Viewpoint: Refined vegoils to feed into 2022 RD supply

The feedstock slate for nearly half of total current and announced renewable diesel (RD) plant capacity will require refined vegetable oils through mid-2022 or later, which could push refined/bleached/deodorized (RBD) soybean oil prices to retest recent highs.

Of the total 6.9bn USG/yr (450,100 b/d) of current and announced US renewable diesel capacity, 41pc will lack pretreatment units (PTUs) until mid-2022 or after, creating more demand for refined vegetable oils, of which RBD is the most widely used.

Renewable diesel facilities lacking a PTU are unable to process lower-quality feedstocks like used cooking oil (UCO), distillers corn oil (DCO) and tallows due to higher levels of impurities. So those lacking PTUs have to depend on refined feedstocks like RBD soybean oil and refined canola oil to produce renewable diesel.

At the end of June 2021, competition between the food and fuel sectors pushed spot prices for RBD soybean oil to as high as a premium of 33¢/lb to CBOT soybean oil futures for delivery to the Midwest. Prices have since fallen to around 15.75¢/lb to CBOT soybean oil futures as railroad congestion suppressed demand from biofuel facilities. Slower demand from the food services industry during the holiday season has put additional pressure on prices. But as the congestion dissipates in 2022, and as more renewable diesel plants without PTUs become operational, RBD soybean oil prices could reach the same premiums as in June.

The US currently has 1.55bn USG/yr (101,000 b/d) of capacity across 11 renewable diesel facilities. Another 10  plants are expected to come on line in 2022, adding about 1.64bn USG/yr to US capacity and creating more demand for feedstocks.  Another 3.71bn USG/yr of renewable diesel capacity is expected to come on line in 2023-2026.

Soybean oil is currently the most used feedstock for biofuel production, with the latest data from the Energy Information Administration reporting  consumption at 756mn lbs in September, followed by yellow grease — which includes used cooking oil (UCO) — at 219mn lbs. But soybean oil could make up a larger portion of biofuel production moving into 2022.

Multiple oil companies with renewable diesel projects have partnered with established agricultural suppliers to secure volumes of soybean oil. Until these feedstocks partnerships become operational, renewable diesel facilities relying on RBD soybean oil will have to compete with the food industry, which usually pays a premium for the feedstock.Marathon Petroleum and multinational foods processor Archer Daniels Midland (ADM) announced joint operation of a soybean crushing and refining facility in Spiritwood, North Dakota. 

Oil major Chevron and agricultural commodity firm Bunge locked in a deal to nearly double the capacity of Bunge's soybean crushing facilities in Illinois and Louisiana. Chevron will receive soybean oil produced at the Bunge facilities for renewable diesel production at its California plant. Phillips 66 also signed a supply agreement with an Iowa-based soybean processing plant, while Cargill plans to invest in soybean processing facilities in seven states, with an approximate investment of $475mn. 

Demand for less carbon intensive feedstocks like UCO, DCO and tallows is also touted to rise, as biofuel produced from those feedstocks generates more credits under California's Low-Carbon Fuel Standard program.  

But limited supply of feedstocks like UCO and other waste fats and oils could pose a challenge to the thriving biofuel industry. Accessing international UCO markets could pave the way for securing feedstock, with companies like Neste leading the way with its acquisition of UCO collector Mahoney Environmental and residue fat and oils trading company Agri Trading in the US.

Some have taken the possible supply crunch to highlight new opportunities for use of feedstocks like catalina, camelina and rye, with companies even exploring wood residues as an alternative.  

Although feedstock availability was rarely quoted as an issue by market participants in 2021, prices rose sharply on the back of strong demand, pushing almost all feedstock prices to hit several record highs over the year. 

In the first quarter of 2021, Phillips 66 started operations on renewable diesel production from a converted hydrotreater at its Rodeo, California, refinery, while Marathon reached full capacity at its 184mn USG/yr Dickinson renewable diesel facility in North Dakota during the second quarter. A 400mn USG/yr expansion of Diamond Green Diesel's 290mn USG/yr facility in Norco, Louisiana, also came on line in the fourth quarter, establishing itself as the largest feedstocks demand center inside the US.

The rise in demand pushed prices for UCO in the US Gulf coast to an all-time  high of 71.5¢/lb on 25 October and DCO prices reached a record 71.5¢/lb on 17 August. 

Prices experienced a brief downdraft during September, reflecting the impact of Hurricane Ida that made landfall in Louisiana on 29 August, but prices rose back up to pre-hurricane levels in mid-October. 

The holiday season has lowered some feedstocks prices as 2021 ends, but market participants expect trading activity and prices to pick up after the season ends.

By Jamuna Gautam