There are many low-emission biofuels available, which is impacting the profit margins of refiners and posing a threat to the growth of the industry. This is due to American fuel manufacturers rushing to reconfigure their plants to produce renewable diesel.
“Turmoil in the biomass-based diesel sector, an umbrella term for renewable diesel and biodiesel, could become a roadblock to future investments in biofuels, the US Energy Information Administration (EIA) said this year (2024). That could potentially stall the transition away from traditional fossil fuels,” stated Reuters in its report.
The United States Energy Information Administration (EIA) warned in 2024 that unrest in the biomass-based diesel industry, which includes biodiesel and renewable diesel, may prevent further investments in biofuels. That might put a stop to the move away from conventional fossil fuels.
A number of these biofuel manufacturers have already closed their doors this year, and industry insiders predict that more will follow suit before the year is up.
After the COVID-19 pandemic, the ability of the United States to produce renewable diesel almost doubled, from 791 million gallons annually in 2021 to 3 billion gallons by 2023, as refiners looked for ways to withstand the shift away from their petroleum-based goods.
By 2023, the combined output capacity of biomass-based diesel and biodiesel in the United States will have exceeded 5 billion gallons. Because biodiesel can only be used as a blend, renewable diesel is a complete replacement for diesel, which makes the former more appealing to producers.
Their demand is nearly entirely dependent on government blending mandates and tax subsidies. Both are more expensive to generate than petroleum-based diesel and compete for the same feedstock, biomass, such as spent cooking oil and vegetable oils.
However, according to Scott Irwin, a professor at the University of Illinois, blending targets for biomass-based diesel, set under the United States Environmental Protection Agency’s Renewable Fuel Standards (RFS) programme, produce a combined demand of just up to 4.5 billion gallons every year until 2025.
That, even before accounting for imports, is less than the current level of domestic production. Irwin projects that the United States’ potential to produce renewable fuel and biodiesel will surpass 7 billion gallons by 2025. The main issue is that market players persuaded themselves that the EPA would require it if they built it. That was untrue, Irwin claimed.
The excess supply has resulted in the lowest pricing in five years for Renewable Identification Numbers (RINs), which are credits that refiners receive under the RFS for manufacturing or importing biofuels. For the first time since 2019, D4 RINs associated with biodiesel and renewable fuel dropped below 40 cents per gallon in February.
Last week, the price per gallon was approximately 44.50 cents, a decrease from the average of $1.50 between 2021 and 2023.
Industry reaction
In certain areas of their renewable fuels businesses, refiners are struggling. Renewable fuel margins for independent refiner Valero dropped 21.5% year over year to $1.02 per gallon in the first quarter.
The renewables segment of rival HF Sinclair saw an adjusted loss of $18.6 million before interest, tax, depreciation, and amortisation in the first quarter, compared to a $3 million profit the previous year, due to reduced credit pricing, the company said.
With the expectation of continuing macroeconomic headwinds for biofuel until the end of the year, Vertex Energy intends to revert its 8,000 barrels per day (bpd) renewable diesel facility in Alabama to the production of fossil fuels. Less than a year had passed since it started selling renewable diesel from this plant.
According to Zander Capozzola, vice president of renewable fuels at consulting firm AEGIS Hedging, other new facilities are operating at about 50% capacity.
The big American oil company Chevron said in March that it had closed two biodiesel units due to adverse market conditions. In addition to competing with renewable diesel as a feedstock, the manufacture of biodiesel produces fewer RINs, further undermining its position in the wake of the renewable diesel boom.
Despite the excess supply, major manufacturers of renewable diesel are holding their ground, believing they can sustain reduced profit margins until smaller competitors are forced out of the market, Capozzola claims.
Trail ahead
According to market players, US refiners with extra renewable diesel are likely to look for alternative markets in Canada and Europe. Local producers, however, will present fierce competition for them.
Reuters noted that the Imperial Oil of Canada is moving on with plans to construct a 20,000-bpd renewable diesel facility close to Edmonton. This plant will be able to manufacture the fuel at a lower cost than it would have to import it from the United States.
Braya Renewable Fuels, which started producing renewable diesel at the Come-by-Chance refinery in Newfoundland and Labrador in February, thinks that operational problems would probably cause a delay in the addition of new supplies.
At its plant, Braya produces up to 18,000 barrels per day of renewable fuel, which it distributes via a marketing partner.
But the largest boost to the US renewable diesel business is probably going to come next year when the Clean Fuel Production Tax Credit (PTC) replaces the biomass-based Diesel Blender’s Tax Credit (BTC).
According to Irwin, BTC exacerbates the domestic oversupply by enabling importers to claim the same tax benefits as domestic manufacturers. When PTC takes effect the following year, imports will be less attractive and the supply side of the market will at the very least marginally improve.
The EIA data pointed out that the United States imported approximately 900 million gallons of biodiesel and renewable fuel in the previous year.
Imports will probably increase during the remainder of the year as importers try to take advantage of the final few tax incentives available. In the first two months of this year, imports were approximately 200 million gallons, Irwin asserted.
“Next year, things don’t seem as dire, but things will undoubtedly become much worse before they get better,” he added.
Expansion despite profit concerns
As of February 6, the US Energy Information Administration’s most recent Short-Term Energy Outlook indicates that the government anticipates a 30% annual rise in renewable diesel production in both 2024 and 2025.
According to the STEO, the EIA currently projects that the daily average production of renewable diesel will be about 230,000 barrels in 2024 and 290,000 barrels in 2025. By the end of 2023, production was averaging about 200,000 barrels per day.
In the STEO, the EIA also disclosed that, in response to rumours that Phillips 66 intends to permanently cease processing crude oil at its Rodeo refinery in California, it is lowering its prediction for US crude oil refining capacity by 120,000 barrels per day starting in March 2024.
The Rodeo facility used to produce around 60,000 barrels of distillate fuel and 65,000 barrels of motor gasoline per day, according to the EIA. Phillips 66 is converting the facility to create renewable diesel. Once the project is completed, the Rodeo biorefinery is expected to produce about 50,000 barrels of renewable diesel per day.
The capacity to produce renewable diesel has increased dramatically in recent years. According to EIA data, capacity increased from 1.75 billion gallons annually in January 2022 to 3.857 billion gallons by November 2023.
Meanwhile, in the Southeast US, Gateway Terminals, Terminal Investment Corp., Colonial Oil Industries Inc., and Neste are bringing renewable diesel to the southeastern US for commercial trucks at the Port of Savannah.
Due to increased West Coast demand, sourcing renewable diesel in the US and East Coast has been difficult, Joanne Caldwell, head of risk management and sustainability at Georgia Ports Authority, told Transport Topics.
“GPA is pleased that TICO, through Colonial Oil, secured Neste’s renewable diesel,” she added.
TICO supplies GPA with jockey trucks, fuel, and equipment to dray containers, Caldwell said. TICO commenced container operations at the Port of Savannah 50 years ago.
Caldwell said TICO had a contract with Colonial Oil to buy Neste renewable diesel fuel. Jockey trucks at GPA’s Garden City Terminal use biofuel. Gateway Terminals LLC Savannah operates high-performance container terminals.
She noted that the GPA and TICO’s recent change from normal diesel to renewable fuel did not affect their financial contract. Renewable diesel reduces production and refining emissions by using animal fats and waste oils. By switching to renewable fuel, GPA, Georgia, and the world minimise carbon dioxide emissions.
Caldwell said GPA is studying ways to power port equipment using renewables and other alternative fuels. Colonial Oil Industries, one of the major US independent oil and gas firms, established a renewable diesel supply collaboration with Neste, TICO, and Gateway Terminals a few months ago.
Gateway Terminals CEO Kevin Price said, “Renewable diesel is a welcome choice that integrates well into current delivery models and reduces carbon and particulate matter in the quest to lower supply chain emissions. We are pleased that Colonial Oil is introducing this product to improve global air quality.”
The question is whether to retread. Some maintenance managers constantly dispute buying new tyres or retreading. In California, where regulators are aggressively winding down fossil fuels, companies are increasingly turning to renewable diesel as an easy and cost-effective way to lower emissions because it requires no modifications to switch from traditional diesel fuel.
This alliance expands renewable diesel throughout Georgia and the Southeast. Neste will supply the renewable diesel, according to Colonia Oil Industries. Neste is a leader in providing renewable and circular feedstock solutions for polymers and chemicals.
Colonial Oil President Bob Kenyon said his company is happy to offer sustainable fuels for land and maritime customers. Colonial has operated for almost a century.
“Our strategic partnership with Neste accelerates our objective to be the energy partner of choice in our markets,” Kenyon said.
Neste intends to produce 1.9 billion gallons of renewable products worldwide in 2024. It was one of the first to deliver renewable diesel to California and Oregon and is fast growing its production, filling station network, and distribution to satisfy rising US demand.
Its March 1 2023 Annual Report stated that the company helped clients reduce greenhouse gas emissions by 11 million tons last year. All diesel-powered vehicles can use Neste MY Renewable Diesel.
The research said that it did not require engine or logistics upgrades. Our customers reduced their GHG emissions by up to 95% (European market methodology) or 75% (North American market) by switching from fossil diesel to Neste MY Renewable Diesel in 2023.