Persistent volatility drives consistent uncertainty for renewable diesel and biodiesel producers. With increased regulatory action and production growth on the horizon, alongside mounting geopolitical tensions, stakeholders need a weekly insight into their operational costs and returns.
What happened?
US renewable diesel (RD) margins rose for a second consecutive week as diesel strength built on continued weakness in feedstock pricing. Losses in LCFS credits provided headwinds to the margin environment, while RINs were little changed.
November total RIN generation came in at 1.99 billion credits, down 11% from the previous month when total RIN generation reached a record 2.1 billion credits. D4 generation came in at 680 million credits, down 7% from the previous month’s level. Total D4 production reached 7.12 billion credits and is on pace to reach 7.76 billion credits by years’ end. Domestic renewable diesel production accounted for 49.5% of total D4 output, up from 47% the month prior. Foreign renewable diesel made up 11% of total D4 generation, steady from last month’s share. Domestic and imported biodiesel accounted for 39% of total D4 output, down from 41% the month prior, with no foreign biodiesel reported. No D4 credits for SAF were reported in November after accounting for less than one percentage point in October.
The EIA projected 2023 renewable diesel production of 174,000 Bbl/d in its December Short-Term Energy Outlook, a 1.8% increase from November. The forecast for 2024 production was cut by 0.8% to 236,000 Bbl/d. Demand for 2023 was forecast 1,000 Bbl/d higher at 195,000 Bbl/d, while the 2024 demand outlook was cut by 2,000 Bbl/d to 260,000 Bbl/d. The December STEO showed 2023 net renewable diesel imports unchanged at 23,000 Bbl/d for 2023 and 24,000 Bbl/d for 2023.
The US Treasury Department issued guidance on December 15, 2023, clarifying how SAF will be eligible for tax credits worth as much as $1.75/gallon under the Inflation Reduction Act. The SAF tax credit is only issued to fuels which reduce lifecycle GHG emissions 50% below petroleum-derived jet fuel. The Treasury Department plans to calculate emissions intensity using a modified version of the GREEET model planned for March 1, 2024. The adjusted GREET model could open the door for corn-based ethanol to contribute to SAF supply.
Recent fires at Marathon’s Martinez refinery triggered a federal investigation by the Chemical Safety and Hazard Investigation Board (CSB). Fires on November 11 and November 19 at a hydrodeoxygenation (HDO) unit led to spills of RD. Marathon aims to achieve 48,000 Bbl/d of production at its Martinez, California facility by year-end.
Calumet restarted its 15,000 Bbl/d Great Falls, Montana, facility following a November turnaround. The plant is currently running at 12,000 Bbl/d, a 20% reduction on nameplate. Calumet reported no plans for 2024 maintenance and aims to add 3,000 Bbl,d of capacity in 2025. Lower runs leading up to the turnaround allowed Calumet to build up inventories of renewable feedstock. The facility runs beef tallow, SBO, canola oil and camelina oil. Calumet has a multi-year SAF offtake agreement in place with Shell.
The 5th US Circuit Court of Appeals ruled to block denials of SREs for six refineries. The SREs cover Calumet’s 57,000 Bbl/d Shreveport, Louisiana refinery, Placid Refining’s 75,000 Bbl/d Port Allen, Louisiana refinery, Ergon Refining’s 26,500 Bbl,d Vicksburg, Mississippi refinery, Ergon’s 23,000 Bbl,d West Virginia refinery, CVR’s 74,500 Bbl/d Wynnewood, Oklahoma refinery, and Allegiance Refining’s 21,000 Bbl/d San Antonio refinery. The court’s decision said the EPA’s blanket SRE rejection was “impermissibly retroactive; contrary to law; and counter to the record evidence.” The decision will add a bearish undertone to an already oversupplied marketplace, save for D3 credits.
Oregon released second quarter Clean Fuel Program (OCFP) showed renewable diesel as the top-credit generating fuel at 35 percent of total OCFP credit generation, taking quarterly generation to a fresh record. Renewable diesel and biodiesel combined made up 25 percent of the state’s diesel pool, demonstrating the increasing penetration of RD into Oregon. OCFP credits shed nearly $60/t ahead of the release of the report yet continue to trade at hefty premiums to California LCFS credits, making Oregon an economically advantaged destination depending on freight and logistics costs.
Federal judges defended the EPA’s approach to setting the 2020-2022 blending mandates. US refiners have complained blend requirements were too high based on how the EPA adjusted blending targets to account for projected Small Refinery Exemptions (SREs). The EPA is also facing a separate lawsuit for its 2022 cellulosic biofuel requirement, with biofuel groups arguing that targets were set too low based on projections of actual production and not accounting for the availability of carryover credits for compliance. Refiners have also filed a series of lawsuits in the DC Circuit court challenging the EPA’s move to reject all outstanding SREs this year.
Calumet plans to add 3,000 Bbl/d of capacity to its 15,000 Bbl/d, Great Falls, Montana Renewables refinery by 2025. The Great Falls plant is currently undergoing repairs to a steam recovery system and moved forward a turnaround originally planned for 2024 to November. Calumet is mulling plans to ultimately maximize SAF production at the Great Falls facility.
Louis Dreyfus aims to build a 1.5 t/year soybean processing plant in Upper Sandusky, Ohio with construction to begin in early 2024. The plant is expected to be completed by 2026 and will have a capacity to produce 320,000 t/yr of RBD soybean oil. Earlier this year, Louis Dreyfus said it will double the capacity of its canola crushing plant in Yorkton, Saskatchewan.
A California judge ruled that P66’s 67,000 Bbl/d RD Rodeo facility may not operate until permitting issues are resolved.The largest RD refinery conversion in the country is allowed to continue construction. The original permitting work for the plant took nearly a year to complete in May 2022. P66 aims to begin RD production at Rodeo by Q1 2024.
The Washington Clean Fuel Standard posted a net credit surplus for the first quarter, according to the state’s inaugural quarterly report. A total of 275,442 credits were generated, with ethanol accounting for 64% of the total and renewable diesel making up 12%. Deficits came in at 227,768, for a quarterly surplus of 47,674 credits. The market reacted bearishly with prompt credits tumbling to $79/t from $101/t, or 22%, over the span of just a week.
EPA Fuel Program Center Director, Paul Machiele, said the oversupply of D4 credits is not currently a concern at the EPA as the agency’s primary driver in setting the 2023-2025 mandates was feedstock availability, according to Carbon Pulse. Machiele noted that the surge in imported feedstock was not taken into account when considering the final Set Rule, speaking at the OPIS RFS, RINs and Biofuels Forum in Chicago. Changes to exiting mandates are unlikely to be taken up during an election year. President of Advanced Biofuels Association, Michael McAdams, cited an unnamed source that the earliest the EPA would take action is 2026.
Darling International Inc. confirmed that the Diamond Green Diesel, Norco, Louisiana, facility was running following a 10-day outage. A fire was reported at DGD’s Norco, Louisiana, facility on August 20. Diamond Green Diesel is the world’s second largest RD producer at 1.2 billion gallons per year. The 750 million gallon per year Norco facility primarily uses UCO, tallow and DCO as feed.
Calumet Specialty Products reported a leak in a steam recovery system at its Montana Renewables Facility. Calumet expects to produce 8,000-8,500 Bbl/d at its Great Falls, Montana, facility during the third quarter, and aims to complete repairs in mid-September. Untreated feedstock makes up 70% of throughput at the Montana Renewables Facility, with reported margins of $1.25-$1.45/gallon for July.
US northeast energy supplier, Sprague Operating Resources LLC, announced August 15 that it is offering renewable diesel for both delivery and transport rack loading at their Bronx terminal, New York City’s largest storage and rack loading facility.
CVR Energy Inc. aims to startup the pretreatment unit (PTU) at its Wynnewood, Oklahoma, refinery by the end of 2023. The plant has been running soybean oil and treated corn oil until the PTU enters service. A catalyst change during the second quarter saw throughput drop to 17.8 million gallons, down from 22.4 million gallons consumed during the first quarter. CVR estimates Q3 throughput of 17-22 million gallons.
PBF Energy Inc. announced August 3 that its St. Bernard renewable diesel facility in Chalmette, Louisiana, is operational. This includes a pretreatment unit (PTU) at the 320MM gallon per year facility. St. Bernard Renewables (SBR) is a 50-50 JV with Italian oil giant ENI.
Vertex Energy Inc. reached 8,000 Bbl/d phase 1 capacity at its Mobile, Alabama, facility during the second quarter. Vertex received federal approval to generate D4 RINs earlier this year. The company announced its first sale of 110,000 Bbl to Idemitsu Apollo in June 2023. Vertex aims to move away from refined, bleached, and deodorized (RBD) soybean as a feedstock citing poor margin conditions. The company will increasingly use DCO, technical tallow, crude de-gummed SBO, and canola oil during the third quarter and is exploring the use of UCO and other fats and greases.
Valero’s renewable diesel arm Diamond Green Diesel (DGD), a joint venture with Darling Ingredients Inc., reported $440 million in operating income for Q2, more than doubling the $152 million recorded last year. RD sales came in at 4.4 million gallons per day, doubling last year’s output. Valero expects renewable diesel output to total 1.2 billion gallons for the year. DGD’s 470 million gallon Port Arthur RD/SAF facility is on schedule for 2025 completion. Half of the capacity will be dedicated to SAF production.
Global Clean Energy secured a $110 million loan to proceed with construction of its Bakersfield, California renewable diesel facility. The project is behind schedule and has run more than $600 million over budget prompting ExxonMobil to nullify its offtake agreement. The 15,000 Bbl/d project is the site of the former Big West refinery and will use camelina as feedstock.
Twelve broke ground on a commercial scale power-to-liquid eSAF facility on July 11. The facility is expected to produce 5 Bbl/d, or approximately 40,000 gallons per year, by mid-2024, with plans to rapidly increase capacity. Alaska Airlines, Microsoft, and Shopify already have offtake arrangements with the Moses Lake facility.
ExxonMobil exited its renewable diesel offtake agreement with Global Clean Energy Holdings as the 210mn USG/yr is running behind schedule and overbudget. The energy giant originally stated it would take such action if no product was received by July 2022. The Bakersfield, California facility is slated to run on camelina oil. Global Clean Energy Holdings rejected the notice and stated it has until 30 November to complete the project, according to the Bakersfield Californian.
Cargill announced it has put its Missouri soy crush facility on hold, citing market dynamics. The 62mn bushels per year facility was originally slated for completion in 2026.
Marathon announced that it is on pace to complete Phase II of its Martinez Project with Neste by year end bringing total production capacity to 730 million gallons/yr. Phase I was completed during 1Q23 ramping up 260 million gallons/yr of renewable diesel capacity.
Oleo-X launched a 300 million gallons/yr feedstock pretreatment facility in Pascagoula, Mississippi. The company aims to process low-carbon inedible oils and poultry fat.
Par Pacific announced a $90 million investment to build a RD/SAF facility at its existing refinery in Kapolei, Hawaii. The facility is expected to produce 4,000 Bbl/d of RD and SAF as well as renewable naphtha and LPG by 2025.
Parkland Corp. announced its decision to halt its renewable diesel project in British Columbia, Canada. The company had been coprocessing at its Burnaby Refinery with plans to build a 273,000 gallons/yr RD facility, set to come online in 2026. The company cited rising feedstock costs and advantages to US producers afforded by new credits carved out in the Inflation Reduction Act (IRA). The move could be a harbinger of slowing momentum for the RD industry which has increasingly worried about rising feedstock costs, while the numerous advantages of the US market are likely to open export markets soon.
The Washington State Senate passed a Sustainable Aviation Fuel (SAF) tax credit, following actions from the state of Illinois which issued its own SAF credit with additional tax advantages for the fuel. Washington aims to establish a $1/gallon credit with a $2/gallon cap as additional value can be earned for fuels with lower carbon emissions. The Illinois SAF credit is set at $1.50/gallon and will run from June 1, 2023, through June 1, 2033, making the state the highest returning market for SAF.
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