By Tom Konrad, Ph.D., CFA

Because of rising fertilizer prices, farmers are planting more soybeans than corn.  Soybeans are a legume, meaning that they can fix their own nitrogen in the soil, meaning that they need less nitrogen fertilizer, the price of which is spiking due to rising natural gas prices.  Corn, in contrast, needs more nitrogen than most other crops.  

High gas prices are rising because of Putin’s war on Ukraine, which is also preventing Ukrainian farmers from planting this year’s wheat crop, while sanctions are likely to disrupt wheat supplies from Russia as well.

Corn and (to a lesser extent, wheat) are both major feedstocks for ethanol, so investors hoping that ethanol producers will benefit from rising gasoline prices (also caused by the war) may be disappointed.  

Agricultural disruptions will likely raise the prices of all agricultural commodities, including soy oil, but the large soy planting in the US will moderate this effect on soy oil.   Since soy oil is a common biodiesel feedstock, biodiesel producers will see a relative benefit compared to ethanol producers, who are more reliant on corn.

In short, investors looking to biofuels to benefit because of high oil prices should focus on biodiesel producers, rather than producers of ethanol.

ABOUT: Tom Konrad Ph.D., CFA is the Editor of AltEnergyStocks.com and the manager of the Foundation Green Income Fund.

DISCLOSURE: None.

DISCLAIMER: Past performance is not a guarantee or a reliable indicator of future results.  This article contains the current opinions of the author and such opinions are subject to change without notice.  This article has been distributed for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product.  Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.

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Yay or Nay for EPA? RFS Volumes out for 2020, Biodiesel for 2021 – What’s the reaction from industry?

by Jim Lane

What’s the reaction from industry? Coal for Christmas?

Should Santa bring coal for EPA’s stocking this year? Do the biofuels and agriculture industries think the EPA just put coal in their stocking? Is it thumbs up or thumbs down from biofuel industry advocates on last week’s U.S. Environmental Protection Agency renewable fuel volumes? What about the exempted volumes?

The Ruling – Rotten or Respectable?

First, a bit on the EPA ruling that establishes the required renewable volumes under the Renewable Fuel Standard (RFS) program for 2020, and the biomass-based diesel volume for 2021. Here are the numbers from EPA:

^a All values are ethanol-equivalent on an energy content basis, except for BBD which is biodiesel-equivalent.

The key elements of the EPA action are as follows:

• “Conventional” biofuel volumes, primarily met by corn ethanol, will be maintained at the 15 billion gallon target set by Congress for 2020.
• Cellulosic biofuel volumes for 2020, and thus advanced biofuel volumes, will increase by almost 170 million gallons over the 2019 standard.
• Biomass-based diesel volumes for 2021 will be equivalent to the standard for 2020, still more than double the statutory requirement.
• EPA will closely examine the labeling requirements for E15 fuel and move forward with clarifying regulations as needed.

According to the EPA press release:

Through this rule, EPA has modified the RFS program by projecting small refinery relief to ensure that these final volumes are met, while adjudicating small refinery relief when appropriate. As proposed, we are finalizing a projection methodology based on the 2016-2018 annual average of exempted volumes had EPA strictly followed the Department of Energy (DOE) recommendations of 770 million Renewable Identification Numbers (RINs) in those years, including granting 50 percent relief where DOE recommended 50 percent relief. This is our general approach to adjudicating Small Refinery Exemption (SRE) petitions going forward, beginning with 2019 SRE petitions and including 2020 SRE petitions and beyond, we are committed to following the DOE recommendations. By proposing effectively 15.8 billion gallons for 2020 we will ensure meeting our target of 15 billion gallons.

“Through President Trump’s leadership, this Administration continues to promote domestic ethanol and biodiesel production, supporting our Nation’s farmers and providing greater energy security,” said EPA Administrator Andrew Wheeler. “President Trump committed to our nation’s farmers that biofuel requirements would be expanded in 2020. At the EPA we are delivering on that promise and ensuring a net of 15 billion gallons of conventional biofuel are blended into the nation’s fuel supply.”

EPA has modified the way RFS obligations are determined to better ensure that these volumes are met, while still allowing for relief for small refineries consistent with the direction provided by Congress under the statute. By proposing effectively 15. 8 billion gallons we will net out at 15 billion.

More information can be found on the EPA website here.

Reactions from the Industry

Ok, so now that we know the numbers, what’s the reaction? Sure, there are increases in the volumes but is it enough?

Overall consensus is no, not even close. But it’s not just the volume numbers that have folks up in arms – it’s the small refinery exemptions. The EPA is counting only half of the exempted volumes actually granted over the past three years.

Just a taste of what they are saying:

The EPA is playing games…

They blew it…

They’ve missed the mark…

Disappointed, frustrated, and quite frankly angry…

This is not what we agreed to in that meeting on Sept. 12 or Oct. 4…

Trust has been lost…

EPA has decimated demand for more than 4 billion gallons of renewable fuel…

We’ve gone from promises of a giant package to the reality of a lump of coal…

Stifles investment in green energy breakthroughs…

Leads to more uncertainty for renewable fuels…

We will keep holding EPA’s feet to the fire…

I don’t think the White House truly understands the depth of discontent in farm country…

Here’s more on what key players in the biofuels industry had to say:

Growth Energy asks EPA to take further action

“While the final rule provides an uptick in federal biofuel targets and signals an intent to account for demand lost to oil refinery exemptions, Growth Energy stressed that the agency must enforce those volumes by accounting for exemptions accurately and that EPA Administrator Wheeler must take additional steps to uphold the administration’s October 4th commitments to rural America.”

“President Trump pledged to deliver certainty and stability for America’s farmers and biofuel producers by restoring integrity to the RFS,” said Growth Energy CEO Emily Skor. “While we’re encouraged that EPA is finally taking steps to follow the law and account for biofuel demand lost to secretive oil refinery exemptions, this rule leaves important work unfinished.

“Integrity is restored to the RFS only if the agency accurately accounts for exemptions it will grant. The rule uses an accounting formula based on Department of Energy recommendations, which EPA has a poor track record of following. All eyes will now be on EPA’s next round of refinery exemptions and future targets, which will signal whether Administrator Wheeler is truly committed to ending demand destruction.

“Additionally, Administrator Wheeler must act swiftly to break down remaining market barriers to E15 as promised in the October 4th EPA announcement. When the RFS is working as intended and government has eliminated market access barriers, drivers across the nation will able to take full advantage of the administration’s move to unleash sales of E15 year-round.”

National Biodiesel Board disappointed with lack of growth in 2020 RFS volumes

The NBB said that the EPA rule blocks growth for the biodiesel industry and Kurt Kovarik, NBB’s VP of Federal Affairs, said, “EPA’s final rule for the 2020 RFS volumes is simply out of step with Congressional intent and President Trump’s promises. This week, Congress and the president are extending the biodiesel tax incentive through 2022 and sending an unmistakable signal that they support continued growth of biodiesel and renewable diesel. At the same time, EPA Administrator Wheeler is doing everything he can to block that growth.”

Kovarik continued, “Despite his statement to the press, Administrator Wheeler’s method for estimating future small refinery exemptions does not provide assurance to the biodiesel and renewable diesel market. The best estimate of future exemptions is an average of the 38 billion gallons exempted over the past three years. Even if EPA had included that estimate, though, there is nothing in today’s rule to ensure that the agency will get these exemptions under control.”

BIO says EPA’s rules are leading to more uncertainty, stifles investment in green energy

“Unfortunately, this final rule from EPA does not alleviate concerns we had when the draft rule was published earlier this year,” said Stephanie Batchelor, VP of BIO’s Industrial and Environmental Section. “The lack of growth for advanced and cellulosic biofuels, and the failure to fully reallocate the gallons lost from the drastic expansion of small refinery exemptions, will continue to stifle investment in green energy breakthroughs. This final rule will have a long-lasting negative impact on the country’s renewable fuels industry as we’ve already seen plants close because of the agency’s manipulation of the policy to date.”

Iowa Biodiesel Board says biodiesel flatlined in final rule and future small refinery exemptions underestimated

Grant Kimberley, executive director of the Iowa Biodiesel Board, said, “The EPA rule does not provide positive signals to a market longing for assurance. EPA’s actions have already decimated demand for more than 4 billion gallons of renewable fuel, including biodiesel and renewable diesel. With this final rule, the agency has once again declined to uphold the integrity of a federal law meant to encourage the use of renewable fuels in America, siding with oil company interests at the expense of family farmers. Ten biodiesel producers have closed their doors or drastically cut production due to loss of demand.”

“In addition to our discouragement over lack of growth, the industry does not have confidence in EPA Administrator Andrew Wheeler’s plan for estimating future small refinery exemptions, based on EPA’s past actions. There is no assurance these exemptions will be brought under control or properly accounted for. Meanwhile, we stand ready to meet continued sustainable growth of several hundred million gallons every year.”

Iowa Renewable Fuels Association says EPA rule fails to restore RFS integrity, Trump turns back on previous promises

“President Trump turned his back on certainty for farmers and failed to keep the September 12 deal,” stated Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw. “Instead of certainty, we are essentially being told to trust the EPA to uphold the RFS in the future even though for the past three years the EPA has routinely undermined the program. Every farmer and biofuel supporter I have talked to is deeply disappointed, frustrated, and quite frankly angry. I don’t think the White House truly understands the depth of discontent in farm country.”

In order to remove EPA discretion from the process, biofuels supporters united behind a plan to account for SREs using a three-year rolling average of actual refinery exemptions granted. President Trump agreed to this plan in a September 12 Oval Office meeting with Midwestern elected officials, including Iowa’s Governor and Senators. Today, however, President Trump sided with EPA’s alternative plan which relies on using a three-year rolling average of U.S. Department of Energy (DOE) recommendations for SREs, which EPA has routinely ignored and is under no legal obligation to follow.

“IRFA today called upon the EPA to immediately post DOE recommendations – past, present and future – on their SRE website dashboard,” stated Shaw. “Market participants must have faith in the process and must know whether or not EPA is following the DOE recommendations. Further, to prevent any entity from gaming the system, this information should be made public to all market participants at the same time. In just a few months, EPA will begin adjudicating the 2019 compliance year SREs. It will be their first opportunity to demonstrate good faith and we’ll be watching very, very closely.”

Click here to see IRFA’s full letter to the EPA.

American Coalition for Ethanol calls RFS rule a failure to uphold President’s biofuel deal

American Coalition for Ethanol (ACE) CEO Brian Jennings said, “Over the course of the past few months, we’ve gone from promises of a ‘giant package’ to the reality of a lump of coal. To say we are disappointed is an understatement. While it was well understood this rulemaking would not make farmers and the ethanol industry ‘whole’ for the damage EPA has done by abusing the small refinery exemption provision of the RFS, we were led to believe the rule would represent a step in the right direction, an opportunity to account in a meaningful way for refinery waivers.

“We are forced yet again to continue defending the RFS and fighting EPA’s mismanagement of the program in the third branch of government, but this is another painful reminder our industry needs to go on offense with a new plan to increase demand on ethanol’s low carbon and high octane advantages.”

National Corn Growers Association’s President, Kevin Ross, said, “The Administration has chosen to move forward with a final rule that corn farmers believe falls short of adequately addressing the demand destruction caused by EPA’s abuse of RFS refinery waivers. While using the DOE recommendations to account for waivers is an improvement over the status quo, it is now on corn farmers to hold the Administration to their commitment of a minimum of 15 billion gallon volume, as the law requires. We will use future rulemakings and other opportunities to hold the EPA accountable.”

Renewable Fuels Association’s President and CEO, Geoff Cooper, “After EPA’s overwrought abuse of the SRE program in recent years, agency officials had a chance to finally make things right with this final rule—but they blew it. EPA’s rule fails to deliver on President Trump’s commitment to restore integrity to the RFS, and it fails to provide the market certainty desperately needed by ethanol producers, farmers, and consumers looking for lower-cost, cleaner fuel options. While the final rule is an improvement over the original proposal, it still does not guarantee that the law’s 15-billion-gallon conventional biofuel blending requirement will be fully enforced by EPA in 2020.”

POET’s Senior Vice President of External Affairs and Communications, Kyle Gilley, said “Today was a missed opportunity to finally restore clarity to the ethanol and grain markets, but more opportunities lie ahead in 2020. With these 2020 RVO levels now finalized, our near-term focus shifts to implementation of the remainder of the President’s critical biofuels package: ensuring 15 billion gallons means 15 billion blended, deploying an infrastructure package, changing the pump label, and reforming the fuel survey.”

Iowa Senator Chuck Grassley said, “Once again, EPA is playing games and not helping President Trump with farmers. An agreement was reached on September 12 in an Oval Office meeting between several Midwest leaders, President Trump and other members of his Administration. This does not reflect what we agreed to in that meeting.”

“The magic words from the Oval Office meeting were three-year rolling average based on hard data and actual waived gallons. Abiding by this would have solved all the problem’s EPA has created.”

Iowa Senator Joni Ernst said, “Throughout this process, I, along with Senator Grassley and Governor Reynolds have made it crystal clear that Iowa’s farmers and biofuel producers need certainty that EPA will follow the law. After shaking hands in the Oval Office this fall, EPA had an opportunity to restore the broken trust of farmers and to follow through on the president’s commitment, but it appears they’ve missed the mark…again. We were guaranteed a deal in September, and we were assured of that same deal in October, yet EPA rolled out, and has now finalized, a different proposal. It’s no wonder trust has been lost.

“We will keep holding EPA’s feet to the fire to ensure they truly uphold the RFS, the law, as intended and fully implement the other critical aspects of this rule.”

U.S. Rep. Collin Peterson (D-MN), Chairman of the House Agriculture Committee, said, “At a time when our agriculture economy is struggling, the EPA has ripped 4 billion gallons of ethanol out of the market and impacted corn prices and rural communities. We also have yet to see the other things that were promised to the biofuels industry and corn farmers to get more ethanol into the market via infrastructure incentives and policies related to higher ethanol blends.”

RNG Coalition welcomes EPA’s biofuel targets

On the other hand, the Coalition for Renewable Natural Gas (RNG Coalition) said they welcomed the EPA cellulosic biofuel targets for 2020, but they are certainly not in the majority among the biofuel and agriculture industries.

“The RFS has helped spur the remarkable growth of America’s RNG industry. We welcome today’s final rule providing for a 41% percent increase in the program’s cellulosic biofuel target, and we appreciate the Administration’s willingness to promote the expanded production and use of cellulosic biofuels,” stated Escudero.

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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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.

The post North American Outlook on Biofuels Challenges and Opportunities appeared first on Alternative Energy Stocks.

by Jim Lane

“EPA Reneges on Trump’s Biofuels Deal”, said the Iowa Renewable Fuels Association in reacting to the US Environmental Protection Agency’s new plans for fulfilling federal renewable fuel requirements. EPA released a proposed supplemental rule for the Renewable Fuel Standard today, and the bioeconomy is up in arms, and the outrage is centered in farm country, once a Trump bastion of support.

“IRFA members continue to stand by President Trump’s strong biofuels deal announced on Oct. 4, which was worked out with our elected champions and provided the necessary certainty that 15 billion gallons would mean 15 billion gallons, even after accounting for SREs. Unfortunately, only 11 days after President Trump’s landmark announcement, the EPA proposal reneges on the core principal of the deal.

“Instead of standing by President Trump’s transparent and accountable deal, EPA is proposing to use heretofore secret DOE recommendations that EPA doesn’t have to follow. That means there is no guarantee that RFS exemptions will be accounted for in the RFS.”

Is the EPA’s action an outright about face from the Trump deal announced recently?

As we mentioned at the time of the deal, the operative meme for the Trump Administration’s rural policy is, “sort of”. The deal a couple of weeks ago sorted out the bioeconomy’s problems with small refinery waivers, sort of. The EPA’s actions run counter to the announced Grand Bargain, sort of.

As IRFA explains, “the proposal today essentially asks Iowa farmers and biofuels producers to trust that EPA will do the right thing on SREs in 2021 when they have spent the last two years weaponizing SREs to unfairly undermine the RFS. It is unreasonable and counterproductive to expect Iowans to put their faith in EPA to fix the SRE problem when they were the ones who created the crisis in the first place.

“As this proposal goes against the core of President Trump’s deal that we continue to support, we will work with our elected champions and the President to get the deal he proposed, and we all celebrated, back on track. There must be certainty that 15 billion gallons will mean 15 billion gallons to restore integrity to the RFS.”

The Big Switcheroo: Those pesky DOE recommendations

As IRFA noted, “prior to supporting President Trump’s October 4th deal, biofuels producers and farmers were briefed by the White House and EPA that EPA would account for SREs using a three-year rolling average of actual refinery exemptions granted. Today’s draft rule proposes using a three-year rolling average of U.S. Department of Energy (DOE) recommendations for SREs,

Why all the heated reaction to that proviso?

Bottom line, EPA has ignored DOE recommendations in the past, as we reported here, and is under no legal obligation to follow them. Which undermines the “15 billion means 15 billion” thesis of the October 4th deal.

How did EPA put it?

The EPA painted a far rosier picture.

The agency said in an official statement: “Today’s notice does not change the proposed volumes for 2020 and 2021. Instead, it proposes and seeks comment on adjustments to the way that annual renewable fuel percentages are calculated. Annual renewable fuel percentage standards are used to calculate the number of gallons each obligated party is required to blend into their fuel or to otherwise obtain renewable identification numbers (RINs) to demonstrate compliance.

Specifically, the agency is seeking comment on projecting the volume of gasoline and diesel that will be exempt in 2020 due to small refinery exemptions based on a three-year average of the relief recommended by the Department of Energy (DOE), including where DOE had recommended partial exemptions. The agency intends to grant partial exemptions in appropriate circumstances when adjudicating 2020 exemption petitions. The agency proposes to use this value to adjust the way we calculate renewable fuel percentages.”

Biodiesel “skeptical” over “never-before-discussed” proviso that “lack transparency” and “can’t be trusted”.

In biodiesel country, the National Biodiesel Board said it is skeptical the Environmental Protection Agency’s proposed supplemental rule will ensure that 2020 and future biomass-based diesel volume obligations are fully met. The supplemental notice contains a never-before-discussed proposal to estimate small refinery exemptions for 2020, with no assurance that the estimate will come close to actual future exemptions. The biodiesel industry does not believe the proposal meets President Donald Trump’s October 4 promise to American farmers and biodiesel producers.

Kurt Kovarik, NBB Vice President of Federal Affairs, added, “The notice that EPA issued today is significantly different from the agreement that biofuel industry champions negotiated with President Trump just two weeks ago, which was to estimate future exempted RFS volumes based on the average of actual volumes exempted over the past three years. EPA is proposing a brand-new method for making the estimate – one that was never previously proposed or discussed and significantly undercounts past exemptions. Once again, EPA is sending a signal to the biofuel industry that the volumes it sets in annual rules can’t be trusted.”

Advanced biofuels: “the Administration took back two thirds of what it promised just a week ago”

Over at the Advanced Biofuels Association, there were fighting words.

“Today, the Administration took back two thirds of what it promised just a week ago, and the irony is rich,” said ABFA president Mike McAdams. “In this rule, EPA has based SRE reallocation on DOE recommendations when the Agency ignored those recommendations in its August 9 decision to grant 31 exemptions for compliance year 2018. Furthermore, EPA has proposed to reallocate only 580-770 million gallons when 1.4 billion were ultimately displaced by those SREs. We doubt the legality of this action, and the Administration’s good faith in proposing this ‘deal.’

“ABFA will argue its case later this month before the D.C. Appellate Court challenging the SREs granted over the last several compliance years. We look forward to the Court’s judgment on the Administration’s efforts to undercut the congressional intent of the RFS program.”

Ethanol: “unconscionable” proposal “betrays President Trump’s promise to rural America”

Growth Energy CEO Emily Skor blasted the EPA proposal in no uncertain terms. “It is unconscionable that EPA’s proposal betrays President Trump’s promise to rural America” she said. “A week ago, Administrator Wheeler personally took to the airwaves and promised Iowa farmers that he would accurately account for lost gallons moving forward based on the ‘last three years of the waivers.’ Administration officials repeatedly said that 15 billion gallons will mean 15 billion gallons and this proposal fails to ensure that farm families and biofuel producers have the certainty they need to reinvest and rebuild after three years of massive demand destruction at the hands of EPA.

From Iowa: “Apprehension” over “dramatic departure” proposal that “appears to run contrary to a previously agreed-upon deal with President Trump”

In Iowa, the Iowa Biodiesel Board expressed apprehension over the Trump Administration’s new plans for fulfilling federal renewable fuel requirements, saying it appears to run contrary to a previously agreed-upon deal with President Trump. The group will join other renewable fuel and farm advocates in examining the Environmental Protection Agency’s proposed supplemental rule for the Renewable Fuel Standard, released today.

“We are deeply concerned by EPA’s new proposal to address renewable fuel gallons lost through refinery exemptions to the RFS, said Iowa Biodiesel Board executive director Grant Kimberley. “The solution President Trump previously promised us would have estimated future exempted RFS volumes based on the average of actual volumes exempted over the past three years. That is the remedy we need to steady the renewable fuels market, help plants re-open their doors, and infuse rural economies still in crisis.

“This new plan from EPA appears to be a dramatic departure from the agreement struck with the President, and we expect markets to react accordingly. This is likely to inflict further damage on the already struggling biodiesel industry and farm economy. We will join our Iowa political champions, the National Biodiesel Board and other groups in scrutinizing this new proposal, and in ensuring the final rule fulfills the deal President Trump agreed to earlier this very month.”

The Bottom Line

One of the classic Trumpisms is “you’ll find out”.

11 days ago, we cautioned industry against excessive celebration over the October 4th biofuels deal while we awaited the hard details. Then, we wrote,”This is a plan with an awful lot of ‘EPA will take comments‘ in it, so there are good reasons to wait and see how this deal plays out.”

So, now, we found out. On the other hand, did we? This Administration likes a cliffhanger more than any before it, and we’ll have to wait for next week’s episode to find out what comes of all the frothing and frustration roiling the industry now.

The stakes are Yuge. Tremendous. This story has zero finished.

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.

The post EPA Reneges on Trump’s Biofuels Deal appeared first on Alternative Energy Stocks.

The post Betting On Renewable Diesel: Valero or Darling? appeared first on Alternative Energy Stocks.

by Jim Lane

In another small but sharp blow to the Trump Administration’s strategy for American manufacturing revival, news arrives from Texas of a second smaller biodiesel shuttering owing to “ challenging business conditions and continued federal policy uncertainty,” as Renewable Energy Group (REGI) phrased it in announcing the closure of its15 million gallons per year New Boston, Texas biorefinery.  The company is currently working with plant employees on relocation opportunities within the production network.

The tax credit issue

The forces impacting the US biodiesel industry at present are complex, but REG in this case is pointing the blame at the biodiesel tax credit, the renewal of this tax credit has been stalled for more than 18 months in Congress — the credits expired at the end of 2017 — and there has been no definitive progress on renewal (or clear progress on new directions) from Congress, which has stymied the US biodiesel industry in terms of its long-term capital and operating strategy formation and execution.

“This closure comes today as a result of the poor economics over the last 18 months resulting in large part from the uncertainty surrounding the Biodiesel Tax Credit,” said Cynthia J. Warner, REG President and CEO.  “Despite significant bipartisan support, Congress’ inaction on this value-added incentive has led to unsustainable market conditions.”

Iowa US Senator Chuck Grassley was more blunt. “The long delay in addressing these provisions is needlessly putting thousands of good paying green jobs at stake. A couple of weeks ago we saw a biodiesel plant in Nebraska close down, costing about 40 employees their job. And just today Renewable Energy Group announced it’s closing a Texas plant due to the uncertainty of the tax credit. Should we fail to extend the biodiesel tax credit soon, many more could follow. That would put the 60,000 jobs supported by the biodiesel industry nationwide in jeopardy.”

As Grassley tipped, earlier this month the Duonix joint venture between Flint Hills Resources and Benefuel announced the closure of their biodiesel plant in Beatrice, Nebraska.

Both the Duonix and New Boston decisions were styled as plant closures, rather than idlings, and the future of the respective project sites is unclear at this time, though we can essentially rule out re-opening of the plants under current conditions. Divestiture or scrapping — and re-purposing under new management — all have to be considered possibilities for the projects., For the employees, it represents a heartbreaking cessation, and the loss of good-paying jobs in rural America.

Grassley takes to the Senate floor

Grassley pointed the finger at House Democrats for stalling on the tax extenders package.

“The budget and debt limit agreement announced Monday is yet another missed opportunity to provide answers for the millions of taxpayers – both individuals and businesses – who are waiting on Congress so they can finalize their 2018 taxes and in some cases even stay in business. While Finance Committee Ranking Member Wyden and I have been ready and willing to address tax extenders since early on in this Congress, the new Democratic majority in the House of Representatives has been reluctant to act.”

It may well be that the failure to include a tax extenders package in the budget and debt agreement was the final straw for REG management in terms of the decision on the fate of the New Boston plant.

According on Grassley, according to the U.S. Joint Committee on Taxation reports that green energy incentives make up 60 percent of the tax extenders package, including provisions for renewable fuels, to promote electricity generation from  renewable sources and tax incentives for more energy efficient buildings and homes.

Grassley noted:

“Here I would have thought the new Democratic majority in the House would be all about “green jobs” and reducing our nation’s carbon emissions through alternative-energy sources. Yet, they have been reluctant to embrace a bipartisan tax package with nearly 60 percent of the cost dedicated to green-energy incentives. These provisions include relief for homeowners who obtain debt forgiveness on a home mortgage, a deduction for mortgage-insurance premiums and a provision that allows college students to deduct tuition and related expenses.

“To highlight just one of these provisions, in 2017, over 1.5 million taxpayers took advantage of the college tuition deduction. You can think of that as over 1.5 million students who have been left dangling for 2018 and so far this year as Congress continues to consider whether or not to extend this deduction.”

The New Boston backstory

We reported in November 2012 that REG had  acquired the 15 million gallon per year biorefinery located in New Boston, Texas, REG paid $300,000 in cash and issued 900,000 shares of its common stock to North Texas Bio Energy for the multi-feedstock biorefinery located about 22 miles west of Texarkana. It was REG’s second Texas biodiesel production facility, following its 2008 acquisition of its Houston-area plant. The New Boston facility began production in June 2008 and has been idled for approximately four years.

We reported that the plant underwent construction and upgrades and re-opened in July 2013. At the time, REG planned to utilize animal fats and other high free fatty acid feedstocks to produce biodiesel at the refinery.

In many ways, a change in policy helped propel REG to make the acquisition in the first place. As we reported in August 2011, a change in Texas law came into effect that month that offered a more straightforward way of tracking biodiesel use, and therefore qualifying for a tax exemption. Previously, oil companies had been required to track and report biodiesel blending to the tenth-of-a-percent but the new rule allowed tracking to a whole percentage point. The old rule had been burdensome for most, meaning many didn’t take advantage of the tax break nor biodiesel blending. The change had been tied to hopes for a stronger biodiesel market in Texas. h

The New Boston story over the 6-1/2 years of REG ownership had been one of significant strides towards better operation and cost. In the end, not enough.

“We truly appreciate all the efforts of our team and those that support our New Boston plant,” said Brad Albin, Vice President of Manufacturing.  “They significantly improved safety, demonstrated capacity, yield, quality and costs. However, these improvements could not overcome the unfavorable economics of the plant relative to our other options for ongoing focus and forward investment.”

Other economic forces at work

Facility size increases. While a 15 million gallons facility would not have been considered large by industry standards even back in 2012, the size of typical biodiesel or renewable diesel plants has been on the rise. NEXT Renewables has announced a 600 million gallon project for the Columbia River, REG and Phillips are planning a 250 million gallon renewable diesel plant in Washington state, World Energy is expending to 300 million gallons in California, and Diamond Green Diesel is expanding its 170 million gallon facility in Louisiana. The pace of construction and the scale of production is widely considered to be great news for renewables, but puts added pressure on smaller facilities.

As REG CEO CJ Warner noted for the Digest readers, “There’s a strong analogy to oil refining, here. Over time, we will see greater economies of scale and larger projects, that’s the natural progression and it’s good for everyone. But, the smaller plants have a place, especially if they have good locations, adjacent to a feed or a product market, and that’s especially the case with biodiesel. There are good reasons why smaller-scale plants can work well, whereas for renewable diesel it really needs to have scale because of the capex involves. The problems come when the policy uncertainties mount up.”

EPA policy on biodiesel expansion. The EPA has proposed, even in the face of massive proposed capacity expansions, to keep US biodiesel mandates at the 2,4 billion gallon mark through 2020 and 2021. And, small refinery waivers have destroyed demand for biomass-based diesel as well as ethanol in the US.

Warner commented,”there has been a very broad brush painted on the Renewable Fuel Standard, and almost a complete misunderstanding of the differences between the ethanol and biodiesel economics. They are not very similar in many important respects. As Scott Irwin in an important paper out of the University of Illinois pointed out, with the way ethanol is used for gasoline and octane, the small refinery exemptions have not resulted in the kind of demand destruction as we have seen with biomass-based diesel. The RVO has not been expanding, and when you add in these waivers, the total volume impact is significant.”

And, a recent win for ethanol on E15 isn’t going to add any joy for biomass-based diesel, either. With year-round ethanol approval stuck for many years at E10, the oil industry blended as much as 300 million gallons of biodiesel in select years to comply with the general volume requirements that both corn ethanol and biomass-based diesel can be used to satisfy. The E15 year-round approval was a huge win for ethanol, but was of negative value for America’s favorite advanced biofuel.

Trump gets a raspberry from farmers in Iowa

It may be that the biodiesel impacts of recent actions on the RFS led to an unexpectedly sour reception for President Trump in a farm state tour, according to observers who had expected the President’s reception to be “a victory lap”. The Digest has learned that, on Air Force One after leaving the Midwest, the President expressed dismay at the impact the EPA’s small refinery waiver program was having with his political base. “I don’t understand why Exxon gets one,” the President is said to have remarked. EPA Administrator Wheeler struggled to explain the optics of a program that focus on refinery profits and hardship rather than refiner profits and hardships, but is described as having pushed back hard with the President on the basis that the EPA is required to follow the law regarding refinery waivers. Trump’s reported reaction to the problem? It’s up to Agriculture Secretary Perdue and Administrator Wheeler to work it out.

More economic forces at work

Low soybean prices. Trade difficulties with China have been cited as a factor in low prices for US soybeans, and that’s meant that plants using advanced technology to process more exotic feedstocks, such as waste oils and greases, have faced tougher competition from first-generation soy oil-only plants.

REG’s Warner noted, “Here’s another case where an analogy to oil refining is helpful. As refiners started to invest in higher complexity configurations, for example to handle higher sulphur and lower cost crudes, there became a light/heavy differential in the market for crude feedstocks. If you had a refinery focused on light, sweet straight refining, you hardly made any money but sometimes you could do better than anyone else, when the differential between the heavy and light feedstocks changed dramatically.

In our business, there’s usually a big discount for the more challenging feedstocks, and soy is more expensive, like the light sweet crude. The straight run soy biodiesel plant is harder to make money at in most cases, but right now we have have a shrinkage of that differential.”

Exports. Export conditions are not favorable owing to trade wars, low oil prices, and uncertainty over the future of diesel engines, and international policy uncertainty.

Are there export opportunities? Yes, says Warner, but points us to carbon intensity. “That’s the key,” she said. For more and more states and nations, the value of a lower carbon intensity fuel is rising, and for that reason a biomass based diesel can be very effective. There will be more demand for low carbon intensity fuels and the Nordics are an example. Also, Canada is developing a program, and British Columbia already has a program.”

California’s Low Carbon Fuel Standard impact. The LCFS favors renewable diesel, which generally has lower carbon intensity scores and higher blend rates than conventional biodiesel. This has the impact of steering REG’s attention, among others, towards large-scale renewable diesel plants using waste-based fats, oils and greases.

Not so fast, cautions Warner. “Our new blend UltraClean as a combination of biodiesel and renewable performs very well for engine and environment. Also, we can blend biodiesel at a higher percentage than in the past, and we have opportunities in the Midwest now for B100 even in the polar vortex. People have thought of biodiesel as a B5 product, or a B20 in the summer, but through technology we are seeing that change.”

Capex opportunities elsewhere

For companies such as REG and JVs such as Duonix, the capex requirements — for creating a scale of production and favorable feedstock mix that made these two projects more competitive — proved to be prohibitive. Simply put, companies like REG have been forced by US policy uncertainty into a quandary over potential costs of capital (not knowing whether expansion could be financed through cash flow or by debt, for example), and that’s bound to stymie investment at the more marginal project sites, possibly now as well as into the near future. Only the largest and most profitable refineries and new projects are likely to clear the risk vs return hurdle while bumpy US policy continues to confound experts, producers, and analysts.

As Warner confirmed to the Digest, “you need to have certainty to invest, so the programs have to become law, and there has to be a track record that warrants the risk.”

The Bottom Line

Is this the end to plant closures, or idlings and slowdowns? Unfortunately, it is not likely to be the case — more facilities are bound to be impacted the longer this policy impasse remains. Though the nameplate production is small in the case of New Boston, it’s a sign of the times and not a good one.

The fix? For now, there are three opportunities, all in the hands of the  US federal government, that could provide more support for the renewable fuels industry and the advanced manufacturing job growth.

1. More positive action from the Trump Administration on trade that could re-open export opportunities for fuels or soybeans.

2. EPA action on biomass-based diesel demand targets.

3. Action from the Congress on the renewal of the biodiesel tax credit.

Longer term opportunities? Oil prices are expected to rise in 2020 and may remain elevated over current conditions throughout 2021. Currency moves may help US producers more in the future — the dollar is strong at the moment, making exports even tougher than they already are. Also, further bans on palm oil as a feedstock for biodiesel — in the EU or elsewhere — would also be beneficial for US producers though not for overall global biodiesel demand.

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.

The post Another Biodiesel Plant Gets The Axe. Here’s Why. appeared first on Alternative Energy Stocks.

by Jim Lane

In California, waste feedstock from the city of Oakland is now being converted to Neste (NEF.F, NESTE.HE, NTOIF, NTOIY) MY Renewable Diesel and fuels the city’s fleet.

The city, Neste, fuel distributor Western States Oil and local collectors for used cooking oil joined forces to gather waste cooking oils from restaurants and other businesses in the Oakland metropolitan area and convert it to fuel the city’s fleet. By making waste more valuable and supporting jobs that collect and treat it, this concept helps the local economy in the city while the cleaner-burning Neste MY Renewable Diesel improves the lives of its residents by reducing local emissions from the city’s fleet.

More renewable diesel for trucks in California’s Central Valley

Meanwhile, renewable diesel fuel is soon to be much more accessible to fleet drivers looking to fuel up in central California, thanks to the opening of Neste-branded pumps at Van De Pol card-lock at 5675 7th Street, Keyes, dispensing Neste MY Renewable Diesel.

We reported on the story in Keyes and at three other California locations here.

Card-lock locations are unstaffed fueling stations designed to accommodate fleet vehicles, including 18-wheel trucks. Drivers can fill up with Neste MY Renewable Diesel, a low-carbon fuel produced from 100 percent renewable and sustainable raw materials that cuts greenhouse gas emissions by up to 80 percent compared to petroleum diesel.

“Since launching in California in 2011, we’ve had a lot of positive feedback from drivers and fleet managers using Neste MY,” Baines said. “And those who haven’t tried it yet keep asking where they can get it. We’re proud to offer Neste MY Renewable Diesel at these card-lock locations to further expand its accessibility and lead the renewable fuel revolution.”

Over to Sweden for jet fuel with Neste and Air BP

Over to Scandinavia for more Neste action. Neste, and Air BP, have entered into an agreement to deliver sustainable aviation fuel to airline and airport customers in Sweden in 2019.

Air BP has supplied sustainable aviation fuel in the Nordics since 2014 at around 10 airports, including most recently at Kalmar airport in Sweden and Oslo airport where they were the first to supply sustainable aviation fuel produced by Neste through the existing airport fueling infrastructure, in collaboration with other key industry stakeholders.

As backstory, Neste and Air BP announced in 2018 their plans to explore and develop supply chain solutions for delivering sustainable aviation fuel to airports and airlines. As a next step in their collaboration Neste will combine its expertise in the production and blending of sustainable low-carbon aviation fuel with Air BP’s recognized excellence in safe, efficient and effective aviation fuel distribution solutions to jointly develop a viable supply-chain solution for sustainable aviation fuel to the Swedish market.

What’s significant here.

First of all, let’s think about the expansion of distribution in California: note that this renewable diesel is being sold under the Neste brand, something we’ve seen in Finland but it’s a first for the US.

The second takeaway is a little more subtle, that’s the volume of these card-lock refueling stations that specialize in fleets. The Keyes facility alone supports 6 million road miles per year of fueling, and this is hauling something like 80,000 pounds per mile.

It would take 80,000 fully-loaded Tesla Model 3s to haul that same load. 4 stations provide more greenhouse gas reduction in the Big Heavy sector than you could achieve with all the electric cars sold in the U.S. last year put together. Which is not to say “don’t consider an electric” – please look carefully at the EV option where there is renewable electricity generation available to support EVs and where the range and cost meets your vehicle budget. What this is meant to show is that the Big Heavy is important and the impact of renewable diesel can be huge.

Third and fourth takeaway. The fuels are competitively-priced and all you have to do to use them is choose a different pump. No new vehicle, no modifications, no limit on blends, no hidden switching costs, no hassles, no kidding.

Fifth takeaway. Consider the positive local impact. Less NOx, lower particulars, and a lot more pleasant than the fossil diesel smell.

Some caveats to keep in mind

Neste is ramping up production, they have a big expansion of capacity in Singapore supporting this market that will come online in 2022, but it won’t be tomorrow and there may be some limits on supply if the fuels become as popular as they might. Neste will be able to expand quite a bit using existing production, but there will be some limits between now and 2022.

Feedstock acquisition will also be key to ensure that the supply chain continues to provide raw materials that are more and more sustainable, affordable, reliable and available — building up the supply network will be key. Neste is adamant that they don’t want to get into a market and then have trouble meeting the demand.

To that end, consider the Oakland program — that’s a very tight example of circular economies. Neste collects waste oils from Oakland’s sewers and makes renewable diesel, and sells fuel back to Oakland. There, a waste is eliminated in the form of a fuel that helps keep petroleum in the ground.

In some ways, this all started with ham in Finland, the traditional Christmas meal, and Neste started a program to have locals donate their Christmas waste oils, which Neste collects and processes into fuel. A great way for the ordinary person to take positive action, and a great way to help make renewable fuels affordable.

As Neste VP Jeremy Baines told The Digest, “More and more people are looking at the climate change discussion and saying, ‘I don’t know if I agree with everything people are saying, but this is happening’…I see the early springs, the forest fires and I know this is not normal — and here’s a small way in which the private citizen can do something about it.”

The Neste backstory

Renewables Take the Lead: The Digest’s 2019 Multi-Slide Guide to Neste is here.

Neste MY Renewable Diesel is a low-carbon fuel produced from 100 percent renewable and sustainable raw materials, primarily wastes and residues. It cuts engine-out emissions of nitrogen oxides by 9%, those of carbon monoxide by 24 % and fine particulates by 33 %, all while enhancing fleet performance. The concept by the city of Oakland and Neste saves greenhouse gas emissions by 74% compared to conventional, fossil diesel. Neste MY Renewable Diesel is a direct replacement fuel that requires no blending and is compatible with all diesel engines.

Recently, we reported that Neste’s growing Renewable Products business area will be divided into three business units and one operational platform each of which has its own Executive Vice President responsible in Neste’s Executive Committee: Renewable Road Transportation, Renewable Aviation, Renewable Polymers & Chemicals, and the Renewables Platform. More on that story here.

In December, we reported that Neste took the plunge and decided to invest EUR1.4 billion in tripling renewable production in Singapore. More on that here.

Reaction from the stakeholders

“Oakland is a proud leader in protecting our environment and practicing the highest levels of sustainability,” Mayor Libby Schaaf said. “This bold move will give our residents cleaner air, and it takes us one important step forward in our work to reduce greenhouse gas emissions.”

“We are excited to partner with the city of Oakland to make ‘from city waste to city fuel’ a reality and do our part to improve the lives of the people in the city,” said

Jeremy Baines, vice president of sales, Neste US, Inc. “Oakland’s choice for a more sustainable diesel fuel and their support for making local waste part of their energy solution sets an example for the Bay Area, for all of California and beyond.”

“Switching from petroleum diesel to renewable diesel automatically converts the City’s oldest and dirtiest polluting vehicles into alternative fuel vehicles – overnight and with no additional costs,” Oakland Public Works Director Jason Mitchell said.

“Demand for cleaner fuels is on the rise globally, and California is a leader in the movement toward an emissions-free future,” said Jeremy Baines, vice president of sales for Neste. “Neste MY Renewable Diesel helps meet environmental needs without compromising performance or cost.”

“I am very happy to announce that our collaboration with Air BP has taken its first concrete step, as aviation is one of our strategic growth areas. Sweden is becoming a leading country in decarbonizing aviation with its proposal to introduce a greenhouse gas reduction mandate for aviation fuel sold in Sweden. Together with Air BP we are able to support air transport in Sweden in their efforts, and this collaboration gives both of us valuable insight into developing similar supply chains to decarbonize aviation in other markets,” says Neste’s President and CEO Peter Vanacker.

Jon Platt, Air BP Chief Executive Officer added: “I am pleased that through our collaboration with Neste we will be able to offer our Swedish customers sustainable aviation fuel at a number of airports across the country in 2019. We are committed to supporting our customers, through initiatives such as this, as they work towards reducing their emissions and realizing their low carbon ambitions.”

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.

The post Neste’s Growing Circular Economies appeared first on Alternative Energy Stocks.

Aemetis, Inc. (AMTX:  NasdaqCM) just announced sales of biodiesel to gas stations in India.  The sales follow on the heels of a significant ruling in November 2018, by the Bombay High Court to remove restrictions on biodiesel that had barred direct to consumer sales by biofuel manufacturers.  The breakthrough into the India market is significant for the company, which has been operating a 50-million gallon integrated chemicals and fuels facility in Kakinada, India for several years. 

Demand for renewable fuels has been strongest among fast growing economies like India, where decision makers fear dependence upon imported fossil fuels.  India produces only about 1% of global crude oil and consumers about 3.1% of global consumption. Despite missing this critical industrial resource, India’s economy is growing in the mid-single digits. Biodiesel has gained popularity because it can be produced domestically from local feedstock.  Other government actions have made the India market more interesting, including reduction of the goods and services tax on biodiesel and government purchase guarantees for up to 260 million gallons per year beginning in 2019.

Unfortunately, India has experienced a few missteps on the road to a ‘green’ economy.  Early on the jatropha plant was identified as a strong biodiesel feedstock since it grows easily in the forests and wastelands common in India.  Despite the appearance of abundance, developers have found it difficult to source good jatropha seeds for planting in India. Consequently, India’s biodiesel production has fallen well short of plans.

Aemetis has sidestepped the jatropha problem by developing a system that accommodates a wide variety of feedstock, including lower quality free fatty acid waste feedstock.  In April 2018, the company installed a pre-treatment facility at Kakinada that helps make it possible to turn low-cost waste feedstock into biodiesel that meets international fuel standards.   Aemetis has filed a patent application to cover its pre-treatment technology.  Additional improvements completed in January 2019, have enabled capacity production at the Kakinada plant.

Aemetis also has reason to celebrate its U.S. production plans.  The company recently received conditional commitment for a $125 million loan guarantee from the U.S. Department of Agriculture to build a cellulosic ethanol plant.  The company already invested $10 million of its own capital to build and operate a demonstration plant at a former U.S. Army munitions facility near Riverbank, California.

The company is ready for production  at the Riverbank project.  A feedstock supply agreement is in place with nut growers in Central Valley that generate as much as 1.6 million tons of waste from almond, walnut and pistachio orchards.  The supply should be enough to produce 10 million gallons of cellulosic ethanol annually.  The company claims ethanol off-take agreements were put into place in 2018, but does not specify the particular arrangements for the Riverbank production.

Riverbank will be Aemetis second U.S. production site. The company already has an ethanol plant at Keyes, California with 60 million gallons annual production capacity.  The plant turns out ethanol and 400,000 tons of wet distiller grains.  The latter is sold to dairy farmers in California’s Central Valley for animal feed.  Ethanol has come under fire in recent years for an overall poor carbon footprint.  The Keyes plant is powered by a combined heat and power steam turbine that helps reduce overall energy usage.

Aemetis’ two operating plants generated $171.6 million in total revenue in the twelve-months ending September 2018.  Investments in new productions led to a loss of $2.6 million in the period.  In total operations used $5.7 million in cash to support operations during that twelve month, leaving just $65,000 in cash on the balance sheet at the end of September 2018.  For those investors who would panic at such low cash reserves, rest assured the Company’s doors are still open.  The Company closed a $30 million equity private placement late last year, receiving the first $8.3 million tranche in December 2018.  It is also noteworthy that a package of loans, grants, tax breaks and other benefits will cover costs of the Riverbank construction and initial working capital, making it possible to begin operations there without any additional common stock issuance.

Trading just under one dollar per share, Aemetis stock appears undervalued against its recent accomplishments.  Low trading volume is an obstacle to fair valuation and will require patience for those investors with long positions.   For those who have enough tolerance for execution risk at this young company there is also the consolation in a low beta volatility measure of -0.02.

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 3/2/19 as “Time to Look Seriously at Aemetis.” 

The post Aemetis: Indian Breakthrough, California Expansion appeared first on Alternative Energy Stocks.

by Jim Lane

In Iowa, white smoke has emerged from the Renewable Energy Group (REGI) conclave: Tesoro EVP and former Sapphire Energy CEO C.J. Warner has been named chief exec of Renewable Energy Group, at a pivotal moment for biodiesel in Washington and around the world and amidst a boom for renewable diesel like the world has never seen.

REG has been making good progress with Wall Street under interim CEO Randy Howard and its share price has been on the rise, and the plants have been humming along nicely churning out hundreds of millions of gallons of biodiesel and the liquid gold also known as CARB diesel (or renewable diesel qualified for the low-carbon markets in California, Oregon and British Columbia). All that, built on an incredible run from single-plant operator to biodiesel behemoth under, first, Jeff Stroburg and then Dan Oh.

Now, the next chapter begins to unfold.

Here’s the REGI challenge

It’s a brilliantly operated company that generated some $220 million in net income last year. Yet, the company has a P/E ratio of around 4.4 compared to the NASDAQ average that hovers around 25. If the company were valued along with its NASDAQ peers, it would have a $5B market cap and could be using its stock to roll up a huge amount of production capacity through M&A. And there’s not an REGI investor who wouldn’t like to see a juicy $130 stock price.

The few cases in history where you get these kind of market disconnects are when the balance sheet is a toxic waste dump, the products are shortly destined for the scrap-heap of history or there’s a huge potential lawsuit liability. None of those apply in this case. So, there’s been major progress, but there’s huge upside. And, so long as the company remains this undervalued, it makes REG a ripe target for acquisition, raiders, privatization efforts, or activist shareholders.

What’s going to happen to REG? Let’s look at the two fundamentals that restless investors are pointing us too: feedstock cost and the dependence on tax credits and RINs to generate value.

The world of REG’s prices and values

Here’s a graphic from Iowa’s Center for Agricultural (CARD) to illustrate biodiesel’s fundamentals.

The red marks the operating margins and the green represents feedstock costs — the one, minuscule, the other daunting. What need to be done to unlock REG’s value? It really comes down to restructuring REG’s income stream. Investors see the company as entirely too dependent on those tax credits and RINs.

There’s come evidence for their fear. Congress only passed the 2017 tax credit in early 2018, did not renew the credit for 2018 at all, as of yet, and the 2015-16 credits came in well into 2015. Only one year, 2016, has REG entered into a new year with a tax credit assured.  The Brady bill dropped into Congress last week with a thud, offering a 7-year tax credit extension but discounting and sunsetting the credit in the mid 2020s.

And, in case you were still feeling swimmingly happy about your REG share price outlook, the Trump Administration’s negotiations with the renewable fuel industry on sweeteners and support have mostly focused on year-round availability for E15 ethanol and not on expanding the market for biodiesel, much. The current EPA mandate for 2019 is way below the industry’s production capacity.  Which means that biodiesel gets hit on the nose by the way EPA runs the RFS program, but the relief efforts generally target ethanol, instead of America’s favorite advanced biofuel. Here’s some color on RIN values (with biomass-based diesel in blue):

That’s hardly grist for shareholder enthusiasm and its tough on REG-s long-term investments planning, too. Can’t be positive for company morale, either.

Solving the problem

Warner, as the incoming CEO, will have several options. One, more of the same, hammer on Washington to extend tax credits and protect RIN values. Two, acquire or build production capacity in renewable diesel to take advantage of the sweet margins for that fuel, taking advantage of REG’s strong position in fats, oils and greases (FOG) acquisition. Three, transform feedstock costs by tapping into wood residues and MSW to make biocrude that can be upgraded to renewable diesel. Four, find a way to privatize the risk that flows from government hemming-and-hawing over tax credits, taking REGI out of the firing line when tax credits do not appear. Five, deliver on the promise of REG Life Sciences with a product line or two that generates the kind of company-altering cash flow that’s been helping the likes of Amyris of late. There may be others in the REG option quiver, but you get the general idea.

The Warner / REGI backstory

Warner arrives on January 14, 2019. She brings more than 35 years of experience in the energy industry, including an extensive background in refining. Most recently she served as Executive Vice President, Operations for Andeavor (ANDX, formerly Tesoro Corporation), an integrated marketing, logistics and refining company. Prior to her most recent role, Ms. Warner served as Executive Vice President, Strategy and Business Development of Andeavor.  Before joining Andeavor, Ms. Warner served as President, Chief Executive Officer, and Chairman of the Board of Sapphire Energy, a biofuels company. Prior to Sapphire Energy, Ms. Warner served as Group Vice President of Global Refining and Group Vice President of Health, Safety, Security, Environmental and Technology for BP (British Petroleum). Ms. Warner serves as a member of the Board of Directors for IDEX Corporation and serves as a member of the National Petroleum Council.

“After completing a thorough and deliberate succession planning process, we are pleased to welcome CJ Warner as our new President and CEO,” said Jeff Stroburg, Chairman of the REG Board of Directors. “Her background and success, coupled with her passion for developing renewable fuels that transform the transportation fuels market to a cleaner and sustainable future, makes her an exceptional choice to lead REG.”

“I am delighted and honored to be joining the REG team as President and CEO,” said Warner. “This growing company is well positioned to meet the rising global demand for cleaner, competitive low carbon fuel solutions.  I look forward to the exciting future ahead and to leading the team with a continued focus on value creation.”

During the leadership transition Randy Howard will remain engaged with the business.  Upon completion of the transition, Randy will continue to serve on the REG Board of Directors, a position he has held since February 2007.

The Bottom Line

Natives are restless, which is to say shareholders. Being an incredibly well-operated company in a fast-growing space is not as attractive to them as it should be, but it’s tough to fire investors. And the company is operating too strongly to hope that anyone can work a miracle from the inside by simply boosting productivity.  There’s not much upside left in performance, but there’s upside in REG Life Sciences, feedstock and restructuring policy risk. None of which is easy to do — but anyone who’s been around CJ as part of the “Beyond Petroleum” generation that advanced at BP under Lord Brown, or her subsequent years bringing Sapphire Energy from a great idea to an at-scale reality, or her work taking Tesoro (or Andeavor, take your pick) into the world if renewable with relationships with Fulcrum, Ensyn (ESNC) and the acquisition of Virent, will be of great cheer. She’s a winner.

And, we might see in her strategic work at Tesoro that renewable diesel might well be the most potent option in front of REG to boost margins, add capacity and dominate the California market where policy risk is lower. The key ultimately is feedstock. The world is reaching Peak FPOG far faster than Peak Oil.

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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