More supply is coming online, and new markets as well.
By Mark Fitz
The U.S. Energy Information Agency (EIA) is predicting a huge increase in renewable diesel flowing into the market, with R99 (99% renewable) set to double from 2022 levels by 2025. Much of this new renewable diesel product is coming from former petroleum refineries flipping their process to vegetable fats, oils and food waste greases. On top of these repurposed petroleum refineries, there are new plants coming online.
Don’t be surprised to see blends of 80% renewable diesel and 20% biodiesel all over the West Coast shortly. This blend can provide practical, significant carbon reductions and can therefore benefit greatly from low-carbon initiatives that reduce product cost.
Why is this happening?
The West Coast states have laws that pay a premium for non-petroleum, low-carbon fuels. California, Oregon and Washington have cap and invest programs mandating anyone moving petroleum fuels into their states blend their petro-fuels with low-carbon fuels like biodiesel, ethanol, renewable diesel and renewable naptha (a gasoline-like fuel). There is virtually no opportunity to reach their fuel carbon reduction goals though lower percentage blends of biofuels. Common 10% ethanol or 20% biodiesel are not going to be enough to meet the legal obligations as a fuel seller, especially at retail gasoline.
In fact, with gasoline not going away anytime soon no matter how many gasoline engine bans are enacted, there is not a clear path to move gasoline to a low-carbon fuel. That puts the burden of “decarbonizing” (as the West Coast governments call it) on diesel fuel buyers.
The volumes required as these programs ramp up mean that traditional petroleum refiners selling gasoline at retail stations must increase their renewable diesel sales into the market to meet their lower carbon fuel obligations on the West Coast.
The availability of this new low CO2 diesel is causing California in particular to ramp up its rules. As of the first of this year, off-road equipment in California (dyed diesel) must be R99 renewable diesel. Marine markets are also being pushed to renewable diesel. All bioblends in California require R99 for blending as well.
The city of Portland has gone a step further and passed a law to phase out petroleum diesel in the near future, replacing it with renewable diesel and biodiesel blends within the city limits.
Oregon and Washington also have their own CO2 laws modeling California’s, and while they haven’t outright mandated R99, the rules mean these fuels must be sold by truckstops, gas stations, cardlocks and other retail outlets.
The West Coast also sees many fleets, especially municipal, wanting R99 for its benefits beyond regulatory requirements. For example, vehicle emission systems benefit from the cleaner burning fuel from both a reliability and maintenance standpoint.
It’s also safe to say that this trend is expected to find its way to the Northeast and Midwest as well. A series of suggested legislation and rules have been floating around following the California low-carbon lead. New York City has already outlawed petroleum diesel as a heating fuel (requiring biodiesel and renewable diesel substitutes), which raises questions about if the city will enact a ban for other off-road and on-road uses for diesel. Neste, the world’s leading renewable diesel manufacturer, has been moving volumes to Massachusetts and New York and its R99 renewable diesel product is now appearing. It can be expected that state-directed incentives or mandates will not be far behind.
So how does this effect diesel fleets?
If you are on the West Coast, this year you are going to be seeing far more biodiesel and renewable diesel. If you are in the Northeast, you will also start feeling the renewable buzz. A billion new gallons of this premium fuel is coming online, and we are going to start finding who will pay top dollar for it.
But what does it cost? Oregon, Washington and California have CO2 rules that subsidize the retail price. The other states seeing this product can expect to pay a premium if they want R99 renewable diesel.
Without getting too deep on the market forces, on any given day the price of low-carbon diesel can beat petroleum diesel given the incentives needed to see biodiesel and renewable diesel uptake. This summer Oregon and California saw a widespread request for a 20% biodiesel and 80% renewable diesel which had it popping up at truck stops—or dropping off—based on its price.
This year is going to be an interesting one for renewable diesel and the impact from availability to cost will vary and shake out as market forces work themselves out.
Mark Fitz is the president of Star Oilco, a Portland, Oregon-based petroleum company that is one of the largest distributors of biodiesel and renewable diesel to both retail and commercial customers in the Portland area.
