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 declined for a fourth consecutive week as rising feedstock prices failed to be outpaced by stronger diesel and rebounding RINs.
Biodiesel margins widened sharply amid consistent CBOT soybean oil gains, only partially offset by stronger diesel. The Bean Oil-Heating Oil (BOHO) spread reached the widest level in four months.
Used cooking oil (UCO) remained the highest returning feedstock for an eighth consecutive week, followed by BFT.
D4 RINs rebounded on average week-over-week as the credits firmed in response to a deteriorating margin environment. The gains came even as the EPA reported fresh record high D4 RIN generation for the month of May.
The California Low Carbon Fuel Standard (LCFS) market posted modest losses last week. The prompt market has largely been in a choppy holding pattern since early May. LCFS strength has been driven by trader buying and strength in futures markets as the credits become more attractive options ahead of the California Air Resource Board’s new, more stringent scoping plan.
The EPA delayed by one week the release of the final ‘Set Rule’ to June 21 in a court notice with Growth Energy. The agency will not seek additional extensions to the deadline. The final RFS ‘Set Rule’ covering the 2023-2025 blending obligations was sent to the White House Office of Management and Budget (OMB) on May 15. The original consent decree between the EPA and Growth Energy held the agency to a June 14, 2023 deadline for the release of the finalized ‘Set Rule’.
The Biden administration plans to boost the advanced RIN requirement in the final ‘Set Rule’, yet not by the volumes requested by biodiesel producers, Bloomberg reported citing unnamed sources.
May RIN Generation came in at an all-time high of 2.11 billion driven by fresh record D4 RIN generation of over 750MM credits. Domestic and foreign renewable diesel accounted for roughly 59% of total D4 generation.
Vertex Energy received federal approval to generate D4 RINs from its 8,000 Bbl/d Mobile, Alabama, renewable diesel facility. The plant is currently producing at 5,500 Bbl/d and the company aims to achieve full capacity by the end of June.
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.
Mining giant Rio Tinted announced it transitioned its heavy machinery to renewable diesel at its Boron, California open pit mine. This move follows a trial period with Neste and Rolls-Royce.
April D4 RIN generation slowed modestly yet held well above the top of the five-year range. D4 output was up 104MM credits on year-ago levels, or 21%. Current D4 production has already fulfilled more than three times the year-over-year increase proposed for 2023.
California’s Air Resource Board (CARB) held a workshop to discuss an “auto-acceleration mechanism” as unused LCFS credits rose to record highs. During the workshop California regulators indicated that the final scoping plan may not take effect at the start of the new year much to the disappointment of stakeholders. The regulatory body indicated that the acceleration mechanism would likely not take effect until 2H 2025.
The ASTM has approved a new low-metal content biodiesel specification called D6751. The new specification will ensure more reliable engine performance and add durability.
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.
Tidewater Renewables Ltd. expects to begin operations at its 45mn gallons/yr Prince George Refinery in British Columbia, Canada by Q2. The plant will ramp up to 80% nameplate capacity by the second half of 2023.
FutureFuel Corp. is considering halting biodiesel production citing rising feedstock prices, uncertainty on the permanency of certain federal tax credits and heavy competition from the renewable diesel industry. The company owns a multifeed, 59mn gallons/yr biodiesel plant in Batesville, Arkansas.
Shell scrapped plans for a 550,000 t/yr RD and SAF facility in Singapore. While no rationale was put forth, feedstock supply and the lack of mandates throughout the Asia Pacific region are likely culprits. While feedstock prices have been falling, recession fears have also been weighing on diesel values, limiting margin growth.
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