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Sector Report

Q4 2021: has renewable diesel peaked?

  • Public Equity
  • Energy
  • North America

Renewable fuels are vital weapons in the global fight against climate change and the transition to a more sustainable energy system. Reflecting this, renewable diesel is rapidly increasing its share of the transportation market and is something several Third Bridge Forum Interviews in Q4 2021 looked at. 

As at end-2020, US renewable diesel capacity totaled nearly 0.6 billion gallons per year (gal/y) and will soon reach 2.4 billion gal/y. Proposed and announced projects would add another 1.8 billion gal/y by 2024, and if all come online as planned, production would total 5.1 billion gal/y by end-2024. 

With well capitalised greenhouse gas reduction programmes, such as the federal Renewable Fuel Standard and California’s Low-Carbon Fuel Standard (LCFS) already in place, renewable diesel looks set to take a lead role in the fulfilment of renewable fuel targets. However, there are bumps in the road. 

A board member at Environmental Fuel Research (EFR) told us that “overwhelming interest” and the sheer number of renewable diesel and natural gas projects in the pipeline across California mean “we’re starting to run up against the barriers of just how much of this product can the market actually absorb”, with the expert questioning whether “we’ve gone past the peak”. However, we heard that other ripe markets for renewable diesel include Oregon, Washington and, increasingly, Canada. The aviation industry is also an ideal candidate for renewable diesel, as diesel plants can be modified to produce more sustainable aviation fuels, a market that represents 20 billion gal/y. “What people are guessing is that some of the renewable diesel capacity that’s already being built will be converted to sustainable aviation fuel, and new capacity that comes online might be aimed in that direction.”

Another primary risk with renewable diesel is the availability of fat, oil, and grease (FOG) feedstocks. “We only used half of it [FOG supplies] in 2020 and we’re going to be using 88% of it in 2024,” the EFR executive said. Used cooking oil (UCO) is a key feedstock, with companies such as Darling Ingredients springing up to capture this resource and redistribute accordingly. But even here there are concerns. “Demand at the moment is completely outstripping supply,” an executive at Green Fuels told Forum. “If there are only 12 million tonnes globally and Europe needs six million of that, that gives a picture that demand is outstripping supply.” Palm oil could be a viable alternative, but as our experts noted, there are big environmental sticking points here. As we heard in another Interview, a lot of work is being done in North America on oil seed crops, including variants of canola, that could be grown to make feedstocks for renewable fuels.

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