Perfect Storm: Coronavirus and Crude Wars

Developments in the first half of March have put unprecedented pressure on the United States (US) and global biofuels sector. Between the fast-developing fallout from reaction to the coronavirus (COVID-19) pandemic and market freefall resulting from the Saudi Arabia-Russia crude oil price war, values for biodiesel and renewable diesel have fallen precipitously as of this writing.
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New York Mercantile Exchange heating oil prices—often used as an index for pricing biodiesel and renewable diesel—fell about one dollar per gallon in the first few weeks of March, effectively wiping out the value created by the recently reinstated US federal blenders tax credit. Worldwide efforts to flatten the curve of new COVID-19 infections have already affected shipping, air, and other travel and commerce. With no end in sight to any of these historic market conditions, this slowdown has begun to look more like a death spiral. A perfect storm of biofuels demand destruction.
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That’s the bad news, but there is some favorable information to share.

Just prior to these fast-breaking developments, the US Energy Information Administration released its Annual Energy Outlook 2020, projecting that US biofuel production will slowly grow through 2050, primarily driven by economic and policy factors. In the outlook, which reflects current laws and regulations, biofuels production in 2050 is 18 percent higher than 2019 levels. With higher global crude oil prices, biofuels such as ethanol and biodiesel are increasingly consumed as substitutes for petroleum products, resulting in 55 percent growth in biofuels production in 2050. All this prognostication, however, will need to be viewed through the current economic lens.

In another promising development, US Department of Agriculture (USDA) Secretary Sonny Perdue issued a memo on February 28 directing the agency to acquire alternative fueled vehicles when replacing conventionally fueled vehicles. USDA owns and operates one of the largest civilian fleets in the federal government and using ethanol or biodiesel will increase efficiencies and performance. Additionally, as part of President Donald Trump’s October 2019 agreement to seek ways to make higher biofuel blends available across the country, USDA will provide $100 million in grants this year for the newly created Higher Blends Infrastructure Incentive Program. Transportation fueling and biodiesel distribution facilities can apply for grants to help install, retrofit, and/or upgrade fuel storage, dispenser pumps, related equipment, and infrastructure in order to sell biofuels or convert to higher blends. The department plans to publish application deadlines and other program information in the Federal Register this spring. These actions have the potential to increase USDA’s annual consumption of biodiesel and renewable diesel blends by up to three million gallons. Where biofuels are available, the USDA fleet is directed to use them.

Neste Buys Mahoney Environmental
Renewable hydrocarbon diesel and aviation fuel producer Neste is acquiring 100 percent of Mahoney Environmental, a collector and recycler of used cooking oil based in Joliet, Illinois. The transaction is subject to the fulfillment of customary closing conditions and regulatory approval, and supports Neste’s effort to build a global raw material platform that can keep pace with the world’s growing demand for renewable products. Neste operates renewable product refineries in Rotterdam, the Netherlands; Porvoo, Finland; and Singapore, where the company recently announced a $1.54 billion expansion to significantly increase production capacity of renewable diesel and sustainable aviation fuel.
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Oregon Ramps Up GHG Reduction Goals
Oregon Governor Kate Brown signed an executive order on March 10 establishing new greenhouse gas (GHG) reduction goals and climate policies, including expanding Oregon’s Clean Fuels Program. The executive order includes a detailed series of directives to state agencies updating existing state carbon emission goals to reflect current science, setting a standard of 45 percent reduction from 1990 levels by 2035 and an 80 percent reduction by 2050. The order also outlines a variety of means to achieve the new goals, including sector-specific caps on climate pollution, doubling GHG reduction targets in the Clean Fuels Program, increased efficiency requirements for buildings and appliances, a plan to accelerate the usability of electric vehicles, a plan for emissions-conscious transportation spending, an acceleration of clean energy use in the utility sector, and a plan to add climate change as a top priority for agency decision making.

Under Oregon’s Clean Fuels Standard, state agencies are directed to take actions necessary to amend the low carbon fuel standards and the schedule to phase in implementation of those standards. The new goal is to reduce the average amount of GHG emissions per unit of fuel energy 20 percent below 2015 levels by 2030, and 25 percent by 2035. The state’s current program required a 0.25 percent reduction in 2016 that phased up to a 10 percent reduction by 2025.
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Sweden Gets Renewable Diesel Plant
Oil refiner and renewable fuel producer Preem AB has chosen Haldor Topsoe’s HydroFlex renewable fuel hydrotreating technology to produce renewable diesel and jet fuel at its Gothenburg refinery in Sweden. The unit will have an annual production capacity of approximately 245 million gallons, which equates to about 25 percent of Sweden’s estimated consumption of renewable fuels in 2030. This volume of renewable fuel can reduce emissions from cars and planes by 2.5 million tons of carbon dioxide every year. The new plant is scheduled to begin production in 2024 and will utilize tall oil, tallow, and other renewable feedstocks.
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California Producers Strive for a Petroleum-free State
The California Advanced Biofuels Alliance (CABA) 9th Annual Conference was held in Sacramento, California, in early March (full disclosure—this author is a founding member of CABA and currently serves as its vice chair). This year’s theme was “Let’s Talk About Carbon!” CABA Chair Tyson Keever opened the conference by honoring Floyd Vergara of the National Biodiesel Board (NBB) and Laura Fisher of California’s State Water Resources Control Board (SWRCB) with the alliance’s Climate Leader Award for their dedication to the industry. Vergara joined NBB in 2018 after 32 years with the California Air Resources Board (CARB). Fisher is chief of SWRCB’s division of water quality and was instrumental in the passage of the underground storage tank regulation, which, as of January 1, 2020, allows for the storage of up to 20 percent biodiesel in double-walled underground storage tanks.

Shelby Neal, director of state governmental affairs at NBB, moderated the regulatory update panel with Jim Duffy, chief of CARB’s transportation fuels branch, Lex Mitchell, manager of CARB’s emerging technology sections, and Andrew Clapp, compliance auditor and Low Carbon Fuel Standard (LCFS) accredited lead verifier at EcoEngineers. Duffy and Mitchell gave updates on the state’s LCFS and alternative diesel fuel regulations, respectively, while Clapp shone light on the LCFS verification process. Each of the panelists assured the audience that biofuels will continue to play a major role in California’s climate goals.

Donnell Rehagen, NBB chief executive officer, and Kurt Kovarik, vice president of federal affairs at NBB, updated attendees on the board’s new vision. As the industry rejoices in the recent passage of the biodiesel tax credit, NBB believes biodiesel, renewable diesel, and renewable jet fuel usage will exceed 6 billion gallons by 2030 and 15 billion gallons by 2050.

California Environmental Protection Agency Secretary Jared Blumenfeld delivered the event’s keynote address, during which he offered up enthusiastic support for biodiesel and renewable diesel. David Dunn of Idemitsu Apollo kicked off the afternoon panel with a discussion on marketing and off-road use. He was joined by Sam Bayless of California Fuels and Convenience Alliance, Greg Michael of Western States Oil, and Layne Campbell, Ed Ward, and Camron Crouch, all of Valley Pacific Petroleum Services. This broad array of fuel marketing leaders shared their efforts to get higher blends of renewable fuels into the state, especially a blend of 80 percent renewable diesel and 20 percent biodiesel.

This panel was followed by presentations on infrastructure and feedstock from Mike Rath of Darling Ingredients, Eric Kayser of Imperial Western Products (IWP), and Billy Burns of FC Stone. As the industry pushes for higher blends of low carbon diesel substitutes like biodiesel and renewable diesel, more innovative feedstock technologies are needed and statewide storage, blending, and distribution infrastructure outside the traditional petroleum network is being considered. These will provide unique business opportunities to innovators and investors in the emerging carbon economy.

Harry Simpson, chief executive officer of Crimson Renewable Energy, finished the panel discussions with “A Roadmap to a Petroleum Free California.” This panel focused on how the industry can accomplish its 2019 whitepaper goals of displacing petroleum diesel in California by 2030. Simpson was joined by Erin Donnette of World Energy, Eric Kayser of IWP, Vergara, and Rath. The panel agreed that as the use of biodiesel and renewable diesel continues to grow and with the hard work of CABA’s members and industry peers, the group is confident it can achieve its goals and contribute to a petroleum-free California.