n this column in the April issue of Render, the early effects of the COVID-19 virus pandemic, along with the Saudi-Russian oil price war, had begun to wreak havoc on the global biofuels sector. As of this writing, the price war technically ended on April 9, but the full effects of the response to the virus have settled into a devastating new normal.
On April 20, crude oil futures went into negative territory for the first time in history, at one point touching minus $40 per barrel, sending energy markets into a tailspin. About a week later, heating oil fell to almost 60 cents per gallon, down from January highs of over $2 per gallon. As a result, for physical biodiesel contracts (which are largely priced on a discounted differential to heating oil), United States (US) producers were effectively paying customers to take their fuel. To be clear, biofuel producers also receive substantial value from governmental credits and incentives, but these values are volatile and increasingly unreliable when it comes to long-term business planning, especially in the polarized political climate that exists today.
As a result, the market is very uncertain at this time. If, when, and how the US economy recovers will inform how the energy and biofuel sectors fair. For now, it seems prudent for biofuel stakeholders to circle the wagons and protect climate programs and carbon policies that have been working, while fighting for shrinking margins that will help biofuel producers and industries stay relevant and in business.
In mid-April, the governors of five US states—Louisiana, Texas, Oklahoma, Utah, and Wyoming—sent a letter to the US Environmental Protection Agency (EPA) asking for waivers of the Renewable Fuel Standard (RFS) volume obligations for their refiners, citing plunging fuel demand as the reason for the request. In early May, 24 US senators sent a letter to EPA Administrator Andrew Wheeler urging him to immediately reject petitions for a general waiver of the 2020 RFS. The National Biodiesel Board (NBB) and other stakeholders concluded that waiving the RFS would cause unnecessary harm to the rural economy. In thanking senators, NBB’s vice president of federal affairs Kurt Kovarik said, “Biodiesel and renewable diesel producers are an important part of the nation’s critical agriculture infrastructure, which is already experiencing painful effects of the national economic crisis. Maintaining a strong RFS will be important to the rural economy’s recovery. An RFS waiver would simply prevent biofuel producers, farmers, and other agricultural sectors from fully sharing in any economic recovery this year. RFS requirements do not contribute to the crisis because they are set as percentages that rise and fall in direct proportion with transportation fuel demand.”
About a week later, on May 12, 70 mayors from 10 states sent a separate letter to Wheeler also calling on the agency to reject what it called unjustifiable proposed waiver requests pertaining to the RFS. In addition, a group of biofuel and farm advocates, including the North American Renderers Association and NBB, sent a letter to US congressional leaders requesting that the next round of COVID-19 economic relief not overlook biodiesel and ethanol production. The US Department of Agriculture (USDA) excluded the biofuels sector from aid initially made available under the Coronavirus Aid, Relief, and Economic Security Act passed March 27.
Also on May 12, House Appropriations Committee Democrats put forward the Health and Economic Recovery Omnibus Emergency Solutions, known as “HEROES,” Act bill that would provide more than $3 trillion to protect the “lives and livelihoods of the American people,” including nearly $1 trillion in payments to state and local governments, $75 billion for COVID-19 testing and contact tracing, and funding for extended unemployment benefits. The bill directed USDA to make payments to biofuel producers of 45 cents for every gallon produced during the first four months of this year from the Commodities Credit Corp. Additionally, the bill stated that if USDA finds an eligible producer was unable to produce fuel through one or more months between January 1 and May 1 due to the pandemic, it would receive the 45 cent-per-gallon payment for half of its output in the corresponding months of 2019.
The inclusion of the program came after a group of 10 Midwestern House Democrats asked leadership to include support for the biofuels industry in any COVID-19-related stimulus package. NBB estimates that eligible fuel produced during that period, based on EPA’s RIN generation data, would total about 675 million gallons (translating to roughly $304 million in payments). The Democrat-controlled House passed the bill and sent it to the Republican-controlled Senate, where a separate bill was written. The final bill will be a compromise of the two.
USDA is, however, making available up to $100 million in competitive grants for activities designed to expand the availability and sale of renewable fuels. The grants are being offered under the Higher Blends Infrastructure Incentive Program, intended to increase significantly the sale and use of higher blends of ethanol and biodiesel by expanding the infrastructure for renewable fuels derived from US agricultural products. Grants up to 50 percent of total eligible project costs, but not more than $5 million, are available to vehicle fueling facilities, including local fueling stations/locations, convenience stores, hypermarket fueling stations, fleet facilities, fuel terminal operations, midstream partners, and/or distribution facilities.
USDA also plans to offer $86 million for implementation activities related to higher blends of ethanol and approximately $14 million for biodiesel. Higher biofuel blends are fuels containing ethanol greater than 10 percent by volume and/or fuels containing more than five percent biodiesel by volume.
Argentina Duties to Remain in Place
After a lengthy review, the US Department of Commerce (DOC) has resolved to maintain antidumping and countervailing duties put in place in 2018 on biodiesel imports from Argentina. Final countervailing rates in 2018 ranged from 71.45 percent to 72.28 percent and antidumping rates ranged from 60.44 percent to 86.41 percent. In November 2018, DOC granted a request by Argentina’s biodiesel industry to reexamine its original decision. A typical review takes 270 days, but this case took nearly 18 months to complete. DOC determined there were no “changed circumstances” to warrant modifications in US duty rates.
New Plans for Shuttered California Refinery
Global Clean Energy Holdings, a publicly-traded company based in Torrance, California, has purchased the former Big West refinery in Bakersfield, California, from Delek US Holdings for $40 million. Plans are to convert the property during the next 18 to 20 months to produce renewable diesel from camelina and other feedstocks, including used cooking oil, distiller’s corn oil, and soybean oil. No petroleum products are expected to be refined at the mothballed property, which has not run consistently since 2012 when it produced nearly 70,000 barrels per day of diesel and gasoline. Delek bought the facility along with other assets from Alon USA Energy several years ago. Alon permanently shuttered the plant about five years ago, costing the area at least 200 jobs.
Strategically located within a large regional demand center and within reach of the Los Angeles metropolitan and San Francisco Bay areas, Global Energy plans to sell, market, and distribute the renewable fuels produced at the facility through various partnerships, including one with a multi-national oil major.
Texas Company Looks to Retool
Texas-based CVR Energy Inc. is exploring the conversion of certain refineries to renewable diesel production to reduce its exposure to the cost of Renewable Fuel Standard (RFS) renewable identification number (RIN) credits. The project, which would involve using excess hydrogen capacity and converting some desulfurization units to renewable diesel production, is still in its early stages, the refiner’s chief executive said on its first quarter earnings call.
CVR Energy’s RINs expense in the first quarter of 2020 was $19 million compared with $13 million in the same period last year. The company estimates its RIN expense will be approximately $65 million to $75 million in 2020. Under the RFS, US refineries must blend billions of gallons of renewable fuels into gasoline and diesel each year or buy credits from those that do. The 10th US Circuit Court of Appeals ruled in January that Environmental Protection Agency exemptions for small refineries can only be used as extensions for refineries that had secured them continuously each year since 2010. Oil refiners HollyFrontier Corp. and CVR Energy, both of which had received waivers the court considered inappropriate, had sought a rehearing in the case but were denied in April.