All the estimates on a greater use of biofuels, including renewable diesel, are strong. The charts are all pointing up.
But there’s a big issue: Will there be adequate feedstocks so that this part of the energy transition — moving away from fossil fuels and toward a wide variety of less carbon-intensive fuels — can proceed?
That’s the key question energy consulting and advisory firm Turner Mason & Co. will tackle in an upcoming study.
It’s also a question that has a significant impact on trucking and other aspects of the supply chain, including rails. Diesel is the lifeblood of trucking and rails, even as other technologies continue to be tested. Renewable diesel — and, to a lesser extent, biodiesel — is added supply to the sector that does not rely on petroleum as its feedstock.
The reality of alternative fuels in the U.S. is that they are largely a function of government mandates and incentives.
Whether it’s the Renewable Fuel Standard (RFS) that is the driving force behind ethanol use in gasoline or the California Low Carbon Fuel Standard that is the primary reason renewable diesel is seeing capital inflows, the question is how far the mandates will go in bringing about an increased use of renewable fuels in the U.S. before running into a supply pinch.
But as John Auers of Turner Mason told FreightWaves about his company’s study, there is a significant difference between the RFS and its mandates on ethanol and a push to use more renewable diesel.
Renewable diesel is what is known as a “drop-in” fuel that can be substituted gallon for gallon in place of petroleum-based diesel. It is different from biodiesel, which can be blended into diesel or heating oil but at a lower percentage that can be as low as 2% but can top out at more than 10%. Most forecasts see feedstocks increasingly moving away from biodiesel and toward the production of renewable diesel.
It’s those percentages where renewable diesel feedstocks become more complicated than ethanol. The ethanol content in gasoline generally tops out at 10%. Flex-fuel vehicles can burn a mixture that is 85% ethanol. Efforts to burn gasoline with 15% ethanol content run up against the “blendwall,” which sets 10% ethanol as the safe limit for use in cars, though the ethanol industry disputes that.
“With renewable diesel, you can use 100%,” Auers said.
But a shortage of feedstock as renewable diesel use rises is a major concern — and a reason behind the study that Turner Mason is undertaking.
Auers said the primary sources of feedstock for renewable diesel today are animal fats and other livestock-related products such as tallow. He said food waste is the most “advantageous” raw material to make renewable diesel. But as the market grows, he said, “you start moving into agricultural products like soybeans, and that becomes expensive.”
It also brings renewable diesel into the question that has always hung over ethanol: food versus fuel. Corn is used to make ethanol; how much is that demand pushing up food prices? Soybeans, like corn, are used primarily in the U.S. as feed for livestock.
On top of that, the Russian invasion of Ukraine means that a major agricultural exporter is now under attack and at war. What will happen with its agricultural exports?
“There’s a lot of complexity there,” Auers said.
The renewable fuel standard is a 50-state mandate requiring certain levels of renewable fuels to be consumed, most of it in gasoline but with standards that can be met by blending renewable fuels into distillate-based fuels such as diesel and heating oil.
But renewable diesel is mostly a product to be found in California because of the state’s Low Carbon Fuel Standard, according to Auers, with sales also in Oregon because of its own LCFS. (Other states, like Minnesota, are eyeing adopting LCFS standards.)
Providers of fuel in the Golden State have been under the LCFS for more than 10 years. Its initial goal was to reduce the carbon intensity of fuels by 10% by 2020. Now the goal is up to a 20% reduction by 2030.
Different renewable fuels, and the manufacturing process to make them, are given different carbon intensities (CI) under the LCFS rules. (Each process is known as a pathway.)
If a supplier can show it provided low CI fuels to the market, it can be awarded credits that can be sold to companies not making adequate progress toward their own CI reduction goals.
Renewable diesel made from restaurant grease has one of the lowest CIs of any of the pathways that the state has approved to make the product. The generation of credits from supplying waste-food-based renewable diesel means that it makes enormous financial sense to sell the product in California. If it is sold anywhere else, it can generate compliance with the renewable fuel standard but doesn’t get the cash equivalent bonus of selling it into California and the LCFS.
Several years ago, LCFS credits sold for a few dollars per credit. A year ago, they were trading around $196 per credit. More recently, according to Neste, they’ve been down $130, a movement that changes the economics of any projects to build new renewable diesel facilities.
“We think one of the key things to look at are the feedstock options and how costly they are,” Auers said. The study will look at the economics associated with “moving up to higher volumes of renewable diesel production.”
The current level of all biodiesel products in the U.S., including renewable diesel, is about 160,000 barrels per day, Auers said, adding that if all the projects on the board become reality, by 2025 the industry would be looking at capacity of 530,000 barrels per day.
“Is there enough economic feedstock available to make these projects economically viable?” Auers said of one of the study’s key questions. And while the study needs to be completed, he said Turner Mason doubts there is enough feedstock for capacity of 530,000 barrels per day.
The study is going to look into the interaction among feedstock supply, product prices and the price of regulation that can be measured in such things as the value of an LCFS credit. “We’re trying to evaluate the attractiveness of various products and locations,” Auers said.
The issues are not theoretical. Numerous companies have either announced or commenced plans to convert closed petroleum refineries into renewable diesel facilities, albeit producing far less than they were when they were processing crude oil. Phillips 66 (NYSE: PSX) shut a refinery in the San Francisco Bay Area, known as Rodeo, and is in the process of converting it to make renewable diesel; Marathon Petroleum (NYSE: MPC) is doing the same sort of conversion at its refinery in Martinez, California.
But in the type of conversion that can be seen as providing the need for a study like that being done by Turner Mason, refining company CVR last year delayed its own conversion project, citing high feedstock costs. (It has since said the project is nearing completion.)
The feedstock issue for advanced biofuels was on display at a panel last week at CERAWeek, the giant energy-focused conference in Houston that attracted almost 6,000 attendees.
In a panel entitled “Next-gen biofuels: What’s the potential?” Richard Palmer, CEO and president of Global Clean Energy Holdings, discussed his company’s use of a crop called camelina in producing biofuels.
Palmer said his company was “always concerned with philosophical and ethical views” about using foodstuffs to make energy and has pursued “nonfood crops grown on nonfood land.”
Camelina is the company’s crop of choice. Palmer said it grows in 100 days or less and can be grown on land that is not otherwise used to grow food. He described the oil coming from camelina as “high quality,” and “because it is offsetting food land, you don’t have the food penalty.”
And while Palmer didn’t refer to camelina as any kind of a super crop, the arguments he touted for it sounded familiar to anybody who heard the wonders of jatropha a decade ago. But an NPR story said about jatropha in a headline a few years after it was the hot feedstock of the moment: “How a biofuel dream came crashing down.”
Camelina grows early fall to late spring, Palmer said.
“We thought the vertical integration of the business made sense right down to the refinery,” Palmer said of that acquisition. “We know where it’s going, we can incentivize the farmer and it doesn’t index off another market.”