Industrial BiotechnologyVol. 17, No. 3 Industry ReportsFree AccessRenewable Feedstocks Present New and Complex OpportunitiesArgus Media, London, United KingdomArgus Media, London, United KingdomArgus Media is a leading independent price reporting agency covering energy and commodity markets around the world. Web: www.argusmedia.com.Search for more papers by this authorPublished Online:11 Jun 2021https://doi.org/10.1089/ind.2021.29250.argAboutSectionsPDF/EPUB Permissions & CitationsPermissionsDownload CitationsTrack CitationsAdd to favorites Back To Publication ShareShare onFacebookTwitterLinked InRedditEmail Bioenergy: Illuminating the MarketsThe global refining industry is increasing production of renewable fuels for the transportation sector. This means renewable feedstocks—whether crop-based or waste-based—are gaining popularity in markets that were once reserved for petroleum products.Covid-19 had a major impact on transportation fuel demand. Still, government mandates calling for increased use of renewable fuels in the US and Europe have not eased and have refiners and producers re-evaluating refinery utilization and feedstocks slates.With that comes the need for price discovery and market intelligence across the entire renewable fuels supply chain. Companies must have feedstock pricing visibility to manage price exposure more effectively and help transition to renewable-based production. Argus, the benchmark for biodiesel in Europe, provides more than 40 unique renewable feedstocks prices in its expansive global biofuels coverage. Argus's biofuels coverage is published alongside its European FAME 0, RME and Ucome fob Amsterdam-Rotterdam-Antwerp (ARA) range biodiesel benchmark assessments. Argus is capable of assisting the transportation fuels industry throughout the transition process into renewable fuels production.As efforts to slow the spread of Covid-19 have diminished demand for gasoline, jet fuel and diesel, refiners across the globe have begun shuttering or repurposing capacity (Fig. 1). In the US, lucrative federal and state-level incentives and Low Carbon Fuel Standard (LCFS) programs have refiners shifting production away from petroleum capacity and toward renewable fuels. These fuels include renewable diesel, biodiesel, sustainable aviation fuel, bio or renewable naphtha and renewable natural gas.Fig. 1. COVID-19 related refinery closures (thousands of barrels per day).By 2024, US renewable diesel capacity will grow to nearly 4 billion gallons/year, with much of that coming from repurposed petroleum-based refineries on the US west coast. Investments in renewable diesel co-processing will also dominate new plant growth by 2024. US west coast refiners have generally avoided the renewable diesel production game until recently, leaving renewable diesel supplies to Gulf coast refiners. Louisiana hosts 70% of renewable diesel capacity and Texas supplies 15% of biodiesel capacity. Instead, the US west coast has imported its renewable diesel primarily from Finnish refiner Neste's 1.3 million tons per year Singapore refinery.However, a shift is afoot. West coast refiners, including Phillips 66 and Marathon Petroleum, plan to convert refining capacity from petroleum production to renewable diesel. Phillips 66 will convert its San Francisco refining complex to produce 52,000 barrels per day of renewable fuels (renewable diesel, naphtha and jet fuel) over the next three years, making it the largest renewable fuels production site in the US. Marathon Petroleum will convert its idled refinery in Martinez, California, to a 48,000 barrel per day renewable diesel plant in 2022 and is already producing renewable diesel at its Dickinson, North Dakota, plant. Smaller refiners including HollyFrontier (Wyoming) and CVR Energy (Oklahoma) also have conversion projects underway to add renewable diesel production.Renewable diesel is chemically identical to petroleum diesel, so assets associated with a refinery, including pipelines, storage tanks and other transportation vehicles do not need converting, unlike other biofuels such as ethanol and biodiesel. This reduces the barrier to entry into the renewable diesel market for refiners.With renewable diesel production plans comes the need for renewable feedstocks supplies (Fig. 2). Renewable diesel is produced from hydroprocessed plant and animal fats, vegetable oil and used cooking oil (UCO). Many industries, including farming and restaurants, sell into the renewable feedstocks pool. However, the market for renewable feedstocks is expected to tighten over the next six months as more renewable diesel production capacity comes online starting in 2021.Fig. 2. Renewable fuels production process. Renewable feedstocks such as animal fats, vegetable oils and waste oils are hydrotreated and processed into renewable fuels like renewable diesel and sustainable aviation fuel.The Argus Americas Biofuels report in February launched new renewable feedstocks assessments in the US, including Chicago tech tallow and edible tallow, Gulf coast tech tallow and bleached fancy tallow and California distiller's corn oil (DCO). These new assessments are published alongside the 30 new daily renewable feedstock price assessments that were launched in September 2020 in the Argus Americas Biofuels report, reflecting the growing importance of verifiable and insightful pricing tools in the renewable fuels market. These assessments are based on spot market activity in locations across the country and fall under seven categories of renewable feedstocks that are all used in the production of renewable diesel and biodiesel: UCO, bleached fancy tallow, yellow grease, choice white grease, crude degummed soybean oil, distiller's corn oil and poultry fat.State and federal incentive and blending credit programs in addition to the relative ease of refinery conversion have refiners keenly interested in moving into renewable diesel production. A US federal tax credit extended through 2022 offers a $1 per gallon incentive for each renewable diesel or biodiesel gallon blended into the US transportation supply. Renewable diesel also generates 1.7 credits used to comply with federal blending mandates from the Renewable Fuel Standard (RFS) compared to 1 credit per gallon for ethanol and 1.5 credits per gallon for biodiesel. In addition to the $1 per gallon incentive and credits generated under the RFS, renewable diesel and sustainable aviation fuel also generate credits under California's LCFS.US renewable fuels supply will look drastically different by the end of 2024 as announced refinery conversions come online. By 2021, the US west coast will host more than 60% of the country's new renewable diesel production. By the end of 2024, the west coast will produce 56% of US renewable diesel (2 billion gallons per year), displacing the US Gulf coast as the renewable diesel production epicenter.The west coast has long been a focus for renewable fuel markets because of increasingly stringent carbon intensity (CI) targets under the region's LCFS programs. California, in particular, is the pioneer in renewable fuels mandates and incentive programs, and other states are following suit. In May 2021, Washington state approved an LCFS program which will commence in 2023, and New York is planning to enact an LCFS program which will also increase renewable diesel use over the next decade.Renewable diesel is used to meet the requirements set by California's LCFS because of its attractive CI, or greenhouse gas reduction score. The US imports nearly 30,000 barrels per day of biomass-based diesel, primarily renewable diesel. All imports ship into California to meet the LCFS mandates. The California LCFS requires a 20% reduction in the CI of transportation fuels from the 2010 baseline by 2030. This year's target is an aggressive 7.5% cut. As the CI targets for the California LCFS get more stringent over the next decade, the use of more renewable fuels will become necessary, including renewable diesel, renewable natural gas, biodiesel and ethanol. Renewable diesel and ethanol are the top credit generators under the LCFS program, making renewable diesel and its feedstocks highly sought after. Renewable diesel imports are expected to have increased by 25% in 2020 and 56% in 2021, giving US refiners even more incentive to increase domestic production. California LCFS prices, which have risen over the past few years, are attractive to renewable fuel producers. Prices have recovered from their COVID-19 pandemic-induced drop and sit just below $200 per ton, according to Argus assessments. Even as California's targets get more stringent, clean fuels programs in Canada and other states across the US are set to come into effect, adding more competition to the already tight renewable fuels and feedstocks markets. Demand for renewable feedstocks is expected to significantly rise over the next 10 years because of planned renewable fuel projects and clean energy programs. These programs have been largely insulated from COVID-19 demand loss, as compliance with the programs will become mandatory for refiners and importers regardless of transportation fuel demand cycles.British Columbia will extend its LCFS program to 20% by 2030, and Oregon is working to extend to 25% by 2035. Canada plans to slash GHG emissions by 30 million tons per year by 2030, and the liquid fuel portion of its proposed Clean Fuel Standard will begin in 2022. Within Canada's program, ethanol, biodiesel and renewable diesel should be significant credit generators.Efforts are underway in New York and Washington to add state-level LCFS programs, and the Great Plains Institute is proposing a US midcontinent regional LCFS program. US Senate Democrats are calling for a national clean energy mandate and LCFS program to reduce US GHG emissions. Argus expanded its California LCFS assessments to include spot delivery during the first four forward calendar quarters. Argus also publishes a daily Oregon LCFS market assessment, and market coverage includes premiums for ethanol, biodiesel, sustainable aviation fuel and compliance costs for gasoline and diesel.European MarketsIn Europe, more stringent mandates under the Renewable Energy Directive II (RED II) are driving demand for low carbon biofuels. The current EU-wide target of renewables in final energy consumption is set at 32% by 2030, with a separate 14% target for renewables in transport. Now, the European Commission has proposed a 55% GHG emissions cut by 2030, meaning the EU will have to achieve a renewable share of 38-40% in final energy consumption and likely to exceed a 20% share of renewables in transport. Most EU member states have already proposed additional renewable fuels mandates, significantly boosting demand for renewable fuels and feedstocks.Most feedstocks currently employed to reduce emissions via biofuels are food and feed crops. Argus Biofuels has priced the primary domestic source of biodiesel—rapeseed oil (RSO)—on a fob Dutch mill basis since 2010. The use of RSO as a feedstock for European biofuels production is expected to stay stable to 2030. Spot trade of end product rapeseed oil methyl ester (RME) in northwest Europe topped 930,000 tons on Argus Open Markets in 2020.But as European refiners increase domestic renewable fuel and biofuels production, Europe is also turning to China and other Asia-Pacific countries for waste-based renewable fuel and feedstocks imports. In 2018, the EU imported more than 250,000 tons of FAME biodiesel from China. In January 2019, China sent more than 30,000 tons of UCO into Europe, the most of any other country.European hydrotreated vegetable oil (HVO) renewable diesel production increased to 3.6 million tons per year in 2020-2021. HVO plants typically process a mix of crop-based and waste-based feedstocks. HVO can be blended into the existing diesel pool and is an important factor in meeting RED II mandates. Neste pioneered the renewable diesel production process, but competitors are quickly coming to market.A benefit to HVO production is that refineries are not limited to one type of renewable feedstock but can easily switch to the most price-competitive source. At the height of the COVID-19 pandemic when restaurant closures across the globe reduced the availability of UCO as a feedstock to renewable fuels producers, soybean oil became the renewable feedstock of choice for many plants. But feedstocks such as UCO or tallow can be double counted against energy mandates across most EU member states and boast higher GHG savings, which will keep them as the preferred choice for HVO producers. With renewable feedstocks flexibility comes a challenge in pricing the finished fuels markets and normalizing market specifications. Argus Biofuels, the industry benchmark in Europe, offers sought-after transparency and clarity to the complex renewable fuels and feedstocks markets.UCO is already a staple RED Annex IX feedstock in the region but is diverse both in specification and points of origin. By surveying and assessing trade via daily conversations with suppliers, traders, brokers and buyers—both locally in Europe and in key export markets such as China, Indonesia and Malaysia—Argus Biofuels offers a complete view on prompt physical UCO pricing.Argus Biofuels in February added northwest Europe tallow categories I and II assessments. These renewable feedstocks assessments close out the Annex IX category B assessments and join Argus' tallow methyl ester (TME) biodiesel assessment, which was added in 2013. Argus Biofuels also recently added weekly HVO assessments for northwest Europe that cover three different groups of feedstocks: food and feed crops, used cooking oil/palm oil mill effluent and category III tallow. These price assessments are published weekly in the Argus Biofuels report, with real-time market pricing available directly on Argus' price discovery platform, Argus Open Markets Because Argus is ceaseless in its efforts to bring market insight and transparency to all fuels supply chain, Argus Biofuels in April added Amsterdam-Rotterdam-Antwerp (ARA) palm oil mill effluent (POME) assessments. This developing spot market is gaining liquidity and proving to be another important pricing hub for European renewable feedstocks. POME is the first “advanced” feedstock (listed in Annex IX A of RED II) that Argus assesses. Advanced feedstocks and biofuels will play an increasingly important role in the European market as they are incentivised under RED II, while high-ILUC feedstocks (mainly palm and soybean oil) are capped. In Europe, Argus also assesses the cost of compliance with EU biofuels blending mandates in the UK, Germany and the Netherlands by following the respective biofuels ticket markets. The purchase of biofuels tickets is the most commonly used alternative to physical biofuels blending, and the weekly publication of respective ticket values offers market participants further transparency by completing the overview of the main European biofuels markets.Renewable Fuels Could be a Key to SurvivalAs navigating the Covid-19 pandemic has challenged so many industries, the global refining industry is discovering that moving deeper into the renewable fuels space is a timely option to stay afloat in the post-pandemic world. Steep government mandates and decreased consumer demand at one time spelled disaster for some refiners. However, a shift into the renewable fuels sector could be a must for refiners to survive as fossil fuel demand decreases. And as renewable fuels and feedstocks demand grows, so will the need for transparency Argus' daily pricing and market intelligence for renewable feedstocks, finished renewable fuels and renewable fuel credits and tickets in the US and Europe provides companies the necessary tools for market pricing and transparency through all aspects of the renewable fuels supply chain.Editor's NoteThe text presented here is excerpted from a report prepared by price reporting agency Argus (London, United Kingdom). The information and views expressed here are those of the authors and not Industrial Biotechnology or Mary Ann Liebert, Inc., publishers, or their affiliates.FiguresReferencesRelatedDetails Volume 17Issue 3Jun 2021 InformationCopyright 2021, Mary Ann Liebert, Inc., publishersTo cite this article:Argus Media, London, United Kingdom.Renewable Feedstocks Present New and Complex Opportunities.Industrial Biotechnology.Jun 2021.166-169.http://doi.org/10.1089/ind.2021.29250.argPublished in Volume: 17 Issue 3: June 11, 2021Online Ahead of Print:June 3, 2021PDF download