Could renewable diesel’s boom be cut short by feedstock access and availability?

April 10, 2016 |

BD-TS-041116-diesel-smThe world is notoriously awash in gasoline and diesel fuel, but is purty darn short on renewable diesel. And the world of advanced biofuels is short on rock-star, no-brainer, home run success stories, of which renewable diesel is undoubtedly one.

Renewable diesel demand is booming, booming, booming. We’ve tipped it repeatedly in The Digest, not least with our March Madness webinar last week on “Renewable Diesel’s Boom”. Any doubts may well have been swept aside at the end of last week, when Darling Ingredients announced an expansion of the Diamond Green Diesel facility in Norco, LA. DGD is the Company’s joint venture with Valero Energy Corporation. The expansion will grow the facility’s annual production capacity from 160 million gallons of renewable diesel to 275 million gallons.

The incremental cost per gallon of renewable diesel production for the expansion is estimated to be approximately one-half of the green field construction cost due to significant logistics and processing facilities already in place. This expansion plan is expected to be funded by DGD cash flow and is subject to final engineering and cost analysis.

DGD estimates completion in the fourth quarter of 2017, with production expected to ramp-up in the first quarter of 2018. DGD expects to operate at full capacity throughout the expansion phase, excluding an estimated 15-to-30 days of necessary downtime for final tie-ins. The planned expansion will also include expanded outbound logistics for servicing the many developing low-carbon fuel markets around North America and the globe.

“Our Diamond Green Diesel joint venture continues to be a shining star in our portfolio of ingredients and our DGD team has successfully proven the technology works, producing the highest quality product to meet the expectations of our customers,” commented Randall C. Stuewe, Darling Ingredients Inc. Chairman and Chief Executive Officer, on the planned expansion.

Who’s Darling, again?

Darling Ingredients Inc. is the world’s largest publicly-traded developer and producer of sustainable natural ingredients from edible and inedible bio-nutrients, creating a wide range of ingredients and customized specialty solutions for customers in the pharmaceutical, food, pet food, feed, technical, fuel, bioenergy and fertilizer industries.

And what’s renewable diesel?

Renewable diesel is a true hydrocarbon just like diesel and meets ASTM International’s standard for Diesel Fuel Oils (D-975). It has a different molecular structure from biodiesel, which is a methyl-ester. Because of this structural difference, renewable diesel is a superior product with a higher cetane index than typical ultra-low sulfur diesel (ULSD), and unlike biodiesel, an energy density value equivalent to ULSD.

Renewable diesel can be distributed using the established petroleum pipeline system, while biodiesel requires truck or rail transport. Additionally, renewable diesel has no cold-flow issues and won’t thicken and clog engines in cold weather as may happen with biodiesel.

Now, let’s rain on the parade

We’re running out of feedstock to feed the growth. Fast. Despite deep potential reserves outlined last week in “Make Haste with Waste”, the grease side of the equation is proving hard to tap, according to Peter Behrle, President of Lantern Environmental.

He cites this article from the Union of Concerned Scientists asthe most complete statistical analysis that I have seen,” and adds that “The point of the article is that there is not enough feedstock available to grow the domestic US biofuel production as much as many are planning, that California is counting on for LCFS purposes, and that the EPA must take into account when setting the RVOs. This type of analysis is exactly why we started our companies, and thus far we have only proven that it is uneconomic and difficult to extract oils from wastes.

Behrle took issue with a stat quoted in last week’s Digest

Waste fats
24 million tons
19 MT recoverable
4.3B gallons – fuels

Behrle comments, “I think your numbers above include all parts of rendered livestock, including both the solids and the oil produced by renderers. Only the oil is currently relevant. The solids are used for pet food and livestock feed. The actual amount of yellow grease and animal fats produced in the US averaged 1.25 billion gallons from 2009-2014 (per Render Magazine). The amount of yellow grease and animal fats produced annually is not growing. It is a relatively mature business. Of the amount produced, per the EIA, about 355 million gallons (28.4%) were used for US biodiesel production in 2015, leaving only about 900 million gallons of this material available for additional biofuel production.

Of Diamond Gren’s expansion?

“The good news is that Diamond Green has been successful enough to expand and will be producing a great deal more renewable diesel as early as 2018. The bad news is that Darling, a 50% owner of Diamond Green and the world’s largest renderer, will be using more of the oils they produce internally and they will not be available to other producers. Diamond Green alone will be using 275 million (22%) of the 1.25 billion gallons of available waste grease produced in the US.”

He adds, “REG has a significantly growing nameplate capacity. They key is how much of their capacity can they actually keep in production. In 4th Q 2015, REGI sold 73 million gallons of their own production, which equates to only 67.6% of their nameplate. Both internal technical difficulties and external market issues, including feedstock availability, may keep REG from getting close to 100% of nameplate. 2016 will be a telling year in this respect.

Costs for feedstock will be influenced upward by more producers chasing what looks to be a decreasingly available pool of currently available feedstock oil, until new alternatives become available in significant volumes. Theoretically, as biofuel feedstocks become more expensive, RIN prices will rise to offset the difference. However, the RIN appreciation process is not currently working well enough to make biofuel production from soybean oil profitable. Soybean oil accounts for roughly 52% of all biodiesel produced.

New supplies of feedstocks must be developed, such as trap oil, DAF oil, camelina, jatropha, etc. in order for the biofuel industry to grow appreciably. Not many noticed that Mexican and Brazilian jatropha oil were conditionally approved as RIN-producing pathways by EPA for biofuel in 2015 (see attached). However, none of the new feedstock possibilities are currently close to making enough of a volume difference to move the feedstock needle. The failure of algae oil thus far is a major disappointment for a feedstock that many thought would pan out.

Interesting statistics from the field

Behrle quote the following telling stats:

  • The US produces about 2 billion pounds (263 million gallons) of yellow grease annually. This production level has not grown appreciably in the last 5 years.
  • In 2015 the biodiesel producers used 1.254 billion pounds (165 million gallons) of yellow grease. Thus 63% of available yellow grease was used for domestic biodiesel production.
  • In 2015 the US exported .58 billion pounds (73 million gallons) of yellow grease, primarily to Europe for biofuel production. Thus 28% of available yellow grease was exported.
  • Therefore, only 9% of yellow grease was used domestically for purposes other than biodiesel, a surprisingly small number.

In 2015 the US exported a total of 237 million gallons of animal fats and yellow grease, down from an average of about 290 million gallons over the prior three years. Theoretically, a potion of these exported volumes could eventually be used for domestic biofuel production. However, through Feb 2016 exports of yellow grease, and for animal fats and yellow grease in total have already exceed exports through Feb 2015, by 26% and 15% respectively.

The Bottom Line on Waste Fats

Without focus on finding ways to facilitate expansion of the feedstock pool, feedstock acquisition will be increasingly challenging and expensive, but not necessarily insurmountable task for producers. But certainly with the growth renewable diesel’s acceptance, there’s reason to make these feedstocks a priority, if not the priority, for those who follow the sector.

Where are the feedstocks?

The answers will be here, at the Digest’s ABLC Feedstocks, June 7-8 in Miami. More on that here.



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