http://www.biodieselmagazine.com/articles/2070312/biodiesel-renaissance
Biodiesel Renaissance
By Ron Kotrba | January 13, 2017
The U.S. biodiesel sector experienced a revival period in 2016 unlike
any other, thanks to favorable market conditions resulting from
stabilized renewable fuel standard (RFS) policy and the December 2015
passage of the two-year retroactive biodiesel tax credit, effective Jan.
1, 2015, through Dec. 31, 2016. Despite sustained low diesel prices,
more biodiesel plant expansions, upgrades, and mergers and acquisitions
(M&As) were announced in 2016 than in any time in recent memory,
signaling a sound industry future by strategic investors. U.S. market
consumption of biodiesel and renewable diesel was expected to reach
upwards of 2.5 billion gallons of biodiesel and renewable diesel.
In November, just as biodiesel producers settled into a newfound,
welcomed market stability, a different kind of uncertainty was
introduced: a newly elected Donald J. Trump. The election results
brought rampant speculation on how the new president and a
Republican-controlled Congress would affect biodiesel policy. Mixed
messages on the campaign trail—Trump’s outspoken support for RFS before
the Iowa caucuses juxtaposed with his declarations to dismantle the U.S.
EPA—and his subsequent nominations of fossil fuel industrialists and
advocates to cabinet posts have made Trump’s position on biodiesel
difficult to predict.
But just two weeks after the elections, Obama’s EPA issued its final RFS
ruling before the new administration took over, and its message was
strong—keep RFS and renewables growth on track. The 2017 advanced
biofuels category was boosted by 19 percent from 3.61 billion
ethanol-equivalent gallons (2.41 billion biodiesel gallons) in 2016 to
4.28 billion ethanol gallons in 2017. Moreover, the agency increased the
category by 7 percent from its proposal in May of 4 billion ethanol
gallons. The 2018 biomass-based diesel subset of the advanced category
was finalized at 2.1 billion gallons, up 100 million over 2017.
The picture is not entirely rosy though. At press time, the tax credit
was set to lapse again and the positive, bullish domestic market has
brought an influx of imports, anticipated to hit new highs following
2015’s record of 670 million gallons—a trend U.S. producers and the
National Biodiesel Board hope to curb in 2017 by reforming the
$1-per-gallon blenders tax credit to a domestic producers credit.
“We need to move the needle on biodiesel in the U.S., and imports are a
critical issue for us,” says Donnell Rehagen, NBB’s new CEO. “It makes
for a challenging time for producer-members who are making investments
in their plants.”
Project Expansions, Upgrades
Hundreds of millions of gallons of U.S. biodiesel and renewable diesel
productive capacity project expansions are either currently underway or
have been recently completed. “The investments we’re seeing in
increasing production capacity indicates the future is bright for
biodiesel,” Rehagen says. John Campbell, a managing director with Ocean
Park Advisors, says his tally of the additional annual capacity these
project expansions bring approaches 400 MMgy. “These project expansions
and M&As we’ve seen over the past year are a show of confidence,” he says.
The U.S.’s first commercial-scale biodiesel plant, AGP Inc.’s 30 MMgy
facility in Sergeant Bluff, Iowa, is in the midst of a major expansion
project. The plant, built in 1996, is doubling capacity from 30 to 60
MMgy. Matt Caswell, an AGP vice president, says the project is going
well and is on schedule for completion in late 2017. A new soy crush
facility is set to open on-site this spring. “It’s nice to have a
dedicated feedstock on-site instead of shipping it in,” Caswell says.
AGP has three plants—two in Iowa and one in Missouri—and once expansion
in Sergeant Bluff is complete, it will have more than 150 MMgy of
biodiesel production online. “We’re still strong believers in the
biodiesel industry,” Caswell says. “There’s still market opportunities
now and in the future for high-performing advanced biofuel with multiple
benefits. There’s a strong policy foundation in place—at least for the
next couple of years from Washington—and we believe the importance of
biodiesel to the soy industry is well-known.”
In New Hampshire, White Mountain Biodiesel LLC is undergoing a major
expansion at its biodiesel production facility in North Haverhill.
Announced in February 2016, the two-year project will increase
production capacity from 3 to more than 16 MMgy. The company says
improvements will be made using proprietary technologies developed
in-house over the past decade, and the project will result in
significant cost reductions from increased efficiencies. Presby
Construction will complete the new building addition, and the tank
installation, piping, pumps and electrical improvements will be
completed by the current White Mountain Biodiesel staff. BQ-9000
accreditation is also being pursued.
The nation’s largest biodiesel producer, Renewable Energy Group Inc.,
began or completed several project expansions and upgrades at its
facilities in the Midwest. In May, REG announced the addition of 14
million gallons of biodiesel and feedstock tank capacity at its
Danville, Illinois, plant. In October, REG celebrated completion of more
than $30 million in upgrades and enhancements in Danville, including the
addition of biodiesel distillation and other manufacturing upgrades,
allowing the 45 MMgy plant to use a wider array of lower-cost
feedstocks. The project, which began July 2015, also included logistical
improvements such as an additional truck loadout, new warehouse and
office space.
Earlier this year REG acquired Sanimax Energy’s 20 MMgy biodiesel plant
in DeForest, Wisconsin. Shortly afterwards, REG began a $7 million
upgrade project on-site to the renamed REG Madison plant. The upgrades
include process improvements, a dedicated entrance for the plant,
additional biodiesel storage and locker rooms for the team.
REG also broke ground on a major expansion project in Ralston, Iowa,
this November. The $24 million project will boost capacity from 12 to 30
MMgy. The adjacent Landus Cooperative soy crush facility was recently
expanded and REG President and CEO Daniel J. Oh says the biodiesel plant
expansion matches the greater output volume from the crushing facility.
The project also includes logistics improvements and other site
enhancements. Up to $20 million in long-term debt financing is expected
to be provided for this project. The Ralston expansion will increase
REG’s cumulative nameplate capacity from the company’s 11 active U.S.
biomass-based diesel plants to 470 MMgy.
In Louisiana, Diamond Green Diesel, a joint venture between Darling
Ingredients Inc. and Valero Energy Corp., is expanding production at its
160 MMgy renewable diesel facility in Norco to 275 MMgy. The project
includes expanded outbound logistics for servicing the many developing
low-carbon fuel markets in North America and globally. Completion is
expected late 2017, with production to ramp-up in early 2018. The plant
is operating at full capacity throughout the expansion excluding minimal
downtime for final tie-ins.
After years of rework, Flint Hills Resources and Benefuel Inc. started
commercial biodiesel production at Duonix LLC, the 50 MMgy plant
formerly known as Beatrice Biodiesel in Nebraska. It’s the first
commercial-scale application of Benefuel’s Ensel technology, a solid
acid catalyst process capable of converting a range of lower-cost
feedstocks into biodiesel. The multiyear project included an upgraded,
backend distillation process. “The start of production at Duonix
Beatrice is a major milestone and a significant step toward
demonstrating the commercial viability of the Ensel technology,” says
Rob Tripp, CEO of Benefuel. “The key question has been whether the
technology can be scaled up and applied to a large production facility,
so we’re very pleased to be able to say that production at Duonix
Beatrice is now underway and the results are very encouraging. We
believe this provides us with a strong base to grow additional
production within the U.S. and worldwide.”
Crimson Renewable Energy LP in Bakersfield, California, showcased its
newly upgraded and expanded biodiesel plant in October. The expansion
tripled production on-site to 24 MMgy, the company says, and upgrades
performed by Austria-based biodiesel technology provider BDI-BioEnergy
International AG included expansion of steam and other existing systems,
as well as the installation of new second-generation systems, which will
enable the plant to reduce unit energy and water consumption by up to 15
percent. The plant is producing ultra-low carbon biodiesel made entirely
from used cooking oils and other inedible raw materials, says Harry
Simpson, Crimson’s president and CEO. BDI’s RetroFit program includes
raw material preparation, esterification of feedstock with high free
fatty acid (FFA) content, and biodiesel and glycerin distillation. “The
excellent cooperation of the project teams of Crimson and BDI led to a
smooth, fast workflow resulting in a successful commissioning of our
newly expanded biodiesel plant,” Simpson says. BDI Chief Sales Officer
Edgar Ahn says with the completion of this project, BDI strengthens its
presence in the U.S. biodiesel market. “Our internationally successful
retrofit program helped our customer to update its existing plant to the
latest technology,” says Ahn.
High Plains Bioenergy, a subsidiary of Seaboard Foods, celebrated the
grand opening of its newly acquired 28 MMgy biodiesel plant in October,
HPB-St. Joe Biodiesel, located in St. Joseph, Missouri. The plant was
formerly known as Blue Sun Biodiesel and was converted to enzymatic
processing in 2013. Including its Guymon, Oklahoma, plant, HPB’s total
biodiesel production capacity is now approximately 60 MMgy.
Louis Dreyfus Company LLC inaugurated its new glycerin refinery at its
subsidiary’s soybean crushing and biodiesel plant in Claypool, Indiana.
The refinery is the second largest in the U.S. producing USP-grade
kosher refined glycerin, with a capacity of 80 million pounds per year.
The company has marketed crude glycerin, a coproduct of biodiesel
production, since the facility began operations in 2007. The new
glycerin refinery allows the plant to process up to 100 percent of its
crude glycerin production into kosher- and halal-certified USP
food-grade glycerin, with a minimum 99.7 percent purity.
To help support additional U.S. biodiesel production and demand, Evonik
Corp. completed a capacity expansion at its sodium methylate plant in
Mobile, Alabama. Sodium methylate is a base catalyst used in the
transesterification process for biodiesel production. The company has
increased capacity from 60,000 to 72,000 metric tons per year through
operational excellence and infrastructure investments, the company says.
“The U.S. market for biodiesel will continue to grow,” says Stefan
Plass, head of business line functional solutions at Evonik. “Ensuring
our customers have a key raw material they need, when they need it, is
why we have invested our resources here in Mobile—to better meet our
customers’ needs.” Alexander Weber, Evonik’s general manager and vice
president North America, business line functional solutions, says this
growth represents just the first phase of expansion plans for sodium
methylate and demonstrates Evonik’s continuing commitment to the
biodiesel industry. “Evonik has also increased its rail fleet for sodium
methylate ensuring that the additional volume will be available
throughout the U.S.,” he says. Evonik also produces sodium methylate in
Germany and Argentina.
M&As
In addition to the REG acquisition of Sanimax Energy’s DeForest,
Wisconsin, biodiesel plant, as well as HPB’s purchase of Blue Sun
Biodiesel in Missouri, several other North American biodiesel M&As took
place in late 2015 and 2016.
In late 2015, Hero BX bought the former 15 MMgy Veros Energy plant in
Moundville, Alabama, expanding the facility to 20 MMgy and renaming it
Hero BX Alabama LLC. Production came online in 2016.
Six days into 2016, Kolmar Americas Inc., an integrated petroleum,
petrochemicals and renewable fuels marketing and trading firm based in
Bridgeport, Connecticut, announced its in-state acquisition Greenleaf
Biofuels, a 15 MMgy biodiesel facility in New Haven. “This is a very
important acquisition for Kolmar,” says Raf Aviner, president of Kolmar
Americas. “It is the first such acquisition in the company’s history,
and it shows the deep commitment Kolmar has to Connecticut, the
environment, the biodiesel industry, in general, and to the employees at
the plant, in particular.” The plant has been renamed American
Greenfuels LLC. In 2015, the plant made $1 million in capital improvements.
In June, Canadian biodiesel producer Biox Corp. acquired Methes Energies
Canada Inc.’s 50 MMly (13.2 MMgy) biodiesel facility in Sombra, Ontario,
for US$4.5 million. Built in 2009, the plant never reached nameplate
capacity due to working capital and market challenges, and was idle at
the time of acquisition. Biox is spending several million dollars on
upgrades to improve efficiency and enable use of lower-cost feedstock.
The acquisition complements Biox’s production in Hamilton, Ontario, and
increases the company’s capacity by 75 percent.
Just days after Biox announced the Sombra acquisition, Biox and World
Energy formed a joint venture (JV) to purchase the idled 90 MMgy Green
Earth Fuels biodiesel plant in Houston, Texas. Each company committed
$10 million to the World Energy Biox Biofuels joint venture. The
facility is located within the Kinder Morgan Liquids terminal on the
Houston Ship Channel and is one of the largest biodiesel plants in North
America.
Two months later, World Energy acquired Elevance Natchez Inc.’s 72 MMgy
biodiesel plant in Natchez, Mississippi. World Energy had been supplying
BQ-9000-certified biodiesel from the plant under a production contract
with Elevance Natchez since January 2013. The plant is currently staffed
and in full operation, according to World Energy, which stated that
customers, employees, suppliers and the Natchez community can expect
little change in the ownership transition. Campbell tells Biodiesel
Magazine that, in his opinion, World Energy’s two purchases combined
are, gallons-wise, “the most notable M&A transactions of the year.”
In November, Cielo Waste Solutions Corp. signed a commercial purchase
agreement with XR Resources Inc. to buy the former Western Biodiesel
Inc. facility in High River, Alberta, an idled16 MMly (4.2 MMgy)
biodiesel production plant. Don Allan, president and CEO of CWS, says
once the purchase is complete, the new site will house CWS’s scaled-up
thermal catalytic depolymerization technology to produce renewable
diesel from cellulosic-rich waste feedstock. The facility was built in
2009. “It’s in good shape,” Allan says. “The plant shut down in 2013 and
it only ran for maybe two years.” CWS has already awarded construction
contracts for the project.
Finally, in mid-December, days before press time, two Singapore-based
companies, Agritrade Resources Ltd. and Solfuels Holdings Pte Ltd.,
jointly acquired the former Delta American Fuel biodiesel plant in
Helena, Arkansas. Agritrade Resources stated it paid $2.97 million for
its 51-percent share of the idled 40 MMgy plant. Henri Bardon, CEO of
Solfuels, tells Biodiesel Magazine the joint venture has hired Frazier,
Barnes & Associates to perform plant engineering services and that the
facility, originally built to process vegetable oils, will be
retrofitted with Solfuels’ multifeedstock technology. Solutions 4
Manufacturing brokered the deal, according to Bardon. The plant will
operate as Solfuels USA LLC.
Imports
In 2015, the U.S. imported roughly 670 million gallons of biomass-based
diesel, a record that Larry Schafer, co-founder of legislative advocacy
group Playmaker Strategies LLC and senior advisor to the National
Biodiesel Board, says will likely be broken once 2016 final import
volumes are tallied. Schafer spoke at Christianson & Associates’
Biofuels Financial Conference Oct. 17-18 in Minneapolis, where he said
the U.S. is on track to receive more than 800 million gallons of
biodiesel and renewable diesel imports in 2016.
In December, the U.S. Energy Information Administration released its
Short-Term Energy Outlook. In the report, EIA said net imports of
biomass-based diesel—gross imports minus exports—are expected to
increase from 31,000 barrels per day in 2015 (475 MMgy), to 45,000
barrels per day in 2016 (690 MMgy) and 51,000 barrels per day in 2017
(782 MMgy).
John Kruse, the principal and director of quantitative analysis of World
Agricultural Economic and Environmental Services, tells Biodiesel
Magazine the often-ignored and underestimated source of biodiesel is
imports. “Certainly Argentina has been underestimated as a source of
biodiesel by many groups, but 2016 will provide a good flavor of its
potential,” Kruse says. “The U.S. is on track to import nearly 400
million gallons of biodiesel from Argentina alone this year. Europe,
Southeast Asia, Canada and Brazil all represent potential sources of
imports depending on policy and economics.” Furthermore, Kruse notes
U.S. imports of renewable diesel could exceed 275 million gallons in
2016. Rehagen says the challenge of imports has not gone unnoticed,
which is why NBB and its producer-members are urging for reformation of
the tax credit from a blenders to a producers incentive.
Campbell says imports are part of a multiheaded Hydra and there’s a lot
of forces at work. “You always have imports putting pressure on domestic
margins and the domestic price is limited by the pressure from imports
and the upward pressure on feedstock prices,” he says. “And the other is
how many excess RINs are being cashed in, so obligated parties ask
whether they should buy physical gallons, use excess RINs or import
material, and producers have to weigh this up and know that they can’t
count on the tax credit if it lapses, so they need to get enough out of
their production to cash flow and not dig a hole for themselves.”
Outlook
No one knows what a Trump administration will mean for biodiesel,
although industry stakeholders are trying to remain positive. “We’re
hearing good things about a Trump administration, its interest in
agriculture, energy and renewable energy, so we’re looking forward to
working with him,” Rehagen says. “He’s an advocate of performance, it’s
been one of his criticisms, and our industry is a performer.”
Biodiesel is consistent with Trump’s platform of energy security and
independence, the creation and retention of domestic jobs, and reforming
the tax credit to exclude imports would support Trump’s call for the
U.S. to stop sending dollars overseas to support foreign manufacturing.
“I think we’re making headway with the Trump administration on the
impact of Argentine biodiesel and its negative effect on domestic
biodiesel producers,” Caswell says. “We’re starting to see material in
real volumes come from Argentina and, with the budget question and
allocation of resources being reexamined with the new administration, we
don’t want to subsidize Argentine production. We’re hopeful on the
outcome of that, and we’re doing our best to make a change.”
“We still see 2017 as a period of growth,” Rehagen says. “We need to
keep working hard at it though, nothing’s going to come easy for this
industry. But I continue to be amazed at the resiliency of our industry
in the face of challenge after challenge for 25-plus years. Uncertainty
is a certainty in our industry.”
Caswell says, “We’re definitely looking toward uncertainty for 2017,
primarily due to the election, but Trump has said strong things about
RFS in his campaign. And while the tax credit will lapse, as it has done
many times before, we don’t believe it has anything to do with a lack of
support in Washington.”
Q1 this year will be obviously slower, Campbell says, as producers sort
through the lapsed tax credit, and if and when it’ll return, and in what
form. “That uncertainty will require the gallon to carry the load,” he
says. “And there’s a new ‘sheriff’ in town, controlled by the
Republicans, so we don’t know what tax reform and what extenders will
look like, and anyone who says they do are being speculative. There’s
far more uncertainty about an extension than in the past. And with that
uncertainty, producers can’t afford to take those risks as much, so when
they sell those gallons they’ll need to at least break even.” Campbell
says he believes the tax credit will be part of an enormous tax reform
bill put before Congress this year.
Tax credit aside, Campbell says, “The RFS and the overall environment
for biodiesel and renewable diesel is really positive. In my opinion,
it’s highly unlikely Congress changes the RFS. It’s had its critics from
day one. Congress has bigger fish to fry. And EPA has wide authority to
manage RFS that doesn’t require legislative change. The boiling issue
isn’t the program’s basic structure but rather the obligated parties
don’t have downstream blending and they have to buy RINs to comply. The
whole debate of point of obligation is front and center. I would look
for battles to be around those sorts of implementation issues rather
than need to get rid of RFS. Trump won those important states where
renewables are so important, and I just don’t see those in the oil
industry who don’t like it prevailing.”
