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US biodiesel industry regains momentum

02.01.2013  |  Miller, Paul,  ARC Advisory Group, Dedham, Massachusetts

Keywords: [biodiesel] [diesel] [renewables] [transportation fuels greenhouse gases]

According to the National Biodiesel Board (NBB) trade organization, the US biodiesel industry produced more than one billion gallons (B gal) of biodiesel fuel in 2011, surpassing the 800 million gallon target established for the year under the US Environmental Protection Agency’s Renewal Fuel Standard (RFS). While this is less than 1% of the total US diesel production, it is a significant volume for a new industry.

Experts agree that this record-breaking 2011 production was largely due to the EPA having reinstated the earlier $1/gal tax credit for biodiesel in December 2010. This followed a disastrous 2010, in which the lack of the tax credit resulted in dramatic cuts in production, investment and employment in the biodiesel industry—yet, the industry persevered in 2012.

However, 2013 should bode well for the biodiesel industry. In early August 2012, the Senate Finance Committee approved a package extending the biodiesel production tax credit through 2013. In addition, on Sept. 14, 2012, the EPA further increased the 2013 biodiesel volume requirements for biomass-based diesel under the RFS to 1.28 B gal. These actions would appear to position biodiesel for continued growth, at least through the end of 2013. Encouraged by a favorable environment at both the federal and state levels, several companies have announced plans to expand biodiesel production capacities and/or distribution infrastructure.

Biodiesel in the US

The EPA is responsible for developing and implementing regulations to ensure that domestically consumed transportation fuels contain a minimum volume of renewable fuel. The RFS created under the US Energy Policy Act of 2005 established the first mandates for renewable fuels. Significantly, the initial RFS applied only to gasoline, not diesel.

However, the Energy Independence and Security Act (EISA) of 2007 expanded the RFS program (now referred to as “RFS2”) to include diesel. EISA also increased the required volume of renewable fuel to be blended into transportation fuel (both gasoline and diesel) from 9 B gal in 2008, to 36 B gal by 2022. Pure biodiesel, or “B100,” is typically consumed as a blend with conventional or ultra-low-sulfur diesel (ULSD).

Reacting to widespread criticism that the earlier, ethanol-focused program did not result in a net positive effect on greenhouse gas (GHG) emissions, EISA also required the EPA to apply lifecycle GHG performance threshold standards to ensure that each renewable fuel category results in fewer net GHG emissions than the petroleum-based product it replaces.

While well-intentioned, the lifecycle GHG threshold standards create additional hurdles for renewable producers, who now have to perform and pay for extensive studies to determine and document net GHG emissions for their new products and processes, it also stifles innovation to a certain degree. Nevertheless, funded in part by US Department of Energy grants, companies continue to develop and commercialize new biodiesel processes.

Expanding the biodiesel infrastructure

In September 2012, the EPA announced that it had increased the biodiesel volume requirements under the RFS by 28%, from 1 B gal for 2012 to 1.28 B gal for 2013. According to an NBB news release, while this represents a modest increase over the industry’s 2011 record production of 1.1 B gal, it puts the industry on course for steady, sustainable growth in the coming years.

New biodiesel facilities, particularly in the US Midwest, are unlikely, as the majority of the existing plants are located in this region to take advantage of the domestic soybean crop. However, several companies have constructed new plants on both the East Coast and West Coast to serve local markets. The infrastructure required to store and distribute biodiesel still has growth potential and ARC Advisory Group has observed related activities in 2012. Many appear to be based on the anticipation that the government would sustain or increase the biodiesel mandates in the coming year, as well as individual state mandates for greater biofuel use. While these projects are small scale, many are significant.

In March 2012, Motiva announced a project to convert existing storage at its Sewaren Terminal in New Jersey to both ULSD and B100 biodiesel storage and to improve associated rail logistics. These investments will enable the terminal to readily supply multiple blends of biodiesel (including ULSD/B100 blends) for shipment to New York State assisting in a new mandate required use of ultra-low-sulfur heating oil.

In July 2012, New York-based Ultra Green Energy Services announced the opening of biodiesel operations at the Brookhaven Rail Terminal in New York. This project was also stimulated by the New York State low-sulfur heating oil mandate.

In September 2012, Magellan Midstream Partners celebrated the opening of a new $2.5 million biodiesel storage and loading facility at the company’s large Clear Lake Terminal in Des Moines, Iowa. This new facility will help Iowa’s 14 biodiesel production refineries supply truck stops and other fuel retailers throughout the Midwest. HP

The author

Paul Miller is a senior editor/analyst at ARC Advisory Group and has 25 years of experience in the industrial automation industry. He has published numerous articles in industry trade publications. Mr. Miller follows both the terminal automation and water/wastewater sectors for ARC.

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