Renewable diesel expanding with petroleum-to-renewable refinery conversions
Possibly the most famous line in Dirty Dancing, you can’t put baby in a corner and that’s certainly the case lately with renewable diesel. Some still look at renewable diesel as just a baby considering the first commercial renewable diesel facility starting running in 2010. But there is a huge transformation happening with growth in the conversion of petroleum refineries to renewable diesel. Just look at how renewable diesel went from 78MMGY in 2010 to 397MMGY in 2018 and Fuels Institute’s latest reports estimates it will grow to 3,000MMGY by 2022 – that’s just two years away.
In today’s Digest, why you can’t put baby in a corner, why renewable diesel is growing up so fast, how big is big, is there enough feedstock for all these new facilities, a roundup of the latest petroleum-to-renewables conversions like HollyFrontier, CVR Energy, Global Clean Energy, Orion Energy Partners, $400M investment in Louisiana from Greentech Materials, $400M in Illinois for St. Joseph Renewable Fuels, and more.
But why renewable diesel?
First, let’s clarify that there is a difference between biodiesel and renewable diesel because that helps explain the rationale behind why we are seeing lots of petroleum to renewables conversions.
Drop-in diesel – In short, biodiesel is defined as the mono-alkyl esters of vegetable oils or animal fats and produced by transesterifying the oil or fat with an alcohol such as methanol under mild conditions in the presence of a base catalyst – often referred to as fatty acid methyl ester, or FAME – and do not remove the oxygen. Renewable diesel, on the other hand, can be obtained from lipid feedstocks (fats, oils and greases) too, but is produced from the fat or oil by a hydrodeoxygenation reaction at elevated temperature and pressure in the presence of a catalyst – so the oxygen is removed. Biodiesel is usually blended with fossil fuel diesel like B20, but renewable diesel is a drop-in fuel so you can just use it in any diesel engine without blending.
LCFS – Another reason there is tremendous growth recently is the major role that California’s LCFS plays in incentivizing the use of both renewable diesel and biodiesel sourced from residue and waste feedstocks.
RFS and RINs – And let’s not forget about the role of the RFS and RINs. Each RIN corresponds to a gallon of fuel (based on an ethanol energy-equivalent basis, so one gallon of biodiesel receives 1.5 RINs and one gallon of renewable diesel receives up to 1.7 RINs) that has been blended with petrodiesel or sold for retail. So right out of the gate, renewable diesel is worth more in RINs.
Cold Weather – Weather plays a part too, surprisingly, since renewable diesel performs better in cold weather than biodiesel, so seasons effects are not as large an issue for renewable diesel making it quite attractive for the U.S. Sure, “renewable diesel’s production costs are higher than those of biodiesel, but the former also has a higher market value due to its superior energy content and technical performance,” according to Fuel Institute’s latest report. “The limited data that is available for renewable diesel suggests that its production margins have been substantially more favorable than those of biodiesel over the last five years.”
So how big is big?
Conversion from petroleum to renewables is something we need to pay attention to, even though some look at the renewable diesel sector in the U.S. as just a baby – the latest Fuels Institute report published in March said, “The U.S. renewable diesel sector is substantially less developed than the U.S. biodiesel sector. The country’s first commercial-scale renewable diesel production facility did not become operational until 2010.” Only five such facilities were operational at the end of 2018.”
So if it’s such a baby, why is this worth looking at? Because many of the renewable diesel facilities are large relative to biodiesel facilities, and U.S. renewable diesel production capacity increased from 78 MMGY to 397 MMGY between 2010 and 2018 (see Figure ES-4 below), which is no small feat. U.S. capacity is expected to increase to almost 3,000 MMGY by 2022 as new facilities and expansions of existing facilities become operational, according to Fuels Institute.
In other words, nobody puts baby in a corner.
The large majority of this production occurs in Louisiana, making that region the country’s primary domestic source of renewable diesel. The additional capacity will be spread across every PADD region except the PADD 1 region, and the PADD 5 region is expected to have a plurality of U.S. renewable diesel production capacity by 2022 (check out the report for the details on the various PADD regions in the U.S. and more visuals on renewable diesel’s growth in each of the regions).
What about feedstock?
The question “is there enough feedstock?” seems to be everywhere. The good news is that renewable diesel can be produced from any feedstock that is capable of being utilized as a biodiesel feedstock, though renewable diesel producers often prefer to utilize saturated feedstocks. And since renewable diesel facilities are frequently very large they often utilize multiple feedstock types in order to ensure sufficient feedstock availability throughout the year. Louisiana is such a big renewable diesel production state partially because it has tons of animal processing facilities and animal processing residue is one of the most important feedstocks for renewable diesel.
According to the Fuels Institute report, feedstock availability could be an issue for biodiesel in the future, but what about renewable diesel? Covid-19 can throw a wrench into the plans, for example, with Louisiana which relies heavily on animal processing wastes and residues. If coronavirus shuts down meat processing facilities, that means less animal processing and less wastes and residues. Considering there is growing renewable diesel capacity coming online now too, it could cause some feedstock issues down the road.
The latest petroleum-to-renewables conversions
Going back just over the last few months, it’s easy to see that petroleum refineries definitely have an interest in converting to renewable diesel.
Three top dogs bring $365M to Bakersfield renewable diesel retooling project, as reported by The Digest earlier this month. Orion Energy Partners, GCM Grosvenor and Voya Investment Management teamed to invest $365 million to retool a portion of an existing oil refinery in Bakersfield into a renewable diesel bio-refinery. The project will use Global Clean Energy Holdings’s proprietary camelina oil as well as traditional biofuel feedstocks such as waste fats, oils and greases to produce RD and other renewable products (liquid propane, naphtha). The project’s output will be sold under a long-term offtake agreement with a multinational oil major.
Also reported this month in The Digest, Global Clean Energy Holdings selected Haldor Topsoe’s HydroFlex for revamp of the Bakersfield, California refinery for renewable fuel production. Global Clean Energy’s retooled facility will produce 15,000 barrels per day of renewable diesel from proprietary camelina oil and other traditional biofuel feedstocks. The retooled refinery will produce low-carbon renewable fuels that meet the California Low Carbon Fuels Standard as well as the ASTM D975 diesel specs.
As if June wasn’t a busy enough month, the Digest also reported that HollyFrontier is converting their Cheyenne Refinery to renewable diesel production too and plan to construct a pre-treatment unit located at the Artesia Refinery. Including the previously announced renewable diesel unit at the Artesia Refinery, HollyFrontier is expected to have a combined capacity to produce over 200 million gallons per year of renewable diesel and pre-treat over 80% of its feedstock. HollyFrontier expects to invest between $650-$750 million in its renewables business, with an expected aggregate internal rate of return of 20-30%.
The Digest also reported in May that in Pennsylvania, CVR Energy is looking to convert some of its refining capacity to renewable diesel production. The company has claimed that its RIN exposure has negatively impacted its bottom line, so by producing renewable diesel it would reduce that exposure that was $19 million in Q1 2020, $6 million higher than last year. It has excess hydrogen capacity so is exploring the conversion of some desulfurization units.
Last summer in August 2019, the Digest reported that SG Preston was potentially buying the Philadelphia Energy Solutions refinery and convert it and 1,300 acres to produce renewable diesel, marine diesel, and jet fuel, mostly from waste fats and oils as the feedstock.
New Builds
It’s one thing to convert existing refineries to renewable diesel, but it’s another to invest in building new refineries, especially this year when things are let’s say, a bit unique. But here are two to keep an eye on.
As reported in The Digest in May, the City of Newton, Ill., Jasper County, and St. Joseph Renewable Fuels, LLC announced plans to build a $400 million renewable diesel plant in Southern Illinois that envisions utilizing innovative technologies and a new healthcare protocol to test and certify a COVID-19 free workforce. The 40-acre site in Newton, Ill., is within a federally designated Opportunity Zone, and is believed to be one of the largest projects proposed under the Tax Cuts and Jobs Act of 2017 that was designed to revive economically distressed communities in the United States.
Plans for the proposed facility include showcasing proactive steps a small city with a population of 3,000 can take to solve a complex health crisis through a new app and testing initiative called ‘HealthCheckIn.’ The testing concept being introduced will help bring a critical facility into operation. This innovative approach ultimately could be scalable to a larger impact at county, state, and national levels, both domestically and worldwide. HealthCheckIn can help solve a larger need for mitigation solutions that will allow the country to re-open from the COVID-19 lockdown that affects virtually an entire workforce.
Another new project is the proposed renewable diesel plant at Port of Baton Rouge where they are negotiating the land lease, as reported by The Digest in January. Greentech Materials is looking to build a $400-$500 million renewable diesel facility at the Port of Baton Rouge that would use soybean oil and palm oil as feedstock.
Bottom Line
One report says that renewable diesel’s U.S. production capacity is on track to equal that of biodiesel within the next five years. That wouldn’t surprise us based on the latest flurry of petroleum to renewables conversions. While the lofty estimates that say renewable diesel will be at 3,000MMGY by 2022 seem out of reach, it isn’t impossible based on the latest flurry of activity from conversions as well as the millions in investments in brand new renewable diesel facilities, so stay tuned as we watch this baby of biofuels stepping into the spotlight.
Category: Top Stories
