Surge in U.S. renewable diesel supply won’t offset loss of petroleum diesel

The Limetree Bay Oil Refinery facility is seen in St Croix, US Virgin Islands June 28, 2017 when it was owned by Hovensa. REUTERS/Alvin Baez

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June 21 (Reuters) – A flood of renewable diesel plants in the United States set to come online in the next three years will not be enough to offset the loss of petroleum diesel refining capacity due to plant closures since 2019, according to a Reuters analysis of federal data.

U.S. refining capacity has shrunk over the past two years as plants closed at the start of the coronavirus pandemic, causing prices to spike. Several plants are being converted to facilities capable of producing cleaner-burning renewable diesel, but at least for now, these facilities will not entirely replace these refined barrels.

There are at least 12 renewable diesel projects worth more than $9 billion under construction, and nine more are proposed. The 12, along with the existing plants, are expected to produce around 135,000 barrels per day (bpd) of renewable diesel by 2025 according to EIA data, up from around 80,000 bpd currently.

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However, since 2019, diesel production capacity has fallen by around 180,000 bpd in total, according to the US Energy Information Administration, and at least one other US refinery is expected to close next year, further reducing production. . In addition, refiners that are about to produce renewable diesel will no longer produce gasoline or jet fuel.

Globally, about 400,000 bpd of combined diesel, jet fuel and heating oil capacity has been lost since 2019, according to EIA data calculations.

Renewable diesel is made from animal fats, food waste and vegetable oils, but is chemically equivalent to petroleum-based diesel. It can be produced in existing refinery equipment, but yields are lower than diesel. Biodiesel, another plant-based diesel, must be blended with petroleum to run efficiently in most engines, although some truck fleets can run on 100% biodiesel.

Growing demand and refinery losses have pushed diesel prices to record highs. The retail price of US diesel has jumped 80% this year to $5.78 per US gallon, and low inventories have increased the potential for shortages. U.S. inventories of distillates, including diesel, are down 19% from a year ago.

About 1 million bpd of new oil refining capacity is planned over the next five years in Asia, the Middle East and the US Gulf Coast. But experts say startups are hard to predict due to construction delays, shifts in market demand and funding.

BIODIESEL PIVOT

U.S. refiners joined the renewable fuels bandwagon two years ago as the pandemic reduced demand for fuel and environmental pressures led many to choose decarbonization over plant shutdowns.

The 166,000 bpd Marathon Petroleum (MPC.N) refinery in Martinez, Calif., and Rodeo’s 120,200 bpd Phillips 66 (PSX.N) refinery, also in Calif., have been converted to renewable diesel installations. Together they will produce 100,000 bpd of renewable diesel by 2023.

HF Sinclair has converted a 52,000 bpd refinery in Cheyenne, Wyoming to produce 6,000 bpd of renewable diesel. Canada’s former Come-by-Chance refinery aims to start producing 18,000 bpd of renewable fuels by 2024.

“These projects should bring additional barrels in the next few years, but not now when they are more needed,” said Ravi Ramdas, managing director of energy consultancy Peninsula Energy.

The benefits of renewable fuels have been bolstered by states, led by California’s Low Carbon Fuel Standard, which rewards producers with tradable credits for producing renewable fuels.

However, credits are now trading at around $80 a ton, down from $200 a ton in 2020, when the majority of such projects were proposed. California regulators are currently considering asking the state to further reduce the carbon intensity of transportation fuels, which could increase credit prices.

Still, US refiners say they are not backtracking on renewable diesel projects.

The cost of vegetable oils used to make renewable diesel also rose after Russia invaded Ukraine. Soybean oil, a popular feedstock in refineries, was up 40% year over year, while crude oil was up more than 60% during that time.

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Reporting by Laura Sanicola Editing by Chizu Nomiyama

Our standards: The Thomson Reuters Trust Principles.

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