The Van Trump Report

U.S. Renewable Diesel Production is Racing Ahead of Biodiesel

U.S. production capacity for renewable diesel is set to explode over the next few years if the projects currently in the pipeline come to fruition. Based on announcements projects already under construction, the U.S. Energy Information Administration (EIA) estimates renewable diesel capacity will reach 330,000 barrels per day by the end of 2024, up from just 38,000 barrels per day in 2020. While that could mark a stunning +750% increase in production, renewable diesel would still only account for 5% of total U.S. diesel production capacity. That growth could push its production past that of biodiesel, however, which is actually seen declining this year. Both fuel types may find it tough to expand production in the near future with record-high feedstock costs limiting growth and drawing criticism from food groups.

For those not familiar, renewable diesel and biodiesel are not the same. According to the EIA, renewable diesel is chemically the same as petroleum diesel and nearly identical in its performance characteristics. It can be blended into petroleum diesel at any level, making it different from biodiesel, which can only be blended at rates between 2% and 20%. Biodiesel, sometimes referred to as fatty acid methyl ester (or FAME), contains oxygen atoms, which makes it chemically distinct from regular ultra-low sulfur diesel (ULSD). Renewable diesel on the other hand uses the same feedstocks as biodiesel but is chemically identical to ULSD that can be used as a drop-in replacement for all current diesel engines.

Renewable diesel receives some of the top greenhouse gas (GHG) reduction scores among existing programs like the Renewable Fuel Standard (RFS) and the California Low-Carbon Fuel Standard (LCFS). As a result, EIA says participants in those programs are increasingly using renewable diesel to meet rising renewable fuel targets rather than biodiesel. Western states like California, Oregon, and Washington are expected to be among the biggest consumers of renewable diesel, again as a result of the LCFS program. That is also where most new production capacity will be coming online, along with a few on the Gulf Coast. Interestingly, several energy companies plan to convert some existing facilities to produce renewable diesel, including Marathon Petroleum and Phillips 66.  

EIA cautions that one of the primary risks to the expansion in renewable diesel and biodiesel production capacity is the availability of fat, oil, and grease feedstocks. Prices for most renewable diesel feedstocks have increased as renewable diesel production has increased, according to the EIA. At the beginning of August, Carl Icahn’s CVR Energy paused its plans to produce around 7,000 barrels per day of renewable diesel due to high feedstock prices. CVR Chief Executive David Lamp also attributed the spike in those prices to production coming online at new facilities in the U.S.

Lamp also noted that renewable diesel producers with feedstock contract expirations coming up will likely be forced to give up some of the margins they currently enjoy. The EIA says that biodiesel and renewable diesel producers both have been relying on incentives such as the biomass-based diesel tax credit and tradeable credit prices for renewable diesel in the RFS and LCFS to make a profit.

Not surprisingly, the U.S. oil industry has long been opposed to biofuel mandates, which they say hurts struggling small refineries. Now, they are being joined by some food industry groups that feel the incentive programs threaten food supplies. The American Bakers Association recently told officials at the Environmental Protection Agency (EPA) and members of Congress that supplies of key ingredients such as soy and canola oil could run low amid an increase in demand for biofuels made from the same plants. 

Goldman Sachs earlier this year estimated a 13-billion pound feedstock deficit by 2024 as more processing capacity starts up. By their estimates, biodiesel requires around 7.5 pounds of feedstock per gallon, renewable diesel needs about 8.5 pounds per gallon. Though other, lower-carbon intensive feedstocks like tallow and used cooking oil are gaining traction, producers still rely mostly on corn and soybean oil. The Ag world is waiting to see how Washington is going to play their hand when it comes to biofuels and renewables. Stay tuned… (Sources: EIA, Reuters, JDSupra)

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