U.S. refining capacity has declined in the last two years, as plants shut during the outset of the coronavirus pandemic, causing prices to spike. Several plants are being converted to facilities that can produce cleaner-burning renewable diesel, but at least for now, those facilities will not fully replace those refined barrels.

There are at least 12 renewable diesel projects worth more than $9 billion under construction, with another nine proposed (all figures US$). The 12, along with existing plants, are expected to produce about 135,000 barrels per day (bpd) of renewable diesel by 2025 according to EIA data, from around 80,000 bpd now.

However, since 2019, diesel production capacity has dropped by about 180,000 bpd total, according to the U.S. Energy Information Administration, and at least one more U.S. refinery is set to close next year, further reducing output. In addition, those refiners set to produce renewable diesel will also no longer produce gasoline or jet fuel.

Globally, about 400,000 bpd of combined diesel, jet fuel and fuel oil capacity has been lost since 2019, according to calculations from EIA data.

Renewable diesel is made from animal fats, food wastes and plant oils but is chemically equivalent to petroleum-based diesel. It can be produced in existing refinery equipment, but the yield are lower than with diesel. Biodiesel, another plant based diesel, must be mixed with petroleum to operate effectively in engines.

Growing demand and refinery losses have pushed diesel prices to record levels. The retail price of U.S. diesel has surged 80 per cent this year to $5.78 a U.S. gallon, and low inventories have raised the potential for shortages. U.S. stocks of distillates, including diesel, are down 19 per cent from a year ago.

About 1 million bpd of new petroleum refining capacity is planned in the next five years in Asia, the Middle East and on the U.S. Gulf Coast. But experts say startups are difficult to predict due to construction delays, changes in market demand and financing.

Biodiesel pivot

U.S. refiners joined the renewable fuels bandwagon two years ago as the pandemic slashed fuel demand and environmental pressures led several to choose de-carbonizing over shuttering facilities.

Marathon Petroleum’s 166,000 bpd Martinez, California refinery and Phillips 66’s 120,200 bpd Rodeo refinery, also in California, converted to renewable diesel facilities. Combined, they will produce 100,000 bpd of renewable diesel by 2023.

HF Sinclair converted a 52,000-bpd Cheyenne, Wyoming, refinery to produce 6,000 bpd of renewable diesel. The former Come-by-Chance refinery in Newfoundland aims to begin producing 18,000 bpd of renewable fuels by 2024.

“These projects should bring incremental barrels in the next few years, but not now when they would be more needed,” said Ravi Ramdas, managing director of energy consultancy Peninsula Energy.

Renewable fuel profits have been bolstered by states, led by California’s Low Carbon Fuel Standard, that reward producers with tradable credits for producing renewable fuels.

However, the credits are now trading at about $80 per ton, down from $200 per ton in 2020, when the majority of these projects were proposed. Still, U.S. refiners say they are not backtracking on renewable diesel projects.

The cost of vegetable oils used to make renewable diesel also has shot up following Russia’s invasion of Ukraine. Soybean oil, a popular refinery feedstock, is up 40 per cent year-over-year, while crude oil is up more than than 60 per cent in that time.

— Laura Sanicola reports on the U.S. energy sector for Reuters from Washington, D.C.

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The project, which still requires final approval, is part of majority-owner Exxon Mobil’s goal of producing more than 40,000 barrels per day of low-emissions fuels by 2025.

Calgary-based Imperial aims by 2024 to construct a hydrotreater and use fossil-fuel derived blue hydrogen to process “locally sourced and grown” feedstocks such as canola and soybean oils into 20,000 barrels per day (bpd) of renewable diesel at its Strathcona refinery, it said.

A decision to proceed will require government support and approvals, favourable market conditions and a determination of the project’s economic competitiveness, an official said. Imperial’s potential investment in the project was not disclosed.

Canada’s Clean Fuel Standard, which takes effect next year, is intended to spur investment in clean-energy technology and create a trading scheme that enables fuel suppliers that do not meet emissions reduction targets to buy credits generated from cleaner fuel producers.

“It enables faster and deeper decarbonization with a market driver so technologies can be developed more effectively,” said Andy Madden, vice president of strategy and planning for Exxon.

Imperial’s production process would capture and store underground about 500,000 tonnes of carbon dioxide each year, Exxon said in a statement.

Canada’s Clean Fuel Standard aims to cut greenhouse gas emissions by 30 per cent below 2005 levels by 2030.

Imperial, which also owns stakes in three Alberta oil sands operations, two fuel refineries in southern Ontario and the Esso and Mobil fuel station chains, said the British Columbia government has already agreed to support the Alberta project through an agreement under its own low-carbon fuel legislation.

The company didn’t specify where it would source plant-based feedstocks, but Alberta is already home to canola crushing plants including those of Cargill at Camrose, Richardson International at Lethbridge and ADM at Lloydminster.

Crush capacity is expected to increase also in neighbouring Saskatchewan, where Richardson recently announced plans to double its handle at Yorkton, while Cargill and Viterra each plan to build facilities in the Regina area.

Refiners in the U.S., including Valero Energy and Marathon Petroleum, are using federal and state incentives in that country to produce renewable diesel.

If all renewable fuel projects were complete, U.S. renewable diesel production would total 330,000 bpd by the end of 2024, according to the U.S. Energy Information Administration, equal to about seven per cent of 2020 diesel output according to Reuters calculations.

— Laura Sanicola reports on the U.S. energy sector for Reuters from New York. Includes files from Glacier FarmMedia Network staff.

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Refiners are on the hunt for secure access to feedstocks for renewable fuels amid supply constraints and soaring prices for fats, greases and oils.

A joint-venture soybean processing complex at Spiritwood, N.D., about 300 km south of Winkler, Man., is expected to produce about 600 million pounds of refined soybean oil annually, enough feedstock for about 75 million gallons of renewable diesel per year, when complete in 2023, the companies said.

That’s about 40 per cent of the feedstock needed to supply Marathon’s Dickinson, N.D., plant, which is designed to process about 180 million gallons of renewable diesel annually. Dickinson is about 340 km west of Spiritwood.

The soy crush plant, which ADM first announced in May, will now be majority-owned by ADM with a 75 per cent stake, while Marathon Petroleum will own the rest.

A growing number of refiners and renewable fuel producers, including Marathon, plan to ramp up green fuel production in the coming years, putting pressure on supply and feedstock prices.

ADM executive Ken Campbell said he believes renewable diesel demand may be as much as five billion gallons by 2025.

But Marathon called the soybean oil’s economics “challenged” because higher prices coupled with the relatively higher carbon intensity of the oil limits refiners’ ability to profit on production.

Margins to produce renewable diesel from soybean oil so far this quarter have averaged about US$1.35 per gallon, more than $1 lower than processing used cooking oil, according to data from Tudor, Pickering and Holt.

Carl Icahn’s CVR Energy put off plans to produce renewable fuels at its Wynnewood, Oklahoma, facility.

U.S. grain handler The Andersons also plans to supply more renewable diesel feedstock to Marathon, with which it has an existing joint venture in four ethanol plants.

— Reporting for Reuters by Arunima Kumar in Bangalore and Laura Sanicola in New York; additional reporting by Karl Plume.

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Canadian Prime Minister Justin Trudeau’s government intends to present its Clean Fuel Standard this year, aiming to cut 30 million tonnes of emissions by 2030.

Renewable diesel, made by processing spent cooking oil, canola oil or animal fats, can be used in high concentrations or without blending in conventional diesel engines.

So far, Canadian companies have been slow in preparing to make the fuel, with only three projects publicly announced, said Ian Thomson, president of the Advanced Biofuels Canada industry group.

At least five U.S. refiners have announced plans to produce renewable diesel or said they are considering it, including Phillips 66 and HollyFrontier Corp.

“This is Canada’s to lose,” Thomson said. “If Canada’s refiners want to get left out of the game, they will dig their heels in and oppose the standard. Meanwhile, the Americans will build.”

Renewable diesel is a niche market, making up just 0.5 per cent of the 430-billion gallon per year global diesel market, according to investment bank Morgan Stanley.

Greenhouse gas emissions from renewable diesel and traditional biodiesel are typically 50-80 per cent lower than conventional diesel.

U.S. states such as Colorado and Washington are moving toward such standards and along with Canada’s fuel standard, a sufficient market is developing, said HollyFrontier executive Tom Creery, on the company’s second-quarter earnings call.

Suncor Energy, Canada’s second-biggest oil producer, has been considering a renewable diesel plant in Montreal, but the pandemic slowed its progress, said chief sustainability officer Martha Hall Findlay.

Canadian refiners face longer regulatory delays than competitors in the United States, setting them at a disadvantage, she said.

“The timelines would force investment in facilities outside Canada because of the sheer fact that we can’t build them that fast,” Hall Findlay said. “That seems a little backward.”

New supply could far overshoot demand if all announced projects are built, Morgan Stanley said.

Parkland Fuel Corp. is producing renewable diesel and renewable gasoline in its Burnaby, B.C. refinery, and is considering expanding capacity, said senior vice-president Ryan Krogmeier.

“There’s a tremendous opportunity for Canada to harness its natural resources,” he said. “The market for renewable fuels is really taking off.”

However, Canada’s criteria for crops to be made into biofuels are too strict to be practical, said farmer Markus Haerle, a corn and soybean grower and chair of Grain Farmers of Ontario.

Federal officials have told the group that farms must meet strict requirements to qualify their crops, such as growing them at least 30 metres from waterways and on land that has not been significantly cleared of trees.

“We know farmers won’t be able to be certified under those criteria,” Haerle said.

The same standards will apply to imported fuels, said Samantha Bayard, spokeswoman for Canada’s environment ministry.

— Reporting for Reuters by Rod Nickel in Winnipeg and Laura Sanicola in New York.

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