Largest green diesel plant completed in US, Diamond Green Diesel: can it make money?

RINs matter

In December, Dynamic Fuels filed this with the SEC:

“The economics of the U.S. biomass based diesel industry are currently challenged by significantly lower RIN (renewable identification number) prices. D4 RIN prices averaged $1.39 for the first six months of 2012. As of December 10, 2012, the D4 RIN price was $0.56.   RIN prices at these levels have not been seen since the implementation of the RFS2 program by EPA in July of 2010.

“The regulatory framework underpinning biomass based diesel production remains intact.  The biomass based diesel mandate for 2013 is 1.28 billion gallons, or 28% above the 2012 mandate.  We expect markets to adjust positively in 2013 due to the higher mandate.”

The Economics

In a presentation that Darling made to shareholders and analysts, the company went through the economics of its fuel pro-forma, showing a projected $1.03 in profit per gallon. Note that this is based on operating costs only.

Gulf Coast ULS diesel prices

However, the good news is that, on a dollars per gallon of capacity basis, the project is not all that expensive by advanced biofuels standards. Valero projected the cost in 2011 to be $368 million — which works out to be $2.59 per gallon of capacity, or $0.17 per gallon per year if amortized over 15 years (excluding interest costs, because in this case Valero financed the plant without tapping a $241 million DOE loan guarantee.

Items to watch in those profit projections — diesel prices and RIN prices. Gulf Coast ULS diesel is selling at $2.82 this week, down from the $3.07 projection in the Darling forecast. Meanwhile, as Dynamic Fuels indicated, RIN prices were in the $0.56 range in December, though they have subsequently climbed back to more than $0.80 in the past quarter.

One more item – feedstock costs. $0.44 per pound for blended fat. Man, is that price getting high for waste fats.

The Bottom Line

A signature mechanical completion. We hope the commissioning period is short enough that the plant may start making a material contribution to US biobased diesel production figures in the 4th quarter.

But this much is sure. It’s not only transformative fuel— with emissions in the 80% reduction range — but it’s profitable fuel, sold on an unsubsidized basis (no tax credits) although greatly assisted by the economics within the Renewable Fuel Standard. It’s expected to become a material contributor to Darling’s bottom line — and if profits continue to be available, will do much to persuade Valero amongst others of the benefits of continuing to invest in renewable fuels.