RD Crowding Out Biodiesel as RVO Caps Production Incentive

CRANBURY, N.J. (DTN) -- Annual operable biodiesel production capacity in the United States fell 89 million gallons, or 4.3%, from January to February, the Energy Information Administration reported Tuesday, and now accounts for 34% of total biodiesel, renewable diesel, and other renewable production capacity.

Operational biodiesel capacity is expected to continue to decline while renewable diesel capacity increases, with Phillips 66 set to expand the 180 million gallon per year Rodeo refinery which recently began commercial operations to 800 million gallons of renewable output in July. The expansion of the California plant, previously an oil refinery, will add renewable gasoline and sustainable aviation fuel production capacity. It is one of more than a dozen planned expansions or new renewable diesel production plants currently being developed in the United States.

Biodiesel and renewable diesel are produced from the same feedstocks, which include fats, oils, and grease (the FOGs), but the production process differs. Biodiesel is produced through a process known as transesterification, which combines methanol and triglyceride -- the esters of the feedstock. Renewable diesel is produced by hydrotreating, combining FOG feedstock and hydrogen, with a hydro-isomerization unit providing an additional chemical reaction.

The chemical properties of biodiesel mean it must be blended with petroleum-based diesel to be used in engines, while renewable diesel uses an oil refining process that produces a "drop-in" fuel which meets the technical requirements for engine use thereby able to completely replace petroleum-based diesel. The process also allows renewable diesel to be produced at scale, another huge benefit.

The Renewable Volume Obligation under the Renewable Fuel Standard finalized by the Environmental Protection Agency for this year and 2025 at 3.04 billion gallons and 3.35 billion gallons, respectively, is too low to incentivize demand for both biodiesel and renewable diesel. A steep dive in the value of Renewable Identification Numbers attests to this reality, with 2023 D4 RINs plummeting 73% in value from the end of April 2023 to Tuesday -- down $1.11 to $0.42.

"They have set volumes below current and future bio-based diesel production, and it does not have any room for growth," Kevin Lucke, president of Chevron Renewable Energy Group, told the Iowa Soybean Association during their annual board meeting in December 2023. "You are seeing biodiesel plants continue to curtail production due to economics and now plants are looking at closing their doors in this current market environment."

The evolution in the biodiesel industry has dramatically reduced already limited trading in spot markets. Recognizing these changes, DTN ended assessing spot pricing for biodiesel at the Chicago, Houston, and New York Harbor markets on Tuesday.

Brian L. Milne can be reached at brian.milne@dtn.com

(c) Copyright 2024 DTN, LLC. All rights reserved.