Market Update: WB Services, LLC recently filed for Chapter 7 bankruptcy in the state of Kansas. WB Services is the parent company of Green Energy Products that operated a 3 MMGY renewable diesel facility in Sedgwick, KS. The facility was completed in 2014 and registered with EPA to generate D4 & D5 Renewable Diesel RINs, but closed down a few months ago. WB Services had partnered with Prairie Horizon Agri-Energy to build a 3 MMGY renewable diesel bolt-on to its existing ethanol plant in Phillipsburg, KS. According to WB Services website, the project was scheduled to begin construction in 2015; yet, Prairie Horizon Agri-Energy has not made any announcements regarding the ground-breaking. On the other hand, East Kansas Agri-Energy (EKAE) broke ground in November 2014 to build a 3 MMGY renewable diesel bolt-on to its ethanol plant in Garnett, KS partnering with WB services for the design, technology, and construction. EKAE's website said construction was supposed to be completed by the end of 2015, but EKAE has yet to announce any renewable diesel production or show up as an EPA registered renewable diesel producer.
Darling Ingredients and Valero Energy Corporation's joint venture, Diamond Green Diesel is expanding its production capacity to 275 million gallons per year of renewable diesel at its plant in Norco, LA. The expansion is planned to be completed in Q4 2017, with production ramping up in Q1 2018. The construction is only expected to bring the current 160 million gallon per year part of the plant down for 15-30 days during final tie-ins. In Q1 2016, Diamond Green Diesel produced 28.5 mil gals of renewable diesel.
AltAir Fuels is currently the only registered renewable fuel producer that can generate renewable jet fuel RINs. EPA's EMTS data for February & March classified 414,025 2016 D4 RINs as Renewable Jet Fuel. Renewable jet fuel required an application for an equivalence value and is currently only generating one RIN per gallon of fuel produced. Renewable jet fuel RINs can be used by obligated parties to help them comply with their RVOs, even though jet fuel consumption is not included in calculating the percentage standards. These extra RINs will help obligated parties that are facing ethanol blending constraints. We will likely see more renewable jet fuel RINs generated as AltAir Fuels has a contract with United Airlines to purchase up to 15 million gallons (with the option to purchase more) of aviation biofuel over the next 3 years. The biofuel is blended at 30% with traditional petroleum based jet fuel and was regularly used on commercial flights between Los Angeles and San Francisco in March; it's now being used on various flights out of the LAX hub. According to ASTM specifications, renewable jet fuel can be blended up to 50% with petroleum based jet fuels. Last year EIA's Monthly Energy Review pegged the product supplied of aviation fuel at 23.59 billion gallons.
EPA proposed the 2017 Renewable fuel RVO at 18.8 billion ethanol-equivalent gallons, of which 4 billion is the Advanced RVO, thus capping out conventional biofuel at 14.8 billion ethanol-equivalent gallons. The Advanced RVO also contains the proposed 312 million ethanol-equivalent gallon Cellulosic RVO and the already final 2 billion actual gallon RVO for Biomass-based diesel that can be filled by biodiesel, renewable diesel, and/or renewable jet fuel. Lastly, EPA proposed the 2018 Biomass-based diesel RVO at 2.1 billion actual gallons.
Analysis: For crop year 15-16 through March, 2.948 billion pounds of soybean oil was used to produce biodiesel, with 464 mil lbs used in March (pg 1). If this pace continues, 5.054 bil lbs of soybean oil will be used in 15-16 vs USDA's May WASDE estimate of 5.5 bil lbs. Soybean oil's share of all feedstocks used to produce biodiesel for 15-16 through March is 52.74%, up slightly from last crop year (pg 2). Corn oil used to produce biodiesel increased in Mar to 93 mil lbs, bringing the 15-16 through March total to 657 mil lbs, yielding about 80 mil gals of biodiesel (pg 4 & 5).
EIA's May-STEO has 2016 biodiesel production optimistically estimated at 1.529 bil gals (pg 7). PRX forecasts US biomass-based diesel (biodiesel & renewable diesel) and renewable jet fuel production for 2016 at 1.507 bil gals, with 216.4 mil gals being US renewable diesel and jet fuel production. EIA's STEO is also enthusiastically forecasting 2017 biodiesel production at 1.631 bil gals vs PRX's forecast of 1.648 bil gals of biodiesel, renewable diesel, and renewable jet fuel.
PRX estimates US biomass-based diesel and renewable jet fuel consumption for 2016 at 2.096 bil gals, which is above the 1.9 bil gal Biomass-based diesel RVO (pg 12). These 196 million extra gallons can be used toward the other Advanced and/or Renewable fuel RVOs. The EIA's May-STEO is expectantly forecasting the 2016 & 2017 biodiesel and imported renewable diesel consumption at 2.162 & 2.351 billion gallons, respectively. In addition, there is likely to be 200-300 million gallons of domestic renewable diesel and jet fuel consumed in both 2016 & 2017. The 2017 Biomass-based diesel RVO is 2 billion gallons. Thus, if the EIA's optimistic forecasts are accurate this implies the extra 400-700 million gallons each year will likely be used to meet the Advanced biofuel and/or the Renewable fuel RVOs. PRX is forecasting 2.255 billion gallons of biomass-based diesel and renewable jet fuel consumption in 2017.
In March, EIA's import survey had imports increasing to 35.7 mil gals: Neste Oil USA imported 17.346 mil gals of renewable diesel into CA & NJ from Singapore, various companies imported 8.862 mil gals of biodiesel from Canada, & Argentina sent 2.478 mil gals of biodiesel (pg 13). For 2016 through March, imports from Singapore are at 42.672 mil gals, Canada is at 17.262, Argentina 13.482, Indonesia 4.158 & South Korea is at 1.512 mil gals. EIA's export data comes from the US Department of Commerce and is reporting 9.828 mil gals of biodiesel exported in March, bringing the 2016 total to 13.902 mil gals (pg 14). PRX is estimating 2016 biodiesel and renewable diesel net imports at 572 mil gals vs the May STEO forecast of 649 mil gals.
The annual compliance deadline for obligated parties to submit their RIN retirements for 2013 compliance was March 1st, 2016. PRX is using its "RIN Generation Adjusted," which takes into account generation errors, noncompliance production, and exports (exporters have their own RVOs that do not count towards obligated parties RVOs) less "RINs Retired for Compliance" to calculate "Leftover RINs" that can be carried forward and used for the 2014 Compliance year (pg 19, see footnotes for exact calculations). PRX is estimating 1.62 billion 2013 RINs can be carried forward into 2014, assuming that none of the 14.5 billion 2013 RINs that were already retired before the 2013 compliance deadline are being used to fill obligated parties 2014 obligations. PRX is making this assumption because the compliance deadline for obligated parties to comply with their 2014 obligations isn't until August 1st, 2016 and only 22.4 million 2014 RINs were retired when adjusted for exported volumes of renewable fuel.
PRX has calculated the 2014 carryover RINs into 2015 at only 705 million RINs by subtracting both the carryover RINs from 2013 and the 2014 "RIN Generation Adjusted" from PRX's calculation of the amount of RINs that will actually be required by obligated parties (pg 19). When EPA issues its Final Renewable Volume Obligations these are used along with "EIA STEO consumption" data and forecasts to calculate the percentage standards. However, obligated parties must use the percentage standards to calculate their individual obligation using the amount of nonrenewable gasoline and diesel that they "produced" or "imported" into the 49 United States less Alaska (see pg 10 of
compliance reporting documentation). Thus, using actual EIA PSM data for motor gasoline and diesel "production" plus "imports," adjusting for exports because exporters have separate RVOs and adjusting for refiner and blender net input of fuel ethanol and PRX's forecasts for biodiesel and renewable diesel consumed we can estimate the aggregate amount of nonrenewable gasoline and diesel produced and imported into the 49 United States less Alaska. Then using the percentage standards PRX back-calculated the RINs required for each RVO (pg 18). For 2014-2016 PRX is calculating that more RINs will be required than EPA published in its Final Rule. For 2014, PRX is calculating that obligated parties need to retire 17.43 billion RINs vs EPA's 2014 Final Renewable fuel RVO of 16.28 billion RINs (pg 18).
For 2015, PRX calculates 17.67 billion RINs need to be retired vs EPA's 2015 Renewable fuel RVO of 16.93 billion RINs (pg 18). By removing the 2014 carryover RINs and 2015 "RIN Generation Adjusted" from PRX's calculation of the amount of RINs that will be required to be retired by obligated parties, PRX estimates the 2015 carryover RINs into 2016 at only 199 million RINs (pg 19).
