Renewable Diesel’s Growing Role and Importance in US Fuel
ResourceWise: Oct 16, '24
Current biofuel market conditions remain soft in several regions as both macroeconomic and governmental challenges loom. Many businesses are awaiting forthcoming mandates before they make the switch and fully dive into renewables.
Suppliers have been working hard to align their production with the relatively flat demand levels. This has led to reductions across the board for producers, refiners, and other agents.
According to a Reu'ters report, several corporations have suffered these ill effects:
- Valero's
- HF Sinclair
- Vertex Energy
- Chevron
The firms announced losses in their renewable sectors and reduced biodiesel production forecasts. In the short-term, this trajectory seems unlikely to change.
Road Fuels Also See Weakened Market Movement
Road markets are also feeling the pinch of the market slowdown.
US green diesel demand has struggled in the face of an ongoing industrial recession—particularly from recent hikes in interest rates. Some of the weak diesel prices also show the rising availability of fuel as hesitation to adopt it persists.
Feedstock Prices Hold Stable Despite Fuel Prices
Despite the flat margin environment, feedstock prices have not stagnated in the same way biofuels have. The cost stability comes even with slowdown in demand from producers going offline either for maintenance or to gear up for higher margin production runs in SAF.
The situation will inevitably lead to another hurdle for active producers whose margins will suffer.
Down the road, the prospect for US renewable feedstocks looks to be broadly supported. Brazil’s latest move to increase soybean export taxes will likely yield greater US exports. This will provide a boost to the commodity that serves as the centerpiece for all US greases.
Current feedstock import flows face potential threats from domestic lobbying efforts to cut off Asian UCO supply. Furthermore, increased demand for tallow within markets like Brazil for SAF production to reduce emissions could amplify domestic feedstock sources.
SAF Will Rise to the Forefront Through the Second Half of 2024
Despite the challenges in the biofuel market, several investors are turning their focus to SAF. This market runs parallel to road transport but often offers higher margins.
According to a report from Prima CarbonZero’s Green Diesel Europe report, SAF remains front-and-center in the spotlight. SAF requires a significant capital input for converting existing renewable diesel facilities into aviation-supportive production. For many market players, the high cost of entry is worth the investment.
Coming into the second half of 2024, SAF will likely shift to the forefront as an international draw on feedstocks.
European airlines won't purchase SAF until the EU and UK mandates take effect next year. This could potentially result in a sudden demand increase for feedstocks in late 2024. Serious jumps in price levels will likely follow.
European Suppliers Await Mandate Particulars in SAF
European suppliers are intrigued by the high ‘buy-out’ mechanisms that the EU will implement to maintain demand in line with mandated obligations. These will outline the de facto fines fuel suppliers would face if they failed to meet the requirements. The fines will be double the price difference between SAF, fossil jet, and a soon-to-be-defined benchmark SAF price.
The EU does not expect this price to be published until Q1 2026, more than a year after the mandate begins. This could potentially result in a higher marginal price for SAF with continued effects on feedstock prices.
The forthcoming EUDR and other mandates come directly alongside anti-dumping measures from the EU on Chinese imports set to begin next month. And with the UK following suit, we’ll likely see further disruptions until all the impacts play out.
Related: UK Launches Anti-Dumping Probe on Chinese Biodiesel Imports
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