Published 8/6/2024 in Prima CarbonZero's Green Diesel North America Report
The Department of Energy (DOE) released its long-awaited report at the end of July that examined the US sustainable aviation fuel (SAF) industry and variables to consider in meeting near and long-term production targets. The discussions and findings provided supportive clarity for a better understanding of the HEFA subsegment of green jet fuel buildouts.
The report highlighted the constraints of HEFA overlapping with renewable diesel hydrocarbon fractions. Despite giving producers flexibility in the products they can produce, it will require additional capital expense, increased operating costs, additional hydrogen and higher-severity operations, and reduced carbon yield to the desired product. With the US government setting SAF production as a priority, renewable diesel and biofuels for the marine sectors are still crucial for decarbonizing wider transport.
Despite this, HEFA is expected to primarily contribute to the 2030 goal, with smaller contributions from waste, forest and agricultural residues within Fischer-Tropsch pathways and alcohol-to-jet (ATJ) pathways. HEFA will use fats, oils and greases as raw material inputs, with the pathway taken as a preference for the 3bn gal/yr 2030 goal due to industry calls to immediately focus on commercially ready or nearly commercially ready conversion technologies and feedstocks. With projects like US gasification and Fischer-Tropsch firm Fulcrum Bioenergy hitting a range of financial hurdles in its more novel production process, the push for transitional HEFA production is dubbed a safer bet despite less feedstock elasticity.
The availability of domestic feedstock, with the supply expected to remain flat in the near future, is a major obstacle in expanding HEFA production, with HEFA alone said to potentially not be sufficient in meeting the 2030 SAF production targets due to current feedstock limitations and competition from other renewable fuel production. Domestic HEFA feedstock production totaled around 22.9mn t in 2022, while consumption was pinned at 26.6mn t, highlighting imported product. The renewable fuels industry consumed 11.7mn t, with the remaining 14.9mn t being consumed by the food industry.
Operating capacity for biodiesel and renewable diesel as of December 2022 was 2.1bn gal/yr and 2.6bn gal/yr, respectively, with combined lipid feedstock requirements to facilitate these facilities at full capacity hitting roughly 18mn t.
Taking an optimistic construction timeline, it should take 2-3 years to build and start up a production facility, although as of 2024, there are only 6 years until the decade ends, where demonstration plants must be built in the next 3-4 years to not risk falling short on the production goals. Such demonstration plants can then be assessed in regards to pathway-specific challenges or constraints before deciding which are to be rapidly built out to a commercial scale. Producers and investors will likely be watching the US election later this year to see if there are any swift challenges to green legislation and subsidies that impact decision-making.
Nonetheless, the financing risks that such investors or capital providers must accept can include supply chain slowdowns, uncertain policies, technological uncertainties, and end-product market variability affected by public and political trends. Given the risk-averse nature of banks and the lack of commercial data for novel SAF technologies, such SAF projects may face higher financing expenses and uncertain availability of financing.
Total HEFA capacity in construction or planned stages is expected to reach around 6bn gal/yr by 2025, which, if completed, will contribute to both SAF and renewable diesel production targets. Renewable diesel was still dubbed as a major competitor within the report, which forces producers to decide which fuel to prioritize. The report highlights that the process yields, production cost, and policy presently in place slightly favors renewable diesel production.
Multiple industries including renewable fuels are said to already utilise the entire 23mn t of domestic HEFA feedstock produced annually. Factors such as land use, trade, and infrastructure constraints have meant it is not anticipated that the US' production of HEFA will increase significantly.
Soybean oil, given its more abundant availability, makes up the vast majority of active HEFA production, although this would not be exportable to the EU-mandated market from 2025 due to the government’s ban on crop-based renewable fuels. The report refers to the HEFA SAF industry as being severely feedstock constrained and may have to depend on imported feedstock in the near term while pushing for innovations in alternative hydro-treatable feeds such as algae and oilseed cover crops in the long term.
While HEFA feedstock prices were relatively flat from 2012 to 2020, increased renewable fuel production, particularly observed within renewable diesel capacity, has significantly increased the prices of HEFA feedstocks. Soybean oil and fats, oils, and grease prices are said to be potentially moderate depending on market conditions. Pretreatment installations are advocated to make it possible to use cheaper, lower-quality raw materials, reduce production costs, and add flexibility in processing a wide variety of oil-based feedstocks. The HEFA feedstock supply, including local production and imports, is forecast to increase 14%, or 4.1mn t, from current levels through 2030-32, largely due to an increase in soybean production and the output of fats, oils, and greases. Other feeds are projected to remain flat.
Rising feedstock costs and potential supply shortages in both feedstocks and finished products have meant industry stakeholders have raised concerns about the elevated selling price of SAF in the market. Such stakeholders described the slow development of the SAF industry, which has inevitably kept prices inflated.
Techno-economic and life cycle analyses were conducted to evaluate the economics of producing SAF and renewable diesel via the HEFA pathway – with the minimum fuel selling prices of HEFA estimated in the report to range from $1.84 to $9.40/gal per gasoline-equivalent. Pricing variables included plant configuration, capital costs, plant capacity, hydrogen sourcing, and feedstock type, price, and carbon intensity score. Feedstock costs were classed as the most significant component of the minimum fuel selling prices for HEFA, putting volatile feed prices as the most significant factor in impacting the financial risk of the process.
Capital costs were not said to impact the minimum fuel selling prices significantly in contrast to feedstocks, meaning capital cost reductions through various methods ultimately have a minimal cost impact. A promising finding was that total revenues for several cases when GHG emission reductions qualified for incentives were greater than production costs, showing profitability potential assuming the jet fuel price is $2.50/gal.
The top five states for producing animal fats were listed as Nebraska, Texas, Kansas, Iowa, and North Carolina. Waste greases were otherwise processed at various locations across the country. Vegetable oil production facilities are mostly located in Iowa, Illinois, and the North and East regions – such as Indiana, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. HEFA faces additional logistics costs and increased CI scores of its end-product consumption when transported across long distances to fuel facilities in the West, which becomes more burdensome for key states such as California, given its low-carbon fuel standards.
The report also mentioned that despite co-processing renewable streams with fossil fuels being capped at a maximum of 5% of HEFA feedstocks, the potential for this route to speed up SAF production while minimizing capital expenditures has meant that the American Society for Testing and Materials (ASTM) is currently considering increasing the HEFA co-processing limit to 30% to improve the cost efficiency of using refinery equipment, in addition to other incentives. There has been the fractionation co-processing approval in 2023, which enabled the blending of up to 24% previously hydro processed biomass intermediate streams with a petroleum stream, generating jet fuel blends containing up to 10% renewable hydrocarbons.
Infrastructure challenges are also of concern, given national pipelines for transporting jet fuel are capacity-constrained when annual jet fuel consumption is 22bn gal. If annual jet fuel demand rises to 35bn gal by 2050, fuel logistics may become a bottleneck, constraining the growth of the aviation industry. This again pushes for constructing biorefineries or renewable fuel plants near existing airports for refueling – although state credits and attracting overseas mandate-driven markets are seeing many producers become more dispersed, with product trading flows increasing in length and complexity. This is also more complex for HEFA since they are commonly repurposed fossil fuel sites.
Many facilities face barriers due to the likes of permitting processes, causing sites to be canceled and relocated due to being lengthy, high-risk, and time-consuming processes. Based on stakeholder interviews, a push for process simplification would be ideal for speeding up the deployment of SAF facilities, such as the permitting process is simplified and community engagement is enhanced. Financing will not be closed until all permits have been obtained, which are required to produce the fuel, as well as transport it to blending facilities and airport refueling locations.
HEFA facilities, in some cases, have been found to emit air pollutants such as volatile organic compounds, nitrogen oxides, sulfur oxides, carbon monoxide, and particulate matter – all of which are governed by federal and local air regulations. Specific emissions controls may need to be implemented to comply with clean air regulations.
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