By: John Auers and Elizabeth Hilbourn
For our final blog of the year, it seems appropriate to discuss the still small, but rapidly growing market for renewable diesel. The Scottish phrase, “Auld Lang Syne,” which most of us will sing as we say goodbye to 2015 on Thursday, loosely translates to “times gone by.” Renewable diesel, which is produced with used cooking oil or animal fats as a feedstock, in many ways harkens back to the pre petroleum days when whale oil and other similar animal or plant derived materials were important parts of the energy mix. In our blog two weeks ago, we talked about cellulosic biofuels and related it to the “Song That Never Ends.” The EPA anticipated that 16 of the 36 billion gallons of renewable fuel in 2022 would be met by cellulosic biofuel; however, only 0.1 billion gallons has been produced this year. To top it off, less than 2% of the cellulosic biofuel RINs have actually been generated by cellulosic ethanol, the remainder coming from CNG or LNG with landfill feedstocks. The void left by the slow progress of cellulosic ethanol, however, is being filled by renewable diesel, so it is certainly justified that “we’ll take a right good-will draught, for this auld lang syne” fuel.
Renewable diesel has been a growing subset of biomass-based diesel RINs, comprising 20% of D4 RIN generations, as shown in the figure below. Currently, 500 million D4 RINs are generated from renewable diesel. Across the world, renewable diesel is often considered an advanced biofuel. The International Energy Agency, in their Tracking Clean Energy Progress, refers to renewable diesel as advanced biodiesel. Renewable diesel is marketed as hydrotreated vegetable oil (HVO) abroad. Renewable diesel is also called hydroprocessed esters and fatty acids (HEFA).
In recent years several major facilities have been built and more are planned to produce renewable diesel fuel. The largest renewable diesel facility in the U.S. was constructed in 2013, the Diamond Green Diesel plant, located adjacent to the Valero Norco refinery. In 2014, the Venice, Italy ENI refinery was converted to a renewable diesel facility; and this year, part of the Paramount, California refinery is being converted to a renewable diesel facility. Plans are in order for 2016 to be the last year to process crude oil at the Total La Mede, France refinery, where a renewable diesel facility is currently being built. The Bakersfield, California refinery has processed tallow through its hydrotreater with petroleum to generate an advanced biofuel RIN (D5).
Renewable Diesel versus Biodiesel
Typical biodiesel that is not distillated at the back end has an amber appearance, whereas renewable diesel is crystal clear in color (see figure below). Properties of HVO are considered superior to biodiesel. Cetane is notable, with HVO having a cetane greater than 70, whereas soybean oil biodiesel typically has a 47 cetane. Specific gravity of HVO is lower than biodiesel at 0.77 to 0.79 versus biodiesel’s 0.82 to 0.85. HVO has higher energy content than biodiesel; the majority of U.S. HVO is given a 1.7 equivalence value for RIN generation versus the 1.5 for biodiesel. This means that 1.7 D4 RINs can be generated for every gallon of renewable diesel generated. Measured contaminants are lower for HVO than biodiesel. Cloud point and cold flow properties of HVO are superior to petrodiesel and especially biodiesel, particularly when isomerization is used in the renewable diesel production process, since it creates branched alkanes. HVO fuel quality is equal to the synthetic Fischer-Tropsch BTL and GTL diesel fuels.
The same feedstocks are used today to produce both HVO and biodiesel. In the production of HVO, hydrogen is used to remove oxygen from the triglyceride vegetable oil molecules and to split the triglyceride into three separate chains, thus creating hydrocarbons which are similar to existing diesel fuel components.
Renewable diesel has more connection to the refining process than any other renewable fuel. The hydrotreating process is a process utilized by petroleum refineries today to remove contaminants such as sulfur, nitrogen, condensed ring aromatics, or metals. In this process, feedstock reacts with hydrogen under elevated temperature and pressure to change the chemical composition of the feedstock. In the case of renewable diesel, hydrogen is introduced to the feedstock in the presence of a catalyst to remove other atoms such as sulfur, oxygen and nitrogen to convert the triglyceride molecules into paraffinic hydrocarbons. Since this process is currently used by many petroleum refineries, renewable diesel blends can be produced with existing refineries by co-processing the feedstock with petrodiesel; however, if renewable diesel is co-processed with petroleum products, it can only generate an advanced biofuel RIN (D5) and not a biomass-based diesel RIN (D4), which is typically generated for renewable diesel.
The equipment and process are very similar to the hydrotreaters used to reduce diesel sulfur levels in petroleum refineries. This allows for blending in any desired ratio without any concerns regarding quality. Biodiesel is made by the transesterification process, whereby the added alcohol (commonly methanol) is deprotonated with a base to make it a stronger nucleophile. HEFA fuels are hydrocarbons, rather than alcohols or esters, and can be used in diesel engines without the need for blending with petroleum diesel fuel. Below is a list of current producers registered with the EPA to produce a D4 1.7 EV renewable diesel.
Starting in 2013, with the Green Diamond renewable plant and the Valero Norco refinery, renewable diesel plants have begun to be co-located with refineries. Next was the ENI Venice, Italy refinery. The latest is the Alon Paramount refinery which utilized some idle equipment to put its renewable diesel plant on line this year. The latest announcement has been the Total announcing the conversion of their refinery in La Mede, France, to produce renewable diesel.
Market Experience
Premium EN 590 diesel fuel containing at least 10% of HVO was sold in Finland publicly from 100 service stations year-round since 2008, even in severe winter conditions, with good experience. The highest blending ratios utilized were about 30%, and it did not contain any biodiesel. In July 2015, UPS announced that it will buy as much as 46 million gallons of renewable diesel over the next three years, helping the company reach a goal of displacing 12% of the petroleum-based fuels in its ground fleet by 2017. In June 2015, United Airlines announced a $30 million investment in a large producer of aviation biofuels, and in July 2015, Red Rock Biofuels announced that it would produce about three million gallons of renewable jet fuel each year for FedEx, with delivery to begin in 2017 and run through 2024. Renewable diesel can drop in directly and replace diesel completely without any kind of blend-wall. Much of Neste’s renewable diesel goes to California and is marketed through Propel Fuels as ‘Diesel HPR’, a 100% renewable diesel product. In August 2015, Propel Fuels launched Diesel HPR (High Performance Renewable) and reported a 15X jump in per-outlet sales of renewable fuel for diesel engines compared to the B20 (20% biodiesel) it replaced. Diesel HPR is recognized as ‘CARB diesel’ by the California Air Resources Board even though it contains no petroleum. This U.S. marketing of renewable diesel will be greatly curtailed if the biodiesel tax credit (as introduced this month) is passed.
Biodiesel (Renewable Diesel) Tax Credit
There was a big push from organizations, notably the National Biodiesel Board, to make the biodiesel tax credit for 2015-2016 into a producer rather than a blender’s credit. Just this month the tax was passed through the House and Senate as a blender credit. The biodiesel tax credit allows blenders of biodiesel (and renewable diesel) to claim a credit of $1 per gallon against their U.S. federal tax liability. If the tax was limited to just a producer credit, it would have affected renewable diesel in the U.S. since only 20% of worldwide renewable diesel capacity is located in the U.S. and an estimated 35% is imported. The result would have meant fulfilling the renewable fuel standards for 2016 and would have been even more difficult since over 20% of D4 RINs come from imports.
A section on alternative fuels will be included in our 2016 Crude and Refined Products Outlook, scheduled to be issued in early February. Also included in this report will be detailed forecasts of supply, demand and prices for refined products, both in the U.S. and throughout the world. The impacts alternate fuels have on the refined products markets will be incorporated into the forecasts. We also use this analysis, which we update on a regular basis in our other industry studies and work products. For more details about any of our publications, studies or other TM&C services, please visit our website, send us an email or give us a call. In the meantime, we thank you for the times we enjoyed together in 2015 and wish everyone a safe and prosperous New Year!
“And surely you’ll buy your pint cup! And surely I’ll buy mine!
And we’ll take a cup o’ kindness yet, for auld land syne.”