercial offtake and supply agreements. These partnerships establish a foundational demand for its renewable diesel and SAF, providing a degree of revenue certainty in a nascent market and linking its production directly to corporate decarbonization goals in the aviation and logistics sectors.

• A multi-year agreement with DHL Express, signed in November 2025, established a key offtake channel for SAF produced at the Rodeo facility. This deal directly supports the logistics giant’s goal of achieving net-zero emissions.
• The company established a long-term, 100% supply and offtake agreement with SAF producer XCF Global. Under the deal, Phillips 66 provides renewable feedstocks to XCF Global’s facilities and, in return, takes 100% of the produced SAF, starting with a plant capable of 38 million gallons per year.
• In the aviation sector, an agreement was signed in June 2025 to supply SAF to United Airlines at its Chicago O’Hare International Airport hub, cementing Phillips 66’s role as a key fuel provider to a major U.S. carrier.
• The company also supports corporate decarbonization efforts through its supply chains. In April 2025, it was announced that SAF produced at the Phillips 66 Humberside refinery in the UK would be used by Microsoft to address its Scope 3 business travel emissions.

Table: Phillips 66 Renewable Fuels Commercial Agreements

California vs. UK, Phillips 66 Geographic Sustainability Strategy

The sustainability strategy of Phillips 66 is geographically concentrated in regions with robust regulatory frameworks and opportunities for large-scale industrial decarbonization. Its efforts are anchored in California, which provides the critical policy support for its renewable fuels business, and the United Kingdom, which serves as its hub for developing capabilities in green hydrogen and carbon capture.

• In the United States, the focus is almost exclusively on California’s Low Carbon Fuel Standard (LCFS) market. The conversion of the Rodeo refinery was a direct response to this state-level incentive structure. The company is also part of an 11-member consortium exploring a major carbon capture and storage (CCS) hub in Houston, though this remains an early-stage initiative compared to the operational Rodeo plant.
• In the United Kingdom, Phillips 66 is leveraging its Humber Refinery as a platform for next-generation energy systems. It is a key partner in the Humber Zero project, a major decarbonization effort aiming to capture up to 8 million tonnes of CO 2 per year.
• The UK strategy is heavily reliant on partnerships to build out the hydrogen economy. A March 2024 collaboration with Uniper aims to develop a green hydrogen supply for the Humber Refinery, complementing its involvement in the Gigastack consortium with Orsted and ITM Power.
• The contrast is stark: the U.S. strategy is centered on a single, massive, and operational asset in renewable fuels, while the UK strategy involves a portfolio of collaborative, earlier-stage projects in hydrogen and CCS, reflecting different levels of technological maturity and regional policy priorities.

Commercial Scale Production, Phillips 66 Renewable Diesel and SAF Technology

Phillips 66 has prioritized proven, commercially ready technologies that leverage its existing infrastructure and core competencies, focusing on the conversion of refinery assets to produce renewable fuels. This strategy fast-tracked its entry into the low-carbon fuels market but has so far left more nascent technologies like hydrogen and CCS in the collaborative development phase.

• From 2021 to 2024, the company’s focus was on the engineering and construction required to adapt hydro-processing technology for renewable feedstocks like used cooking oil and soybean oil at an industrial scale. This phase culminated in the Rodeo facility ceasing crude oil processing and beginning renewable diesel production in early 2024.
• The period from 2025 to today validates the technical maturity of this approach. The Rodeo facility is operating successfully, producing 40, 000 BPD of renewable diesel. The next maturity milestone is the start of SAF production, slated for Q 1 2025, which requires further process optimization.
• In contrast, the company’s approach to hydrogen and CCS remains in a much earlier stage of maturity. Its involvement in these areas, such as the Humber Zero project in the UK and a 2021 agreement with Plug Power in the U.S., is characterized by partnerships and feasibility studies rather than unilateral capital investment in proprietary technology.
• This technological strategy is pragmatic: deploy capital at scale on what is commercially viable today (renewable diesel) while sharing the risk and cost of developing tomorrow’s solutions (hydrogen and CCS) with industrial partners.

SWOT Analysis, Phillips 66 Renewable Fuels Execution and Market Exposure

The renewable fuels strategy of Phillips 66 is defined by a powerful combination of industrial-scale strengths and acute external threats. The company has successfully leveraged its operational expertise to build a world-class production asset, but its financial success is almost entirely contingent on external policy factors beyond its direct control.

Table: SWOT Analysis for Phillips 66 Renewable Fuels Strategy

Phillips 66 2026 Outlook: Profitability Hinges on California’s SAF Tax Credit

The single most critical variable for the Phillips 66 renewable fuels business over the next 12 months is the legislative outcome of California’s proposed tax credit for Sustainable Aviation Fuel. This policy decision will directly determine the economic viability of shifting production at Rodeo toward higher-value SAF and presents the clearest path for the $1.25 billion asset to begin generating a positive financial return.

• If a substantial SAF tax credit (e.g., up to $2 per gallon) is approved, watch for Phillips 66 to rapidly optimize the Rodeo facility to maximize SAF output. This would signal a significant improvement in the segment’s financial outlook for 2026 and validate the company’s long-term bet.
• If the tax credit fails or is significantly weakened, watch for the company to maintain its production focus on renewable diesel. This scenario would likely lead to continued financial losses in the segment and increase pressure to further reduce operating costs or slow the pace of other low-carbon investments.
• These could be happening in the background: increased corporate lobbying efforts in Sacramento to influence the final structure of the SAF credit, negotiation of additional conditional offtake agreements for SAF that are contingent on the new policy, and an intensified search for lower-cost feedstock supply chains to improve underlying margins.

The questions your competitors are already asking

This report covers one angle of Phillips 66’s renewable fuels strategy. The questions that matter most depend on your work.

• Other US refinery conversion projects renewable diesel
• Renewable diesel feedstock supply and cost trends
• California sustainable aviation fuel tax credit status
• Corporate sustainable aviation fuel offtake agreements

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