Challenges and Opportunities in Biofuels

By Steve Hartig, Former VP of Technology Development at ICM

The North American biofuels market can be split into three main segments all of which have major dynamics.  What I would like to do is give a high-level overview of what I see as some of both the challenges and opportunities across these.

• Ethanol which is a produced from corn and sorghum in about 200 plants mainly across the Midwest and blended at about 10% with gas.  Majors such as POET, Green Plains, Flint Hills, Valero, ADM and Cargill do a bit more than half of the 16 billion gallons production with the rest done mainly by farmer co-op plants.  An average plant size is about 80 mln gpy.  About 10% of gasoline is ethanol.   Cellulosic ethanol is the newer area which has had many challenges but companies such as POET DSM are producing some volumes from crop residues and Lanzatech from gas streams.
• Biomass based diesel produced mainly from vegetable oils and waste fat in a large number of plants, typically rather small, across the US with the market leader being REG.  Total volume sold in the US, per the EPA was 2.3 bin gallons, in 2018 or about 4-5% of the total diesel supply.  Actual capacity is much larger at 4.1 bln gallons.
• Bio jet fuel which is still embryonic but an interesting are with about 25 bln gallons of potential.  What is exciting is that this area is likely to grow in volume over time and alternative approaches such as electrification are difficult for aircraft given the weight of batteries so this is a long term and growing market for biofuels

Challenges for the corn ethanol and biodiesel producers are very much around profitability and the regulatory environment while the embryonic cellulosic and jet fuel areas still has many technical challenges to prove viability.

Corn Ethanol

There is a huge challenge today due to oversupply versus demand driving prices down.  There is much arguing as to the cause of this but it seems to be a combination of low or no growth in gasoline demand, significantly added ethanol capacity, a slow uptake of higher-level ethanol blends and the EPA Small Refinery Exemptions.  This is aggravated by the dynamics in corn pricing this year due to weather.

Unless E15 volume increases significantly, things are only going to get worse as essentially all forecasts show gasoline volume decreasing over the coming five to ten years driven by increased fuel economy in the short run and vehicle electrification in the long term.

Forecasting what will happen is difficult as ethanol is very different than most commodity chemicals due to the relatively small plant size, driven by corn supply economics, and the large number of companies active in it.  In most commodity chemicals markets, a handful of companies control the market and new entrants are difficult due to the lack of economies of scale.  However, continued consolidation and the closing of smaller, less efficient and poorly located plants will continue.

The starting point for surviving any downturn and long term sustainable profit will be having a plant with a low cost position driven by a combination of scale, plant technology, location, operational excellence and strong maintenance.  The difference between leaders and laggards here can be over $.10 per gallon, which is huge.

However, the likely winners will be those that also embrace some form of specialization next to the commodity markets for ethanol, distillers grains and corn oil.

A number of options exist and this is also an exciting area of focus for many companies.

Main areas include:

• Moving towards higher value animal feed by fractionating the distillers grains into more focused animal feeds.   Options for this exist from many suppliers including ICM and Fluid Quip Process Technologies.  Both companies take an approach of splitting the DDGS into two streams, one a high protein feed product targeted at poultry, swine and aquaculture and the remainder being either a DDGS at the low end of the protein specification or a wet fiber and syrup product targeted at cattle.   The value comes from the fact that the higher protein product more competes with soy rather than corn and  can capture a higher price.  Both companies have multiple installations in place and claim paybacks in the 2-4 year range.  Considerations for installing these technologies would include plant scale and geographic location with proximity to cattle allowing the use of wet feed an advantage.

• Towards the future, options will include using stillage as a fermentation broth such as both White Dog Labs and KnipBio are developing.  Both companies are focused on using the relatively inexpensive stillage to produce single cell proteins aimed at aquaculture.  These products can potentially compete with fish meal which a$1500/ton and is also limited in growth potential. White Dog Labs has announced an initial installation in Nebraska while KnipBio has announced a cooperation with ICM towards commercializing their technology.

• Focusing on California and the increasing low carbon fuel markets.  Today, with the value of a carbon credit close to $200, a plant with a CI of 75 can get a premium of over $.25 per gallon.  There are only a few plants in the 60’s but many in the mid 70’s.  Typical approaches include alternative power sources such as land fill gas or anaerobic digestion to biomethane combined with cogeneration of electricity and steam.  Other options include solar or biomass boilers.  A newer approach is the use of membrane technology to reduce the energy used in the molecular sieves or alternatively modifications to the evaporators.  The keys when considering this approach would include a good starting point with plant efficiency and the cost of west coast shipment.

• Using the ethanol plant as a platform to produce other products.  Edeniq has a number of plants producing cellulosic ethanol from corn fiber while both ICM and D3Max have their first, larger scale, plants under construction.   Cellulosic ethanol from corn fiber is much lower cost to produce than cellulosic ethanol from crop residues or energy crops.  Edeniq has no capex and claims a cellulosic ethanol amount of 3-4% while both D3Max and ICM indicate levels more in the range of 7-8% but have significant capital.   However, the payback can be short given a combination of a D3 RIN and potential LCFS credit.  Another alternative in the future may be butanol with Gevo (NASD:GEVO) and Butamax both having demonstration facilities up and running.

I believe these options will be a game changer for the industry but companies must make the right choice based on starting position, plant location, scale and technology, risk tolerance, operational capabilities and capital availability.  A key item for many of these is that they will typically create a more complex plant and business environment which can require a higher level of staffing, capability and management expertise.

I think the future can be bright for ethanol but I foresee a future that likely has fewer, larger and more sophisticated plants than are in place today.

Biomass based diesel

Biomass based diesel (BBD) has very different dynamics with about 100 plants in the US, some of which are very small, less than 10 mln gallons per year.  Many of the plants are driven by location by feedstocks, either soy or corn oil or waste fats and greases.  Demand for BBD is very much driven by the RFS as it typically costs more than petroleum-based diesel but can fulfill either the D4 BBD RIN or the Advanced D5 RIN.  This is particularly the case with the biodiesel tax credit lapsing in 2017 and, at least so far, not being renewed.

The big change going on now is the shift towards renewable diesel, presently about 15% of total BBD, which is more costly to produce but is essentially a drop in for diesel and can have lower carbon numbers, depending on feedstocks.  Due to the lower CI it is being heavily targeted at California for sale under the Low Carbon Fuel Standard.  In addition, it can capture a greater RIN value.

The plants scheduled to come on line over the next few years is mind boggling given today’s position.  Expansions planned or proposed by Diamond Green (a joint venture between Darling Ingredients (DAR:  NYSE) and its joint venture partner Valero Energy (VLO:  NYSE)), NEXT Renewables, RYZE, Philips 66 (NYSE:PSX)/Renewable Energy Group (NASD:REGI) and others could add up to 2 bln gallons of new Renewable Diesel volume focused on West Coast markets and almost doubling the total volume of BBD volume.  This is in addition to global expansions in biodiesel by companies such as Neste and companies coprocessing it in oil refineries.

Selected US Renewable Diesel Projects

Note:  Project information from company websites and public announcements

This will have significant impacts on the market:

• The total diesel fuel market is not expected to grow much, per the EIA, so this fuel will need to displace petroleum-based diesel which may negatively impact pricing.   There also is more capacity than there are RINs available which will have a downward impact on that.  On the plus side, is the LCFS which is spreading beyond California and will bring a carbon credit.  REG indicated in their 10k that the 2018 value was between $.40-.80 per gallon.

• Regulation unclarity will continue between the RFS volume obligations, tax credits, trade policy, and the Small Refinery Exemptions which appear to have more impact on BBD than ethanol.  Right now, several smaller BBD producers are not operating due to lack of profitability.

• How about feedstocks?  Right now BBD uses a combination of soy oil, corn oil and waste fats and greases.  BBD today uses about a third of the US soy oil supply so this will clearly impact pricing and availability certainly in the shorter run.  What will aggravate this is that all the feed streams are byproducts of other processes so cannot be increased on their own along with all the dynamics hitting soy on the trade side.  The EPA in their draft 2020 RVO estimates that from 2019 to 2020 feedstock availability would be enough to produce about 144 men gallons of advanced biodiesel and renewable diesel.

I think this business will continue to have challenges in the future and it is also likely not all the plants proposed will be built but the trend towards renewable diesel will continue.

Bio-jet Fuel

Bio jet fuels have a completely different environment that ethanol and biodiesel both as they are presently not mandated by the government and also as they are in an earlier stage of technical development.

There are three broad technology areas that cover much of the effort.  Most technologies would produce a fuel that could be blended at some level with standard jet fuel.

1. Renewable diesel/oil to jet—This process is an additive process to biobased diesel taking the diesel and cracking it, isomerizing it and then purifying the end product.
2. Alcohol to jet—Basically taking an alcohol, either ethanol or butanol, and then dehydrating it to remove the extra oxygen and then catalytically or chemically converting this to jet fuel.  The advantage of this is the ethanol routes are well developed so only the final process step is new.  Potentially this could consume some of the excess ethanol in the market but that would likely be with a penalty to CI compared to routes such as LanzaTechs using cellulosic feed streams.  Players here include Gevo, LanzaTech and Byogy.
3. Gas to liquids—the typical routes here are gasifying a biomass or MSW stream into syngas and then using technology such as Fischer Tropsch to convert it to jet fuel.  Pyrolysis is another alternative.  This is earlier stage technology but has the potential for very low carbon due to feedstocks and will have wide feedstock availability.  Players here include Red Rock Biofuels and Fulcrum.

Selected US Jet Fuel Projects

The diesel fuel route is clearly the one with the fewest technical hurdles but will run into the same feedstock issues that biodiesel has if it moves to any significant volumes.  Alcohol to jet would be the next most straightforward while it seems like the gas the liquids route has the best carbon footprint and also feedstock potential.  However, it is unclear what the cost will be and what technical hurdles they will hit.

The next five years will see major learning taking place as commercial plants for many of these technologies are underway.

What makes bio jet particularly interesting and challenging is that it really is a global market so any regulations put in place by a single country could be very challenging to implement and enforce.  Conversely, given the global trade environment it seems unlikely that a global pact will appear anytime soon.

Without a mandate, it appears the airlines are broadly experimenting with biofuels but not making any major commitments.  My cynical view would be that they are doing everything they can to show progress while putting minimal money on the table.  Given the impact of fuel prices on airline profitability and the fact today that most or all biojet fuels will be more expensive than fossil-based fuels I would guess progress will move slowly.

Looking at the RFS, the pathways exist to capture a D4 RIN for biodiesel type approaches, a D5 RIN for Renewable diesel approaches and a D7 when using cellulosic feedstocks.  It does not appear that there is an existing pathway for a corn-based ethanol to jet fuel.

The question is what the RFS will do if biojet fuel grows significantly in volume as they presently define all their mandates based on surface transportation.  If there were suddenly an extra billion gallons of RIN’s available without the obligated parties needing to purchase them this would crash the value of the RINs.  California is working on routes within the LCFS but this presumably would be restricted to California.  Overall, this could provide benefits would not want to bet a business on the availability of RINs.

Long term, I think bio jet fuel will be a large and important market but it will take some form of carbon charge or other mandate.  Until that it will likely stay small.

I think today is an exciting time in biofuels, as always, with lots of dynamics and opportunities for companies to succeed but also fail.

Author Notes

Steve Hartig is an experienced executive with almost 40 years of experience across DuPont, DSM and ICM in leadership roles.  He is presently acting as an advisor/consultant to companies in the biofuels and other segments.

This post first appeared on Biofuels Digest. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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by Debra Fiakas, CFA

The Trump Administration is using tariffs on China goods as a trade war tactic to pressure China into relenting to U.S. trade policy demands.  Unfortunately, the fallout has been heavy and widespread.  Farmers have taken the heaviest hits as China has dropped orders for corn and soybeans.  Ethanol producers have been ensnared in the trade war skirmish as well and in recent weeks have been caught an uncomfortable ‘pincer-like’ squeeze by the Trump Administration.

Trump’s Environmental Protection Agency has continued its practice of granting waivers to oil and gas refiners, eliminating the requirement to blend biofuel with the refiners’ petroleum gas production.  In early August 2019, the EPA granted 31 waiver applications.  Originally intended to help small refineries already in financial trouble and unable to afford expensive biofuel to blend with their own production, the Trump EPA has quadrupled the number of waivers granted.  Trump’s EPS has even given a number of waivers to large, highly profitable refinery companies such as ExxonMobil, Chevron and CVR Refining.

On top of reduced orders due to tariffs, the waivers have been particularly devastating for the ethanol industry and their corn suppliers.  The Iowa Renewable Fuels Association claims the Trump Administration has destroyed over a billion gallons in biofuel demand in order to help large oil refinery companies.  CVR Refining (CVRR: Nasdaq) has specifically quantified its benefits from receiving a waiver in 2018, citing an estimated savings of $120 million. 

The waiver program has also had the effect of reducing the value of a Renewable Identification Number or RIN associated with producing a low carbon biofuel. RINs have recently been quoted near $0.11 compared to $0.20 near the beginning of the year.  All refiners, whether they get a waiver or not, benefit from a reduction in the cost of these credits.  Again CVR Refining has provided a glimpse into the financial benefits from the drop in RIN prices.  In early 2019, the company reported a $23 million profit on RINs.   Likewise Valero Energy (VLO:  NYSE), the largest oil and gas refiner in the U.S., earlier this year guided for a cost of $550 million in compliance credits in 2019, compared to $942 million spent in 2018.

With the ethanol industry reeling from trade war tactics and EPA policy decisions, the shares of ethanol producers have reached new lows.  Pacific Ethanol (PEIX: Nasdaq) shares recently set a new 52-week low price near $0.50.  Compared to the 52-week high of $3.24 for the shares, it is clear Pacific Ethanol is on sale.  Or course, the company has debt problems and may be over-leveraged.  However, it’s struggles to meet debt service requirements are exacerbated by reduced demand for ethanol and the drop in RIN prices.  In the most recently reported quarter ending June 2019, Pacific Ethanol reported a 15.6% decline in revenue year-over-year.

Green Plains, Inc. (GPRE:  Nasdaq) shares have followed a similar fall from grace and are also trading near a 52-week low.  When reporting second quarter financial results in early August 2019, management cited weak demand and even weaker profits margins as the company continues to operate below targeted capacity utilization. Revenue from production of revenue and by-products declined 28.4% in its June 2019 quarter.

Not all ethanol producers are complaining.  Valero produces about 1.2 billion gallons of ethanol per year at plants located the Midwest.  The well capitalized oil and gas refiner snapped up ethanol plants in Iowa, South Dakota and Minnesota when operators faced financial distress in previous years.  Valero is also a joint venture partner with Darling Ingredients (DAR:  NYSE) in a renewable diesel production facility in Louisiana.  The biofuel operations provide Valero with a perfect hedge against renewable fuel price moves….as well as the vagaries in national energy policy.

Should investors follow the example of Valero by buying up shares of ethanol producers at bargain stock prices?  Probably not.  Valero’s strategy only works when gaining control over ethanol assets and making changes in operations.  Furthermore, it is not likely ethanol producers will get much help from policy makers unless the current administration changes its views on renewable fuels or gets replaced by a friendlier president.  What is the probability of either?  The answer is pending.  However, ass noted above, one of the largest beneficiaries of the Trump Administration policies has been CVR Refinery.  That company figures prominently in the portfolio of one of Trump’s strongest supporters, Carl Icahn.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 8/23/19.

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by Jim Lane

When the world’s leaders for sustainable aviation fuels have a general meeting the week before the COP24 global climate sessions (this year in Poland), you can bet that the focus will be breaking the “You Can Have Two out of Three Conundrum” of aviation fuels. Which is to say: affordable, available at scale, and sustainable, pick any two of the three.

Fossil fuels are (usually) affordable and always available at scale. Sustainable jet fuels that are available at scale have generally not been affordable to date, and affordable sustainable fuels have been mostly explored at bench scale, so far.

San Francisco’s buying more renewable fuel

Case in point, the exciting and welcome news that Shell, World Energy, SkyNRG, KLM, SAS and Finnair have joined forces to reduce carbon emissions at San Francisco Airport.

Turns out that Shell Aviation and SkyNRG have commenced the supply of sustainable aviation fuel (SAF) to international airlines KLM, SAS and Finnair at San Francisco Airport (SFO). The fuel is produced by World Energy, currently the only at0scale SAF refinery worldwide, at the Paramount refinery in Los Angeles, and is made from used cooking oil, resulting in a fuel that has significantly lower lifecycle carbon emissions than conventional jet fuel. In general, sustainable aviation fuel has a reduction potential of 60-80%, compared to conventional jet fuel.

And, isn’t this the same refinery that provided diesel and jet fuel blends for which the Navy paid $2.07 a gallon in late 2015? (And, though that was a 10 percent biofuels blend, the same refinery won a competitive bid in 2017 for a 30 percent biofuels blend).

So what’s not to like? In the context of aviation demand, running at billions of gallons worldwide and every drop of that airlines would like to switch-over to sustainable aviation fuels — there’s the problem of Peak FOG.

No that’s not something you see in San Francisco around November; it refers to a global shortage of waste Fats, Oils and Greases. Turns out the world runs out of affordable, sustainable liquid alternatives to fossil fuels faster than it runs out of fossils.

Year of the Tree

Which is why the talk of CAAFI was, in a nutshell, all about wood — not virgin timber, mind you, or even the choice parts of the timber supply chain that become 2x4s or round logs. No, there’s no Frame-House vs Fuel in here. It’s the needles, tops, branches that are the waste products of our usual applications for wood. Plus, thinnings as we take dead trees out of forests to limit fire risk.

A breakthrough in woody biomass from federal lands?

Among the more juicy items heard on the floor at CAAFI, one that regards the unfortunately-named 40 CFR 80.1401, Renewable Fuels Standard and Regulation of Fuels and Fuel Additives.

The 2,000 page FY2018 Omnibus Spending Bill signed by President Trump on March 23, 2018, in Title IV General Provisions, on page 866, states; “That the Federal policy relating to forest bioenergy- must be consistent across all Federal departments and agencies, shall recognize the full benefits of the use of forest biomass for responsible forest management and recognizes biomass as a renewable energy source. The only limitations is that, the use of forest biomass for energy production does not cause conversion of forests to non forest use”.

CJ Evans (Managing Director, American Diversified Energy Consulting Services) added, “Some background on this language. I first tried to advance legislation in 2007 (through Rep. Adam Putnam’s office) to make the definitions of biomass consistent across all federal laws. There were almost a dozen different definitions.  I hit a buzz saw of opposition from interest groups and abandoned the effort. Mark Riedy also got involved at one point and several groups wrote white papers in 2014 and 2015, without making any progress.

“I was working on other issues during the last 5 months of 2017 (restoration of funding for Title 17 and EERE at DOE and removal of a provision in ag appropriations that would have eliminated USDA staff working on renewable energy programs) but had contact with the offices that could fix the problem with not being able to use diseased trees from national forests and have the wood quality as renewable biomass. So I wrote a short bullet list with some suggested language and gave it to a couple of these offices … and it was included in the Omnibus Spending Bill. Certainly one of easiest legislative victories I’ve ever undertaken.”

The capacity build out

The numbers are getting impressive amongst those who can produce heavy fuels — diesel and jet fuels, specifically.

Consider these. Neste (NEF.F, NESTE.HE, NTOIF, NTOIY), 910 million gallons of existing capacity and a capacity-adding project underway. World Energy, 60 million gallons of existing capacity, with a project underway to expand to 300 million gallons. Diamond Green Diesel (a joint venture between Valero (VLO) and Darling Ingredients (DAR)) with 170 million gallons in place and expanding capacity towards a goal of 300 million gallons. REG (REGI), 70 million gallons in place in Louisiana, and a project underway in partnership with Phillips 66 to build new capacity in Washington state.

And that’s not taking into account companies such as Red Rock Biofuels (first commercial under construction), Fulcrum Bioenergy (first commercial under construction), SG Preston (first commercial under development), Ryze Renewables (first commercial under development), and EnerSysNet (pilot under development), among many more. Not to mention the companies pursuing alcohol-to-jet, including LanzaTech, Gevo and Vertimass.

The feedstocks

Think residues. That’s where the sustainability has, so far, met the economics. There have been three basic thrusts, to date. First, the afore-mentioned foray into waste FOG. There is municipal solid waste, which Fulcrum is using. There is waste wood, which Red Rock has been using. And, there has been waste land — targeting lands that have fallen out of traditional agricultural production because of crop disease or changing economics with traditional crops — Agrisoma and the SPARC consortium in Florida are targeting land that in years gone by would have been home to citrus or cattle in South Florida.

CORSIA fuels, baby

Perhaps the most welcome news of the floor is at last a single word that we can use to replace all the monikers and acronyms for sustainable aviation furls. SPK, SAF, CARB fuel, RJ just to name three of many.

Now we know we can simply call them CORSIA fuels. For the CORSIA Global Carbon Offsetting Scheme that the airlines have established. Which is not a carbon tax or emissions trading, and it applies only to international flights (which represent about 67 percent of commercial airlines fuel use).

Now even the CORSIA group has come up with a three-letter acronym of their own, CEF, CORSIA-eligible fuel. We’ll ignore that. CORSIA is fine.

The leading expert we know is Nancy Young of Airlines 4 America and here are your 10 takeaways:

• single global market-based standard
• time frame 2021-35
• CORSIA is in lieu of other measures imposed
• 2021-26 voluntary phase in for countries, 2027 mandatory other then exempt countries or routes eg LDCs
• 76 countries representing 76% of international in the opt-in phases, in 2027 goes up about 90 percent
• demonstration of compliance every 3 years begins Jan 1 2019
• monitoring is country by country reporting to ICAO
• alt fuel not included in 2019-20, rather in 2021 when offsetting begins
• emissions savings from purchase of CORSIA eligible fuels reduces individual operators obligations
• when we fly country to country, this is the single mechanism

On concerns that airlines will simply buy offsets and ignore fuels. Young predicts: “Watch what happens to the market over 15-20 years as countries move to meet Paris and CORSIA obligations, it will be a tight offset market.”

Mabus: stop buying a way out of a problem and starting buying into a solution

Former Navy Secretary Ray Mabus took the stage and said:

“When I was the nominee for Secretary of the Navy and waiting for my confirmation, what kept jumping out at me in the briefings I received was fuel, how it could be used as a weapon against us. We set a policy goal that no later than 2020 half of fuel would come from non-fossil. When i did that frankly the technology and the economics weren’t there, but we believed that we could save the navy and taxpayers money by doing i, and i saw energy as a national security argument and alternative fuels as a key part of that energy security.

“I got a little push back on that particularly from Congress where one legislator said “you’re the secretary of the navy not energy. I said that the navy has always led in energy transformation, sail to coal, coal to oil, oil to nuclear, and every time we did that there were all these naysayers. They would say, things like ‘why are you giving up all these coaling stations for this unproven oil technology,’ and every time single they were wrong and they are completely wrong about alternative energy.

“We moved aggressively. We tested and certified every type of ship and aircraft. We flew on 100% biofuels. And Fulcrum and Red Rock are here today and doing well, and we made an investment in them. But we got the benefit. 77 mgs in 2015 90/10 blend and in 2017 a 60 million gallons purchase on a 70/30 blend. In each case, 25 cents cheaper to the navy.

“Now, in 2017 I wasn’t there any more pushing for this. Now, it’s the new normal. Now, the navy and so many others — including airlines like United, KLM, Lufthansa and Alaska are moving aggressively, and ports and airports like San Francisco, Singapore, Oslo, Brisbane and Seattle. Alternative energy in all its forms did one major thing for the Navy, it made the navy better at what they do, better warfighters. This is not a group of ardent environmentalist, they run in big ships and have a lot of vehicles. They have become leaders because of the proof that it makes them better at doing the job that the United States needs them to do. Ultimately it was national security, not the 60-90% reduction in greenhouse gas emissions that was important.

“But, the US government put out a national climate assessment the day after Thanksgiving. Every time the assessment comes out , the warnings become more severe, the consequences more dire. The lower states have warmed 1.5 degrees this century, 1.2 degrees in last few decades and will get 3-12 degrees warmer by end of the century. The effects of this are catastrophic. Already we see the effects on places and people, we have the the first internally displaced people from climate change in some of our coastal islands.

“Big companies are now seeing the benefits of direct action. But we have got to get beyond buying carbon offsets. We have to stop buying our way out of a problem and starting buying into a solution. Two immediate ideas. Corporate jet fuels costs usually 3-4X larger than big commercial airlines, Switching to alternatives would send a strong signal that corporations are paying attention. And, favor airlines as business travel partners by screening for alternative fuels. Using that power with business travel to make sure we are moving in the right direction.

“We all have to change how we operate, just as we did at the Navy. In the military if you keep doing the same things you become predictable, and predictable is defeatable. If you don’t change and make the moves you have to make, and think differently about how you procure fuel, your corporation will go away.”

“The RFS debate has been not productive and about locking in first-generation biofuels and failing the industry.”

In his opening remarks, Steve Csonka, executive director of CAAFI said “Aviation is at a crossroads – a vision for expansion but a carbon intensity that the public is turning sharply against. if done right, biofuels can be part of the solution, but not done right it is the opposite.  LanzaTech is clearing industrial emissions, Agrisoma is planting cover crops.. Fulcrum is reducing landfill waste. The RFS debate has been not productive and about locking in first-generation biofuels and failing the industry.”

“The problem is the low cost of offsets”

SG Preston CEO Randy LeTang veered away from feedstocks as the primary challenge. “The problem is not feedstock, but support from the end consumer, when you have high cost fuel vs low cost credits. How can we drive down the cost to provide fuels without he support of airlines offtakers? We see lack of interest and waning interest from offtakers given the optionality of low cost offsets vs high cost fuels.”

#1 opportunity: “clean up this biointermediates rule”

For US policy, CAAFI brought in Advanced Biofuels Association president Mike McAdams, who noted that the 2019 RVO was as expected, and of more interest was the Brady tax bill which offers a 7 years tax credit starting at $1.19 and sunsets after 7 years. He noted that the i#1 opportunity was to “clean up this biointermediates rule”,  that it is essential in scaling advanced biofuels that bio-intermediates be allowable and with a mass balance rather than carbon-14 analysis system. He noted that “consumers are increasingly aware of aviation carbon impact and want to participate in real change; now is the time to drive policies to enable alternative jet fuel commercialization. But he warned that efforts could be undercut by carryover RINs. He commented that 2.8B carryover RINS issued in 2018; up from 2017’s 2.25 billion, and in the D6 RIN pool that had taken the RIN value from 80 cents to 6 cents.

“LCFS is the right tool to address the toughest GHG sector, heavy transport”

For California policy, CAAFI brought in Graham Noyes, who noted that the overall California Low Carbon Fuel Standard drives down the carbon intensity of California fuels by 1.25 percent per year through 2030, with obligated parties having the option to buy credits or blend low carbon fuels. Jet fuels are coming into the standard, though on an opt-in basis at first.

The value of California credits. Noyes noted that a technology with a carbon intensity of 40 could earn $1.19 per gallon and those with a carbon intensity of 10 could earn $1.83 in the trading values today.  He said that the LCFS is the right tool to address the toughest GHG sector, heavy transportation, because it materially overvalues alternatives compared to cap and trade of emissions and offsets.

He noted that Low Carbon Standards were very much in an expansion mode. Washington state in 2019 could be next, there was a coalition of interests in the Midwest looking at a regional LCFS, and a RGGI group for the Northwestern states. Noyes said that the essentials for

2019 were continued vocal leadership from A4A and CAAFI, and sustained support from the agencies.

“We all see a significant shift, that customers are demanding low carbon solutions and by and large the majors don’t make them.”

World Energy COO Bryan Sherbacow commented, “I was pleasantly surprised after 2008 with the Obama Administration coming in to find that the military were the new hippies in embracing sustainability. It seemed clear and obvious this was going to be the successful path forward and that Secretary Mabus was setting out the demand signal. Our timing worked well and we were awarded the first commercial fuel and now on our 3rd Navy contract and its one of our more important pieces of business for us. But the US government eliminated the USDA component and hopefully we can restore that, because we probably won’t be competitive in the fourth solicitation.

Meanwhile, people being displaced and fires are breaking out and it is important what we do. We all see a significant shift, that customers are demanding low carbon solutions and by and large the majors don’t make them.

“At World Energy we are partnering with incumbents in the oil & gas space and we become part of their distribution where they are compelled by policy, We don’t have to replicate the infrastructure – just work through them. Our California asset was back in 2013 a small asphalt refinery and we formed a JV to convert to renewables with initial deliveries in 2016 and first deliveries to UAL and delivering into LAX since then. We started at 3,000 barrels per day and are expanding to 20000 barrels a day. With our process we produce 50 percent jet, but about 10 percent very competitively on a cost basis. So, we’re making 3-4 million gallons, and in the future we would ideally make around 30-40 million gallons.

The problems are that the incentives significantly favor diesel over jet, and that we have to get past fats oils and greases and get to novel feedstocks. The incentives can be fixed, right now if a customer shows up in the California market we can win those contracts every time, unless we have just done a poor job of educating the customer. Now, in January, jet fuel will be included in that LCFS program and that will make a big change.

On technology, the tricky part of that most processes that involve gasification of woody biomass, which is available and affordable, give you a lot of naphtha and not enough diesel, so the economics don’t work nearly as well as they could, because naphtha generally fits into the lower-value gasoline pool.

Get beyond private wood

Red Rock Biofuels CEO Terry Kulesa noted, “the gasoline pool is growing and there’s a need for 30 percent more diesel going forward. We use the same process, different suppliers compared to Fulcrum BioEnergy, we gasify biomass, use FT to get to a biocrude, then hydroprocessing to produce a finished fuel. We’re making 15.1 million gallons per year of heavy transport fuels. The tricky part? In terms of technology, it’s really the gasification. The tricky part of the economics is that we have to buy private wood, we can’t qualify for federal renewable fuel credits when we use wood sourced from federal lands.” Even though we all could use getting some of that waste wood off of federal land.

“Completion? We’ll be completed in December and we expect 6-12 months of ramp up. Plants never run exactly as designed, that’s why we have great operators.”

“We need alternatives to landfilling fossil plastics that cannot be recycled or reused”

Neste’s US head, Neville Fernandes spoke about the growth at the world leader by production volume. “At Neste, we’re at 260000 barrels per day [in petroleum capacity] or 910 million gallons per year in Poorvoo, Rotterdam and Singapore, we have $1.4 billion in operating profit. In a few weeks we’ll make the decision on adding 340 mgy in Singapore which will take out total footprint up to 1.3 billion gallons.

Our pathway involved moving to renewable diesel in 2007, renewable jet in 2015, Ultra low Sulphur marine in 2018 and renewable propane and chemicals are the new initiatives. In the future, we see ourselves building a GreenHub to convert waste plastics to fuels. Last year, 80 percent of our feedstock came from waste and residues. In the short term it is about waste FOG; in the longer term we see microbial oil, algae and plastic liquefaction as important feedstocks. And we need alternatives to landfilling fossil plastics that cannot be recycled or reused.

“100% biofuels now ready for ASTM balloting”

Chuck Red at ARA took the stage to focus on 100% biofuels flights and supplies. “We’re now ready for the ASTM ballot. And we expect to have out first commercial unit at 3600 barrel per day in the Western US, with ARA participating as an equity partner and using a USDA 9003 loan guarantee.

“It’s jet, and ground operations, too”

FedEx’s (FDX) Joel Murdoch noted that the demand is not only for jet fuel but for diesel for ground operations, for many.

“FedEx’s goal is 30 percent alternative fuel use for aviation by 2030.  In petroleum we contract for 1-2 years but we contract for 5-10 years with alternatives, with exit mechanisms, and we have a 5% maximum per location until the security of supply established.”

The challenges? More than just fuel price and composition, Murdoch advises. “There are logistics as well as cost. Truck, rail, pipelines — how will it be transported? There’s the airport fuel consortiums to consider, will the blends be on or off the airport. There’s the use of existing tankage, the addition of new tanks. And more.”

Replacing aromatics

Representing the US Department of Energy was BETO director Jonathan Male, who noted that the 26 billion gallon jet fuel is expected to double in size and would require nearly a billion tons of biomass. He noted that most blends are restricted to date to 50 percent because of the performance of aromatics. “But, are there renewable molecules and help us with particulate matter and give us what aromatics do?” He suggested that R&D should and would examine replacing the aromatics with iso-alkanes and cycloalkanes.

Pursuing economics through process optimization and co-products

Overall, Male’s message was “Bring Down Cost’ and he noted that when it comes to feedstocks, and processing, yield was the goal and “every gram counts”.  To reach the economics needed, he said, you have to have unit operations s that work together in an optimal way — you don’t have a process until you join units together,” and by inference, you don’t have a sustainable, affordable, defensible process until the units work together in an optimal way.

NIFA’s National Program Leader in the Division of Sustainable Bioenergy Bill Goldner chimed in decisively on this point, The co-products are really important to the economics.”

Jim Lane is editor and publisher  of Biofuels Digest where this article was originally published. Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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by Helena Tavares Kennedy

The seasons are changing in many parts of the world right now, but what really is changing this autumn is how the world is looking at renewable diesel. Phillips 66 and REG’s announcement about a new renewable diesel plant on the U.S. West Coast planned for 2021 comes after a notable increase in refineries that are being converted and changed over to renewable diesel. Change is good, especially in this case.

As Bob Dylan sang, “For the loser now, Will be later to win, For the times they are a-changin’.” And who knew he was singing about the RFS and biofuel economy before it even existed with “There’s a battle outside, And it is ragin’. It’ll soon shake your windows, And rattle your walls, For the times they are a-changin’.”

Maybe Dylan’s song is playing in the corporate offices of Texas-based Phillips 66 (PSX), a former petroleum focused energy company, as they see the value of change by partnering up with one of the largest producers of advanced biofuels – Iowa-based Renewable Energy Group (REGI, a.k.a. REG). While it was over a year in the making, they announced last week that planning is underway for the construction of a large-scale renewable diesel plant that will utilize REG’s proprietary BioSynfining technology for the production of renewable diesel fuel.

Planned feedstocks include a mix of waste fats, oils and greases, including regionally-sourced vegetable oils, animal fats and used cooking oil. If approved, production at the new facility is currently premised to start in 2021.

Location, location, location

The new facility would be constructed adjacent to the Phillips 66 Ferndale Refinery in Washington state. The Ferndale Refinery is a perfect spot with existing infrastructure, including tank storage, a dock, and rail and truck rack access and happens to be a hot spot for this type of project with a Mercurius biorefinery nearby.

“The proposed facility’s strategic location in Washington state would enable us to move renewable fuels more efficiently to support West Coast and international fuel market demand,” said Brian Mandell, senior vice president, Marketing and Commercial, Phillips 66.

“REG is excited to be working with a leading refiner, Phillips 66, on a project that has the potential to significantly expand biofuel production in Washington state and provide low carbon fuel markets with products that are in significant demand on the West Coast,” said Randy Howard, CEO of REG. “We look forward to working with state and local stakeholders to facilitate development of this important project and increase the supply of low carbon fuels in the region.”

Transformations abound

Phillips 66 isn’t the only one converting from petro-based diesel into biodiesel. Several others are keeping up with the changing times and moving towards more sustainable diesel.

In fact, World Energy announced a $350 million investment over the next two years to complete the conversion of its Paramount, California facility into one of the cleanest fuel refineries in the world, as reported by The Digest in October. The project will enable World Energy Paramount to process 306 million gallons annually. The conversion to renewable jet, diesel, gasoline and propane will reduce both refinery and fuel emissions while supporting more than 100 advanced, green economy jobs.

“This project will transform the Paramount facility into California’s most important hub for the production and blending of advanced renewable fuels,” said Bryan Sherbacow, Chief Commercial Officer of World Energy. “This investment will better enable us to deliver much needed low-carbon solutions to our customers. Importantly, with 150 million gallons of annual renewable jet production capacity, World Energy will be able to help the commercial aviation industry combat its greenhouse gas emissions.”

Another conversion is underway by Andeavor (now joined with Marathon as of October 1^st and known as Marathon Petroleum Corporation (MPC)). As reported by The Digest in August, Andeavor is converting the North Dakota Dickinson Refinery to process 12,000 barrels per day of renewable feedstocks, including soybean oil and distillers corn oil, into renewable diesel fuel. The project is expected to be completed in late 2020 and is subject to permitting and regulatory approval.

ENI (ENI.MI) is another petroleum company that switched to renewable diesel. While it still is an oil and gas company, Eni expanded into renewables with its Venice biorefinery in Italy a few years ago which was renovated by UOP to produce renewable diesel. Eni is even supplying the city of Venice and their waterbuses with its E15 Eni Diesel+ which is part produced from UCO collected in the city.

Eni must be doing something right in the renewable diesel space since the Indonesian government is now collaborating with ENI to see if it’s feasible convert Pertamina’s Plaju and Dumai refineries into biodiesel production facilities, as reported in The Digest in October. Both refineries were built in the 1930s with refining capacity of 133,700 bpd and 170,000 bpd respectively. Conversion of refining production capacity into biodiesel production is becoming more common in Europe with both ENI and Total having done it or are currently in the process of doing it, such as Total’s La Mede refinery in France.

Neste (NEF.F, NTOIF) is expected to decide by December as to whether or not it is sticking to an internal deadline of December to make its investment decision about the potential new aviation biofuel production facility in Singapore. As reported in The Digest in October, the company already produces biofuel in Singapore but increased demand for renewables spurred by the most recent IPCC report and Norway’s 0.5% aviation biofuel mandate has given further impetus to the project that the company has already spent “tens of millions” developing.

In November 2017, the Digest reported that Valero (VLO) and Darling Ingredients (DAR) were looking at doubling Diamond Green Diesel production from 275 million gallons to 550 million gallons at the DGD facility in Norco, Louisiana. Why? They are looking into the future through their crystal ball…in anticipation of growing demand for renewable diesel due to the RFS and global low carbon markets. This comes on the tail end of their most recent expansion where they went from 160 million gallons of renewable diesel to 275 million gallons in annual production capacity. Though they had to replace a catalyst that was damaged recently which will lower 3^rd quarter projections, they expect to go back to 275 million gallons rated capacity very soon.

LCA of renewable diesel

Renewable diesel is a low carbon and low sulfur fuel, making it an attractive investment for any company looking to lower their carbon footprint, whether it’s because shareholders are pushing for it, local or state mandates are demanding it, or consumers are requesting it.

If you aren’t convinced about renewable diesel’s environmental benefit, a recent LCA study showed that biodiesel reduces GHG emissions by 72% including ILUC. As reported in the Digest in January, the Argonne National Laboratory, Purdue University, and the U.S. Department of Agriculture (USDA) study represents the most up-to-date and comprehensive lifecycle analysis of biodiesel ever produced. This study represents the first time Argonne National Laboratory has published a lifecycle assessment of biodiesel including indirect land use change (ILUC).

The more the models reflect real world data, biodiesel’s benefits become even clearer. The improved model reduces ILUC emissions by more than 30 percent relative to the score adopted by CARB in 2015. Those are some impressive stats that can tempt any petroleum-based company to switch at least some of their facilities over to biodiesel. Add the fact that it is a drop-in fuel and you’ve got a win-win situation.

What does this all mean?

By our estimates, we are talking about more than 1 billion gallons being converted recently from traditional diesel to drop-in renewable diesel out there, and with California’s mandate as well as others internationally, the demand alone for road transport, not counting jet fuel or marine and shipping fuel is significant. The demand is there and now it looks like the production is starting to catch up to meet that demand. More renewable diesel is still needed, however, so we anticipate seeing more announcements for renewable diesel expansions, new constructions, or conversions from petro-based diesel to biodiesel. After all, the times are a changin’.

Helena Tavares Kennedy is a writer for Biofuels Digest, where this article was first published.  Biofuels Digest is the most widely read  Biofuels daily read by 14,000+ organizations. Subscribe here.

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In July 2013, Darling Ingredients (DAR:  NYSE) and its joint venture partner Valero Energy (VLO:  NYSE) commissioned the largest facility in North America to convert waste animal fats into renewable diesel.  The facility was strategic located adjacent to Valero’s petroleum refining installation in Norco, Louisiana.

At the time the facility was capable of pumping out 12,000 barrels of renewable diesel per day that could be dropped directly into Valero’s distribution network and blended with fossil fuel.  Even at that production level the facility showed promise to deliver strong dividends back to its owners.  The partners named their venture Diamond Green Diesel and celebrated the unparalleled achievement.

The two partners in Diamond Green Diesel have not stood still.  The Renewable Fuel Standard (RFS) in the United States and growing policy support around the world for low carbon fuels has boosted demand for renewable diesel. Darling and Valero expanded production capacity to 160 million gallons per year in 2015 and now undertaking another expansion to 275 million gallons per year in 2018.  An engineering study and construction cost review completed in late 2017, considered an expansion to as many as 550 million gallons per year.  Darling and Valero have promised a final decision on the extra 275 million gallons sometime yet in 2018.

Potential dividends that could be delivered by a plant with a 550 million capacity might be all Darling and Valero need to give the nod to the added expansion project.  In the quarter ending June 2018, Diamond Green Diesel delivered a $25 million dividend to each of the two partners  –  a dividend that drops directly to each company’s bottom line.  The dividend is made possible by strong profit generation.  Cash earnings (EBITDA) were $1.05 per gallon in the quarter even without the benefit of the Blenders Tax Credit.

The Blenders Tax Credit has been the target of intense lobbying over the years.  The U.S. Congress has let the tax credit expire at times despite widespread support from a trade groups and industry associations around the country.  In February 2018, the tax credit was approved retroactivity for the year 2017, at $1.00 per gallon of biodiesel or renewable diesel used to blend with fossil fuel.  Then the fight was renewed for getting the tax credit approved for 2018 and 2019.  A decision is still pending as Congress continues its Hide and Seek game lobbyists!

Diamond Green Diesel proves that, with good management and astute capital investment, there are profits to be made even without government support.  As a consequence, Diamond Green Diesel has not been a victim of the on-an-off support from Congress for renewable fuels.  For other smaller renewable fuel companies, the uncertainty has disrupted access to capital and made difficult long-term operating plans.  Retroactive approvals of the credit have made it possible for investors to assume business models will eventually benefit from the credit, but the inconsistency still disrupts cash flows.

Deep pockets of its two joint venture sponsors are a boon for Diamond Green Diesel.  At the close of the most recent quarter Darling Ingredients reported $104.1 million in cash on its balance sheet, including the $25 million dividend from Diamond Green Diesel.  Darling does have $1.7 billion in debt to service and the debt-to-equity ratio is 72.5%.  However, the company has generated strong operating cash flows  –  $341.1 billion in the twelve months ending June 2018  –  providing ample capital for new investment.

Investors have recognized Darling’s financial strength, driving the price of its shares higher by 9.2% over the past year.  Analysts following Darling appear certain that Darling has even greater success ahead with its portfolio of sustainable food and feed ingredients and renewable diesel. While it appears sales will be as much as 5% lower year-over-year in 2018, top-line growth is expected to resume in 2019.  Even so earnings are expected to more than double in the year 2018 and then growth again by more than 10% in 2019.  At a forward price earnings ratio of 19.5 times, Darling with its promise of earnings growth might be considered a good value.

Debra Fiakas is the Managing Director of Crystal Equity Research, an alternative research resource on small capitalization companies in selected industries. Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

This article was first published on the Small Cap Strategist weblog on 9/21/18 as “Darling’s Diamond.” 

The post Darling’s Renewable Diesel Diamond appeared first on Alternative Energy Stocks.

Synthetic fuel stocks are publicly traded companies creating transportation fuel from non-liquid feedstocks such as natural gas, coal, and municipal waste.  Drop-in biofuel stocks are publicly traded companies creating transportation fuel from organic feedstock that can be used, transported, and stored by conventional petrofuel infrastructure.  A synthetic fuel is a biofuel if it is made from organic feedstock.  It is a drop-in fuel if it is compatible with the existing infrastructure for petroleum based fuels.

This post was last updated on 7/20/2022.

Amyris (AMRS)
Archaea Energy, Inc. (LFG)
BioAmber (BIOA)
Codexis (CDXS)
Darling Ingredients (DAR)
Gevo (GEVO)
Global Bioenergies (ALGBE.NX)
Neste, Inc. (NEF.F, NESTE.HE, NTOIF, NTOIY)
N-Viro International Corp. (NVIC)
Sasol Ltd. (SSL)
Velocys, PLC (VLS.L)

If you know of any synthetic fuel or drop-in biofuel stock that is not listed here, but which should be, please let us know in the comments. Also for stocks in the list that you think should be removed.

The post List of Synthetic Fuel and Drop-in Biofuel Stocks appeared first on Alternative Energy Stocks.

“The global economy likely faces an economic crash of horrible proportions in 2020, not for want of a nail but want of low-sulfur diesel fuel,” writes renowned energy analyst Phil Verleger in a note this month titled “$200 Crude, the Economic Crisis of 2020, and Policies to Prevent Catastrophe”. Not good timing for a White House re-election effort if, as expected, the blame falls on lack of preparedness in the 2017-2020 run-up to the projected crisis..

It’s a dire scenario but there’s hard data behind it, and though few go as far as Verleger, almost every expert is warning of a low-sulfur diesel; refining capacity crunch. You can read the Verleger note in full here.

The root cause? A rule agreed by the  International Maritime Organization in 2008 and confirmed in 2016 to reduce sulphur content in marine fuels from 3.5 percent to 0.5 percent beginning in January 2020.

The proximate cause? Neither shipping owners nor oil refiners found a way to comply either through fuel-switching, crude-switching to bring in less sulphur-laden “sour” crudes, or to add enough refinery equipment to remove sulphur.

As the National Biodiesel Board’s Technical Director Scott Fenwick told The Digest:

The IMO (International Maritime Organization) has set new sulfur specifications for all marine fuels to not exceed 0.50% sulfur by the year 2020.  Right now, vessels are able to use high sulfur fuels in international waters but must use the same fuels within coastal waters (up to 200 mile radius) in what are called ECA (Emission Control Areas).  Typically, marine vessels use the dirtiest fuels available.  In order for ships to meet these new criteria, significant amounts of ULSD (ultra-low sulfur diesel fuel) will be need to be used for blending or in place of typical marine fuels.  Biodiesel is another option for blending.

NEXANT’s Ron Cascone added:

Instead of “playing checkers” with refinery modifications or scrubbers for a short term fix, we should be “playing chess” with low-sulfur, low NOx, and low-carbon solutions like biofuels or  methanol, LNG,  or DME, which can be bio-based. The stakeholders needing to examine strategies in this area include, besides the refiners, fuel brokers, and ship owners, also companies that use ocean shipping (that is, nearly all manufacturers, retailers, etc.)  and have commitments to lowering carbon footprint  (that is, many companies).

Why were refiners and shipping companies caught flatfooted?

There was an expectation that everyone would kick the can down the road, and extend the deadline to 2022. But the deadline was not extended.

Why can’t the US and others simply frack their way out of a supply problem, as in the past?

It’s not something you can frack your way out of. It’s not only about crude inventories but about low-sulphur refining capacity.

Tough timing for a shortage

The shift in demand — 2 million barrels per day — comes at a time when global diesel demand for road transport and other uses is on the rise. The resulting shortage of low-sulphur diesel leads to the bid-up in “light sweet” crudes and a shift to producing more diesel and less gasoline from those crudes — and the price increase that facilitates this supply and demand shift is in the $160 to $200 range. Enough to tip the global economy into recession or depression, says Verleger.

As Verleger points out, there’s already a world commodity except perhaps wine that has so much variance, and especially so in sulphur content. As Verleger notes, “the diesel fuel produced from Nigeria’s best crude oil has a sulfur content of 0.13 percent when refined, while the diesel refined from Middle East light crude oil, one of the most common crudes, contains 0.53 percent. The Arab Heavy crude that generally upticks in supply to meet demand increases contains between 1.8 and two percent sulfur. Shale oil from fracking operations is loaded with sulphur — so it is not a case where fracking operations will necessarily save the day.

So, the swing producer necessary to moderate prices when demand shifts is going to be hard to find, despite the fact that, as Verleger notes, “the public-health arguments for the IMO 2020 rule are incontestable and compelling,” and the refiners and shipping owners have had 12 years to make ready.

The impact?

Verleger writes: “The crude price rise will send all product prices higher. Diesel prices will lead, but gasoline and jet fuel will follow. US consumers could pay as much as $6 per gallon for gasoline and $8 or $9 per gallon for diesel fuel.”

Will compliance be forgotten? Can the world simply embrace sulphur-laden marine fuel forever?

IMO’s secretary-general Kitack Lim told Platts recently: “At this point, the regulation which brings into force the 0.5% limit in sulfur in fuel oil from January 1, 2020 cannot be changed from a legal perspective, so there is no possibility of delay.” As far as individual countries simply ignoring the requirements for operating with low-sulphur fuels, it’s worth noting that the predictions for $200 oil do not relate to low-sulphur oil, but all oil.

Mitigation steps that might be taken

There are several options, although installing equipment faster at global refineries does not appear to be one of them. Fuel-switching to liquid natural gas is one. Adding sulphur-scrubbing equipment to ships is another (unlikely). Re-visiting the rule is a third, and very unlikely — the IMO recently voted 171-3 to reduce greenhouse gas emissions. The US could release light sweet crude from the Strategic Petroleum Reserve. Non-compliance is a risky option — shippers that violate the rule are likely to have their insurance invalidated, based on recent IMO moves.

The biofuels option: biorefining capacity eases the oil refining strain

As Fenwick told The Digest. “Biodiesel will play a role, whether it is on the ship, or backfilling the low-sulphur road transport volumes that are diverted from traditional oil refineries to serve the new demand for low-sulphur marine fuel.” Already biodiesel and renewable diesel have extended the global refining capacity and fuel supply by 4-4/12 percent. There’s an opportunity to step up here to supply more low-sulphur fuel, and it is estimated that one billion gallons per year could be added to the supply of low-sulphur fuels./

As we reported in March 2017, the International Standards Organization has created the new F class of marine fuels that allows for blending of up to 7% of FAME biodiesel, allowing for more 10 ppm sulfur automotive fossil diesel to be used in the marine fuel pool. Adding Cloud Point and CFPP (Cold Filter Plugging Point) to the specifications are meant to help increase the uptake of biodiesel in marine fuels by letting operators know when fuels need to be heated.

Fenwick commented, “A few years ago there were no grades. Those grades are minimal demand right now as shippers become used to them. I expect they will become significant in the next two years.”

And, there’s renewable diesel. Although production quantities are small, so far, in the context of the global marine trade, $160-$200 per barrel low-sulphur crude prices will shine more attention on sulphur-free biodiesel and renewable diesel. For example, a 7 percent biodiesel blend with Middle East light crude oil (0.53 percent sulphur), brings that fuel into compliance. And there’s reason to cheer on that score.

An an Exxon Mobil found in a study on marine biodiesel:

The results obtained during the biodiesel trial have shown no negative impacts. Biodiesel has been used for many years in similar engines in land-based applications with no adverse effects. Biodiesel blends (B5 and B7) can be utilized in the marine environment onboard a properly operated and maintained vessel with a diesel engine. As with any fuel, proper storage and handling are key in maintaining fuel quality to ensure trouble-free operation.

How much excess capacity is available?

The estimates we have received suggest that as much as 1 billion gallons per year in excess capacity is in place around the world — or 65,000 barrels per day. Enough to support 7 percent blends of one million barrels per day. And, when you think about it, global biodiesel and renewable diesel could all be put to use in supporting a transition to low-sulphur fuels — and with as much as 4 billion gallons of capacity, there’s enough to support the 2 million barrels per day volumes that analysts say are needed — at 14 percent blends. That supports compliance via all that Arab Heavy .

Combined with some fuel switching to LNG, and targeting the right crudes for expanded diesel supply — we might find that global recession might well be averted. And, should actions not be taken to bring a supply of biodiesel and renewable diesel into marine fuels — we might find that $9 per gallon US fuel prices might well provide the incentive necessary to re-invigorate the discussions around alternatives.

Who is impacted?

Companies like REG [REGI], World Energy, Diamond Green (the Valero-Darling [DAR] Joint Venture), Ensyn, Gevo [GEVO], Fulcrum BioEnergy, Red Rock Biofuels — all of these are in the conversation when it comes to expanding diesel capacity. And a host of smaller biodiesel producers in the US, across the Americas and in Europe and Asia. Also, think DME – such as Oberon Fuels.

What can Congress do?

Distribution of this Verleger report on Capitol Hill might help. Experts tell us that ‘anything that educates the Congress that petroleum is a global market with a global price is a good thing. Also, the US government might well mandate more biodiesel to make sure those backfilling volumes of ULS diesel is available for road transport.

NBB’s Scott Fenwick observed, “Congress did create the RFS to extend and expand the nation’s refining capacity – and with low carbon, low sulphur technology in mind. They could not have foreseen this particular supply crunch but they did prepare us for a crunch with the RFS

Further reading

Here’s a relatiovely definitive report on the topic from NEXANT:

PERP 2017S7: Technologies to Meet New Bunker Fuel Specifications.

Bio-methanol  is covered, along with other feasible bio-bunkers in Nexant’s recent report, Biorenewable Insights: Biofuels for Land and Sea.  This report presents technoeconomics for a very wide range of land and marine biofuels . The TOC is here and the abstract is here.

And, could bio-methanol be a significant player in marine fuels in the future? The Methanol Insitute believs so, and here’s their latest deck exploring the options and opportunities.

In addition, for Nexant’s somewhat more conservative counter-view to Verleger’s, see the TOC for Petroleum and Petrochemical Dynamics, Refined Products, December 2017.

The post The Low Sulfur Diesel Crisis of 2020 And How To Prevent It appeared first on Alternative Energy Stocks.

Waste-to-energy stocks are publicly traded companies whose business involves using municipal or other waste as a feedstock to create fuel or electricity.  Organic matter and plastics in a waste stream can be converted to fuel and/or electricity chemically, by means of pyrolysis, biologically such as in anaerobic digestion, or by incineration.  Alternatively, energy from waste can be captured from natural processes, such as in the collection of methane gas from landfills.

This list was last updated on 6/23/2021

Active Energy Group PLC (AEG.L)
Attis Industries, Inc. (ATIS)
Babcock & Wilcox Enterprises, Inc. (BW)
BioHiTech Global, Inc. (BHTG)
Blue Sphere (BLSP)
Capstone Microturbine (CPST)
China Recycling Energy Corp. (CREG)
Clearford Water Systems Inc. (CLI.V)
Covanta Holding Corp. (CVA)
Darling Ingredients (DAR)
EQTEC plc (EQT.L)
Greenlane Renewables Inc. (GRN.V)
Montauk Renewables, Inc. (MNTK)
Neste Oyj (NEF.F, NESTE.HE, NTOIF, NTOIY)
N-Viro International Corp. (NVIC)
PowerHouse Energy Group plc (PHE.L)
Quantafuel AS (QFUEL-ME.OL, QNTFF)
RDX Technologies, Inc. (RGDEF)
Sun Pacific Holding Corp. (SNPW)
Taronis Technologies, Inc. (TRNX)
Waste Management (WM)
Xebec Absorption (XBC.V or XEBEF)

If you know of any waste-to-energy stock that is not listed here, but which should be, please let us know in the comments. Also for stocks in the list that you think should be removed.

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Biomass stocks are publicly traded companies whose business involves growing, collecting, or using biological matter (biomass) which can be used to make some other form of energy. Biomass includes human waste, municipal solid waste, sewage sludge, as well as industrial wastes such leftover wood from logging operations.

If you know of any biomass stock that is not listed here, but which should be, please let us know by leaving a comment. Also for stocks in the list that you think should be removed.

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