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Renewable diesel gaining traction in US, Canada
Renewable diesel fuel is gaining investment support in the US and Canada, as the drive to reduce carbon emissions from trucks and other diesel uses is stimulating development of the fuel.
Renewable diesel is a type of biodiesel produced through various processes such as hydrotreating, gasification, pyrolysis, and other biochemical and thermochemical technologies. Because renewable diesel is chemically similar to crude-based diesel, the renewable fuel can either blend with it at any ratio or substitute for it fully. Renewable diesel differs from biodiesel, which is produced via trans-esterification, and is typically blended at a 5-20% ratio with fossil-derived diesel fuel.
The big driver for renewable diesel to date is California's Low Carbon Fuel Standard (LCFS), which provides blenders with credits for the use of low-carbon biofuels. California LCFS credits were recently assessed at $193.50/mt by OPIS, an IHS Markit price reporting agency. In dollars-per-gallon terms, a $200 LCFS credit is worth approximately $1.60/gal for renewable diesel and $1.76/gal for biodiesel diesel, according to Stillwater Associates. (These figures vary in the LCFS system depending on the carbon intensity "pathway" to produce the fuel, with lower-carbon pathways generating more credits and thus making a gallon of biofuel more valuable.)
For comparison, the OPIS fuel tracking service puts spot diesel prices at $2.00-$2.05/gal currently in major wholesale markets, depending on location.
In addition to California's program, Oregon has its own LCFS, and Washington State is in the process of implementing a similar program. Other states, including New York, New Mexico, and Minnesota are contemplating adopting similar programs.
Further, the Biden administration has said it would like to enact new emissions standards for heavy-duty trucks, which could provide additional support for renewable diesel and biodiesel. The heavy-duty trucking sector was specifically mentioned in Biden's April 22 announcement of new US goals to reduce total GHG emissions by 50-52% from 2005 levels by 2030.
Market to reach 2-3 billion gallons
At the BMO Farm to Market Conference in May, Archer Daniels Midland (ADM)—one of the nation's largest grains processors—told attendees it believes annual renewable diesel production capacity in the US will increase by 2-3 billion gallons within three years.
ADM is positioning itself to become a major supplier of feedstocks to the growing industry, as the company sees growth in renewable diesel production as a "significant opportunity," Greg Morris, president of ADM's agricultural services and oilseeds unit, said.
In all, about 5 billion gallons of annual US production have been announced by refiners and biofuels producers, though all will not necessarily be built.
ADM announced plans to build the first soybean-crushing plant and refinery in North Dakota to meet demand for both renewable diesel and biodiesel. The $350-million facility, which is expected to be operating before the 2023 harvest, will be able to process 150,000 bushels/day of soybeans.
State support for the project is strong as well. "This soybean processing plant is a game-changer for North Dakota farmers, adding value and expanding the market for this important crop closer to home, while also supporting the production of products such as renewable green diesel right here in North Dakota," said North Dakota Governor Doug Burgum.
Another major grain processor, Cargill, said it is investing $475 million to boost its capacity to process soybeans to expand production of soybean oil that can be used in renewable diesel and biodiesel. "We are positioning ourselves to meet the growing global and domestic demand for soy products both in food and fuel markets," said Warren Feather, managing director for Cargill Agricultural Supply Chain North America, in a March statement.
The projects include expanding crush capacity at plants in Iowa and Ohio, and doubling load-out speeds at plants in Kansas and Missouri.
In April, Cargill teamed up with travel stop operator Love's in a joint venture to build an 80 million-gal/year renewable diesel plant in Hastings, Nebraska. Under the Heartwell Renewables JV, Cargill will provide tallow feedstock for renewable diesel production that will be transported and marketed in the US by Musket, the commodity trading and logistics arm of Love's.
Canada is expected to launch its own low-carbon fuel program at the end of 2022, and this helped to spur announcements of two canola processing plants in the province of Saskatchewan, the largest grower of canola in Canada, to supply feedstock to renewable diesel and biodiesel producers.
Cargill announced in late April that it plans to spend $350 million to build a canola processing facility in Regina. The facility, projected to have an annual production capacity of 1 million mt, is slated to open in early 2024.
Ceres Global Ag Corp. on 25 May said it is seeking investors to support a planned $350-million canola processing plant in Northgate, Saskatchewan. The proposed plant will produce more than 500,000 mt/year of canola oil, and is scheduled to begin operating in the summer of 2024.
"This is an exciting time for Ceres Global as we position ourselves to take advantage of the unprecedented demand for oilseed crush in North America," Ceres CEO Robert Day said in a statement. "While there are multiple drivers contributing to this demand, the most important is the movement towards green energy and the need for vegetable oil as feedstock for the production of renewable diesel."
Day said that Northgate, which is just north of Canada's border with North Dakota, has good access to canola farmers in Saskatchewan. The facility also will have a direct connection to BNSF Railway, providing access to the US market and ports.
Oil companies make investments
At the same time, oil refiners are getting in on the action, with Phillips 66 and Marathon taking the deepest dives by converting fossil fuel operations to run on biofeedstocks.
Phillips 66 said in April it completed the initial renewable diesel project at its Rodeo, California, refinery as it moves forward with its Rodeo Renewed project—the complete conversion of the 120,200-b/d oil refinery into a 50,000-b/d renewable fuel plant by early 2024.
"In April, the company completed its diesel hydrotreater conversion, which will ramp up to 8,000 b/d (120 million gal/year) of renewable diesel production by the third quarter of 2021," CEO Greg Garland said 30 April during the company's first-quarter results call.
Unit 250 "came up the first time and has run well," added Robert Herman, head of Phillips 66's refining segment.
Phillips 66 also announced in April that it acquired a minority stake in a planned soybean processing plant in Iowa, the Shell Rock Soy Processing facility, and will buy all of the facility's output of about 4,000 b/d of soybean oil to make renewable fuels. No financial details were available.
Marathon Petroleum's board approved a plan in March to convert the company's Martinez, California, refinery to a 730-million gal/year renewable diesel production facility. Marathon said it expects the San Francisco Bay Area operation will begin producing renewable diesel in 2022 and reach full capacity in 2023. The company said the bulk of the converted refinery's output will be renewable diesel produced from animal fats and soybean and corn oils.
Marathon estimated the conversion project will reduce the facility's GHG emissions by 60%, while cutting total criteria air pollutants by 70%.
"Converting the Martinez refinery to a renewable fuels facility is an important addition to our growing portfolio of renewables projects and aligns with our strategic priorities of strengthening the competitive position of our assets, implementing commercial strategy changes, and strategically deploying our capital," said CEO Michael Hennigan.
ExxonMobil isn't producing renewable diesel, but it announced on 24 May an expansion of a five-year renewable diesel offtake agreement with California-based Global Clean Energy Holdings (GCEH). Under the revised agreement, ExxonMobil will double its renewable diesel purchase commitment from GCEH's Bakersfield, California, biorefinery to up to 5 million barrels/year, making the company the exclusive buyer of the facility's output.
GCEH's biorefinery, which is scheduled to begin operating early next year, will process up to 15,000 b/d of renewable feedstocks, including its proprietary camelina, which it describes as "a fast-growing, low-input, dryland farmed rotation crop." The balance of the renewable diesel will be produced from used cooking oil, soybean oil, distillers' corn oil, and other renewable feedstocks, GCEH said.
"Our work at the Bakersfield biorefinery is a perfect example of what can be accomplished when an industry leader like ExxonMobil supports a growing renewables company like Global Clean Energy with long-term contracts," GCEH CEO Richard Palmer said in a statement. "By working together across traditional agricultural, energy and supply chain lines, we are showing how agriculture and energy, big and small, can collaborate to bring lower-carbon fuels to market."
ExxonMobil said it plans to market the renewable diesel in California and potentially other US and international markets.
Valero Energy's Diamond Green Diesel (DGD) unit is operating a joint venture with Darling Ingredients to produce renewable diesel from waste fats (used cooking oil, animal fats and distillers' corn oil), headlined by a DGD facility that's operating in Norco, Louisiana, and a planned facility at Valero's Port Arthur, Texas, oil refinery. The Norco facility has a capacity of 290 million gal/year presently, but an expansion project will bring it up to 690 million gal/year by the end of 2021, said Darling Chairman and CEO Randy Stuewe in a March investor presentation.
The Port Arthur project will add another 470 million gal/year of capacity for the joint venture. When that facility starts up in 2023, the two plants will combine to process approximately 65% of North America's waste oils, Stuewe said.
Canola use in biodiesel
As renewable diesel projects ramp up, issues of feedstock supply could emerge. For this reason, canola is seen as a promising new feedstock, though the US Environmental Protection Agency (EPA) has yet to approve a pathway for canola-based renewable diesel that would allow the fuel to generate credits under the Renewable Fuel Standard (RFS) program.
The US Canola Association in March 2020 petitioned EPA to approve a pathway for renewable diesel, sustainable aviation fuel, heating oil, LPG, and naphtha made from hydrotreating canola oil feedstock.
If an RFS pathway is approved, blenders of renewable diesel will be eligible for the D4 Renewable Identification Number credit, which OPIS said has been valued at up to almost $1.50/gal this year; blenders would also be eligible for the $1.00/gal federal biomass-based diesel blender's tax credit.
In the California LCFS program, the California Air Resources Board has approved a temporary pathway for renewable diesel from canola oil.
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