Imports, Oversupply Threaten U.S. Biofuels Outlook
Published: Friday, December 20, 2024
When analyzing the future of biodiesel use and production, Scott Berlin of the University of Illinois said that the outlook for plant-based fuels is a moving target, hard to pinpoint, and in the end, boils down to policy.
During a recent FarmDoc Daily online seminar, Berlin presented data charting the history of biofuel production, how it has evolved into new products through research and development, and possible futures for two primary products—FAME (Fatty Acid Methyl Ester) diesel and renewable diesel (RD).
Capacity for production and storage of biofuels is much greater than product demand. Profitability for FAME and RD fuels has declined, partially due to over production to match refinery capacity.
Since 2021, the U.S. has gone from 800 million gallons capacity to 5.1 billion gallons of RD.
The Renewable Fuel Standard (RFS) provides a minimum volume metric for RD and FAME creating a total demand ceiling in the U.S. between 2023 and 2024 of 4.1-4.6 billion gallons per year.
"It's a unique situation where you know the demand ahead of time because of the way the mandates work," Berlin said.
Refiners are producing a surplus of nearly a billion gallons beyond the RFS ceiling. Even when exports and imports are factored into the equation, the supply remains greater than demand.
A long list of new refining facilities await construction, but none have broken ground, and may never be built. On paper, U.S. biofuels production is set to grow 30% by 2026. However, it remains to be seen if that will happen since only two new facilities are scheduled to open in 2025-26. Berlin sees RD production heading into a plateau, if it has not already arrived there, projecting it to remain in the low 5-billion-gallon production range for the near future.
"The key point is that with a volume mandate in a policy market, the mandate sets the max demand in the market," Berlin said.
Berlin indicated that a Canadian renewable diesel plant announced its shutdown last week, and Chevron is idling two plants, one in Ralston Island and another in Madison. RD refineries can be switched to processing crude oil. Chevron's 184-million-gallon capacity El Segundo, Calif. plant made the switch in 2024.
Another plateau signal is total feedstock used in RD production. In 2021, total feedstock use jumped 61%, but only grew an additional 13% and 12% for 2022 and 2023, respectively.
The primary feedstock or oil source for FAME is soybean oil, and consistently supplies between 50-60% of market share, but soybean oil as feedstock for RD did not follow the same pattern as FAME.
"There was a lot of expectation in the soybean sector that there would be this huge new market because of the dramatic increase in RD production," Berlin said. "There were increases in soybean oil for RD feedstock but not nearly as big as expected with only 27% of market share while tallow and yellow grease supply 50% of RD market share."
For perspective, if only soybean oil were used for this increased production, it would require the oil of at least 8 million acres of U.S. soybean production.
In 2023, the U.S. imported about 3 billion pounds of used cooking oil, half of which came from China. Berlin projects that 2024 used cooking oil imported from China will exceed 5 billion gallons for 2024, turning a sustainable practice into a policy issue with different consequences, depending on who is creating policy between farmers, fuel producers, refiners and consumers.
Trade impacts are important and Berlin reports that FAME and RD imports have been pouring into the U.S. in recent years at a rate of nearly eighty million gallons per month, approaching a rate of a billion gallons per year.
The RFS mandate for 2024-26 is a policy that deserves the most political pressure in Berlin's opinion and will be set in 2025. He thinks refiners will push for similar RFS and climate/environmental groups will not have a seat at the table if the first Trump administration is any indication of the second time around.
"I think it's clear that the new Trump administration is not going to be friendly to climate policies, and RD and FAME did not do well under Trump the first time. Will biofuels be collateral damage in that? Possibly," Berlin said. "But refiners have made huge investments in renewable diesel and some in sustainable aviation fuel production capacity. A big unknown is what kind of trade war situation we're going to get into with the potential for tariffs."
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