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Another year into the Covid-19 pandemic, 2021 was dominated by record-high feedstock prices, new plans for renewable diesel (RD) capacity and the long, grueling wait for the Environmental Protection Agency’s (EPA) Renewable Fuel Standard (RFS) blend volumes for 2020, 2021, 2022 – and subsequent industry push-back – have all set the tone for a vibrant 2022.
US RD capacity (including co-processing plants) is set for more growth in 2022, with an expected huge increase from 790 million gallons per year in 2021 to approximately 1.9 billion gallons, while planned capacity will continue to climb to 4.3 billion gallons by 2025.
Key projects coming online during 2022 include Diamond Green’s 400 million gallon per year expansion, the first phase of the Philips 66 Rodeo refinery conversion, Marathon Petroleum’s phase one conversion of the Martinez refinery, and HollyFrontier and CVR Energy projects.
The surge in capacity has sent shock waves through the feedstock market with demand threatening to outpace supply.
Darling International is a 50% owner in the Diamond Green venture and is the largest rendering company in the US, which gives the company solid footing when it comes to feedstock security.
Marathon and Philips 66 previously entered into partnership agreements with soybean processing plants to ensure a certain amount of feedstock availability.
These types of relationships, Fastmarkets EnergyCensus understands, will continue to grow as renewable fuel producers scramble to secure feedstock.
Biofuel feedstock prices hit record highs in 2021, driven by strong renewable fuel demand and historically high renewable fuel credit prices.
Refined, bleached and deoderised (RBD) soybean oil hit a high of $2,305 per tonne FOB Central Illinois in June before prices fell on reports of forthcoming cuts to the RFS blending mandates, according to prices from The Jacobsen.
From September through December, RBD SBO prices traded at an average of $1,690 per tonne.
Used cooking oil and tallow prices followed a similar pattern trading sharply lower in early September on demand disruptions into the US Gulf caused by Hurricane Ida.
The current feedstock market is trading under negative pressure due to truck and rail shortages, while delayed starts and production issues at several renewable fuel facilities have led to less-than-expected demand, which has created a surplus of nearby feedstocks.
Surging RD capacity suggests that the current bearishness in the feedstock market will be short-lived to start the new year.
Covid-19 continued to rattle US renewable fuels markets however, provoking additional delays and changes in renewable volume obligations (RVOs) for 2020 through 2022.
The pandemic primarily affected gasoline/ethanol blending, which recovered at a much slower pace than diesel/biomass-based diesel blending.
Should the Omicron – or another variant – cause downward pressure in renewable blending, EnergyCensus sister publication The Jacobsen believes it will again be limited to the gasoline sector.
The EPA is now better positioned to handle this following their issuance of the proposed blending requirements for 2020 through 2022, however.
Within the recently released obligations, the EPA stated its proposed use of the “reset authority” did not preclude its legal authority to waive volumes under the other waiver authorities.
“Nothing in the CAA [Clean Air Act] suggests that once the volumes are reset, they cannot be modified further, or that the reset authority cannot be used in conjunction with other waiver authorities such as the cellulosic waiver authority,” the EPA said.
The Jacobsen believes the EPA’s foregoing statement leaves them positioned to actively change volumes should another pandemic, or similar threat, affect renewable fuel blending during 2022.
A matter of days after the EPA’s mandate reveal, a group of US senators introduced a bill of legislation to protect the biofuel sector against retrospective RVO cuts.
Through the new ‘Defend the Blend’ bill, the EPA would be prohibited from reducing the minimum applicable volume of biofuels into fuels once the RVO levels are finalized for any given year.
While it is early days for the proposed legislation, Growth Energy CEO Emily Skor told Fastmarkets EnergyCensus that it would offer more certainty in the marketplace, and that retroactively reducing RVO levels is “completely unwarranted and unnecessary, adds uncertainty to the marketplace, and exceeds EPA’s legal authority.”
Meanwhile, the ethanol sector, which fared the worst in the recent RVO obligations, is set to challenge the governmental department in 2022, the CEO of American Coalition for Ethanol (ACE) Brian Jennings confirmed.
“We will provide our feedback on EPA’s novel interpretations of its waiver authority in the new year and will encourage EPA to reconsider its proposal to better support low carbon biofuels and take actions to help grow demand for biofuels that benefit rural America as well as the Administration’s decarbonization goal,” Jennings said.
2021 saw the long-awaited October draft publication of Democratic President Joe Biden’s human infrastructure bill – dubbed the ‘Build Back Better Act’, which promised a string of benefits for the US biodiesel industry.
However, the plan has struggled to get the necessary support it needs to pass Congress – even from within the Democratic party – and while Biden had hoped to get the bill through before Christmas, the Senate will now vote either for or against in January.
Renewable Fuels Association CEO Geoff Cooper told Fastmarkets EnergyCensus that while the path forward for BBB remains highly uncertain, “we strongly support the biofuel-related provisions of the package and hope they ultimately become law.”
Several of the provisions in the draft bill have been welcomed by renewable fuels lobbies, including $1 billion in higher-blend infrastructure funding, a clean fuel producer tax credit, sustainable aviation fuel tax credits, and enhancements to tax incentives for carbon capture and sequestration.
This article was originally published to Fastmarkets EnergyCensus on Wednesday December 29, 2021.