Renewable diesel glut hits US refiner profits, threatens nascent
industry
Send a link to a friend
[May 13, 2024] By
Shariq Khan and Nicole Jao
NEW YORK (Reuters) - A rush by U.S. fuel makers to recalibrate their
plants to produce renewable diesel has created a supply glut for
low-emissions biofuels, hammering profit margins for refiners and
threatening to impede a young industry.
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 U.S. Energy Information Administration (EIA)
said this year. That could potentially stall the transition away from
traditional fossil fuels.
Some producers of these biofuels have already shuttered plants this
year, and industry participants say more are set to go out of business
before the year's end.
U.S. renewable diesel production capacity nearly quadrupled following
the coronavirus pandemic from just 791 million gallons a year in 2021 to
3 billion gallons by 2023, as refiners sought ways to survive the
transition away from their petroleum-based products.
Combined with biodiesel, total U.S. output capacity for biomass-based
diesel surpassed 5 billion gallons by 2023.
Renewable diesel is a complete substitute for diesel, whereas biodiesel
can only be used as a blend, making the former more attractive for
producers.
Both compete for the same feedstock - biomass, such as used cooking oil
and vegetable oils - and are more expensive to produce than
petroleum-based diesel, so their demand relies almost entirely on
governmental blending mandates and tax credits.
But blending targets for biomass-based diesel, set under the U.S.
Environmental Protection Agency's Renewable Fuel Standards (RFS)
program, generate combined demand of just up to 4.5 billion gallons a
year through 2025, according to Scott Irwin, a professor at the
University of Illinois.
![](http://archives.lincolndailynews.com/2024/May/13/images/ads/current/ldn_lda_SHG_2024.png)
That is already below existing domestic production, before factoring in
imports. By 2025, Irwin estimates U.S. renewable diesel and biodiesel
output capacity will top 7 billion gallons.
"The crux of the matter is that market participants convinced themselves
that 'if we build it, the EPA will mandate it'. That didn't happen,"
Irwin said.
The oversupply has cut prices of Renewable Identification Numbers (RINs)
- the credits refiners earn under RFS for producing or importing
biofuels - to the lowest in five years. D4 RINs tied to biodiesel and
renewable diesel fell below 40 cents a gallon in February for the first
time since 2019.
They were trading around 44.50 cents a gallon last week, down from an
average of $1.50 from 2021 to 2023.
INDUSTRY RESPONSE
Refiners are feeling the pinch across multiple segments of their
renewable fuels businesses.
Independent refiner Valero's renewable diesel margins in the first
quarter fell 21.5% year-on-year to $1.02 a gallon.
Rival HF Sinclair said lower credit prices swung its renewables segment
to an adjusted loss of $18.6 million before interest, tax, depreciation
and amortization in the first quarter, from a $3 million profit in the
prior year.
[to top of second column] |
![](../images/051324PIX/busine55.jpg)
A handout photo of Braya Renewable Fuels' refinery that produces
renewable diesel in Come By Chance, Newfoundland and Labrador,
Canada February 20, 2024. Braya Renewable Fuels/Handout via REUTERS
![](http://archives.lincolndailynews.com/2024/May/13/images/ads/current/graue_lda_preowned_050624.jpg)
Vertex Energy plans to convert its 8,000-barrel-per-day (bpd)
renewable diesel facility in Alabama back to fossil fuels
production, citing macroeconomic headwinds for the biofuel which are
likely to persist through next year. It had begun selling renewable
diesel from this plant less than a year ago.
Other new plants are running around 50% capacity, said Zander
Capozzola, vice president of renewable fuels at consultancy AEGIS
Hedging.
U.S. oil major Chevron in March said it had mothballed two biodiesel
plants, citing unfavorable market conditions. Biodiesel not only
competes with renewable diesel for feedstock, its production
generates fewer RINs, putting it at an even bigger disadvantage to
the boom in renewable diesel.
Meanwhile, large renewable diesel producers are standing firm
despite the oversupply, betting that they can withstand lower
margins until smaller companies are pushed out of the industry,
Capozzola said.
ROAD AHEAD
U.S. refiners are widely expected to turn to other markets in Canada
and Europe for their excess renewable diesel, market participants
said. However, they will face stiff competition from local
producers.
Canada's Imperial Oil is proceeding with plans to build a 20,000-bpd
renewable diesel plant near Edmonton which will be able to produce
the fuel cheaper than it would have cost them to import from the
U.S., the company told Reuters.
Braya Renewable Fuels, which began making renewable diesel in
February at the Come-by-Chance refinery in Newfoundland and
Labrador, believes operational issues will likely slow down new
supply additions.
Braya is producing up to 18,000 bpd of renewable diesel from its
plant and sells it through a marketing partner.
However, the biggest boost for the U.S. renewable diesel market will
likely come once the Biomass-based Diesel Blender's Tax Credit (BTC)
is replaced by the Clean Fuel Production Tax Credit (PTC) next year.
BTC allows importers to claim the same tax credits that domestic
producers get, worsening the domestic oversupply, Irwin said. Once
PTC comes into effect next year, it will disincetivize imports and
at the least, slightly improve the supply side of the equation.
The U.S. imported roughly 900 million gallons of biodiesel and
renewable diesel last year, according to EIA data. Imports in the
first two months this year were around 200 million gallons, and
Irwin said they are likely to rise through the rest of the year as
importers squeeze out the last few tax credits they can get.
"Things don't look as desperate next year, but before it gets
better, it will certainly get much worse," Irwin said.
(Reporting by Shariq Khan and Nicole Jao in New York; additional
reporting by Rod Nickel in Winnipeg; Editing by Liz Hampton and
Marguerita Choy)
[© 2024 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
![](http://archives.lincolndailynews.com/2024/May/13/images/ads/current/chuckglass_sda_SHG_2024.png) |