REG Marks 10 Years of Growth, Success & Continuous Improvement
When Renewable Energy Group Inc. became an independent company in 2006, it had a single 12 MMgy biorefinery. How much has REG grown in its first 10 years? Now the company often produces and sells a similar volume of biomass-based diesel in a week or less. And today, that 12 MMgy plant is its smallest.
In fact, last August REG sold 50 million gallons in a month, not by pipeline or tanker ships, but by railcars and truckloads, one at a time. “For the petroleum and ethanol industries, 50 million gallons a month isn’t a big deal,” says REG CEO Daniel Oh. “What made this special is how we did it—processing more than 11,000 different input and output loads. That shows how much we have grown. Not only our production capacity, but every part of our business.”
In a year full of challenges in energy markets, REG generated nearly $1.5 billion in revenue and sold 378 million gallons of biomass-based diesel through the third quarter of 2016.
Included in the figures are revenue and gallons from REG’s expansion into Europe. At press time, the company has more than a 90-percent stake in German biodiesel producer Petrotec. Petrotec’s two biorefineries in northern Germany produce biodiesel primarily from used cooking oil. REG expects to assume full control of Petrotec operations in early 2017. When added to REG’s 452 million gallons of American production capacity, the two German biorefineries give REG half-a-billion gallons of annual production volume.
“We were exploring opportunities in Europe for some time because of an advantage provided by their Renewable Energy Directive,” Oh says. “Not only do we get credit for producing renewable fuel, we get double credit because we use waste-based feedstock. We have established an international business unit and continue to explore other possibilities there.”
While REG became an independent company in 2006, its roots actually go back 21 years to 1995, when leaders at West Central Co-Op, now Landus Cooperative, looked for ways to add value to the soybean oil being processed at its Ralston, Iowa, crush facility. The journey from that idea to becoming North America’s largest advanced biofuel producer has provided both challenges and opportunities for REG, which Oh says helped make the company durable and disciplined.
“We were barely a year old as an independent company when the markets crashed in 2007,” Oh says. “We had made large investments and had to stop construction at two 60 MMgy biorefineries (New Orleans and Emporia, Kansas). We made a lot of hard choices then, and used our experience building and operating plants for other companies to raise additional capital, which we used to acquire other operational plants.”
Feedstock flexibility is one of the main lessons that enhanced REG’s durability and growth. Using its trademarked “Food-THEN-Fuel” model, REG has invested well over $100 million since 2012, upgrading plants that were single feedstock or processed material with low free fatty acids (FFA) into multifeedstock production capabilities. REG also added distillation to most of its fleet, to improve cold weather performance.
“These upgrades made business sense because they allowed us to produce more biodiesel from lower-cost feedstocks, while also improving our yield and fuel quality,” says Brad Albin, vice president of manufacturing at REG. “And with our commitment to continuous improvement, each new upgrade project is an improvement over the last one because we put our lessons-learned to work.”
The most recent example is the completion of a $34.5 million project at the 45 MMgy REG Danville in eastern Illinois. In addition to distillation and process improvements, REG exponentially increased the plant’s storage capacity by purchasing more than 13 million gallons of storage tanks from the adjacent Bunge milling facility.
The other advantage REG enjoys through the multifeedstock model is better carbon reduction. “REG is dedicated to providing lower-carbon intensity products and services,” Oh says. “Our high utilization of lower-cost, lower-carbon intensity feedstocks makes us more than just the leading advanced biofuel provider. REG is a leading decarbonization company.” From 2010 to 2015, REG-produced biodiesel displaced more than 500 million gallons of petroleum diesel. And, for the first nine months of 2016, REG-produced fuel reduced carbon pollution by 2.2 million tons.
REG also continued acquiring other biodiesel plants in 2016. In March, it acquired the former Sanimax Biodiesel facility, a 20 MMgy nameplate biodiesel plant near Madison, Wisconsin. In typical REG style, the day the company held its ribbon-cutting ceremony to formally mark the ownership change, it also broke ground on $5 million in improvements for the biorefinery.
Capital improvements are paying off at another of the company’s more recent acquisitions. REG Grays Harbor, formerly Imperium Renewables, on the Pacific Coast in Washington State, recently saw its highest production ever, thanks in large part to capital from Umpqua bank. REG secured an additional $5 million credit facility from Umpqua in October for further improvements.
Looking Toward the Future
So what is next in the wave of REG improvement projects? The company is going back to where it all started. On Nov. 8, Election Day in the U.S., they broke ground for a project that will more than double the capacity of its first biorefinery in Ralston, Iowa, expanding from 12 to 30 MMgy. Ralston is REG’s only biorefinery connected to a soy crush operation, now owned and operated by Landus Cooperative.
“When Landus decided to expand its crush capacity, it made perfect sense,” Albin says. “With a greater, adjacent feedstock supply and continuous improvements at REG Ralston, this capacity expansion is a logical investment.”
Good relationships with lenders will continue to help fuel REG’s growth. In October, Fifth Third Bank joined Wells Fargo to expand the company’s $60 million line of credit to $150 million. Earlier in the year, REG Energy Services secured a $30 million credit facility to expand blended fuel offerings and enhance the company’s already-expansive distribution network.
One challenge REG has faced before and is doing again is operating without the federal biodiesel tax credit, which lapsed at the end of 2016. The company is doubling down on efforts to promote reinstatement of the credit, while also reforming it into a producer’s tax credit.
“Congress never intended the biodiesel tax credit to incentivize foreign production of fuels, much of which is already subsidized by the countries where it is made,” says REG Chief Financial Officer Chad Stone, who also serves on the National Biodiesel Board’s executive committee. “By reforming the credit to a producer’s model, we can keep American tax dollars here that will still be shared with our feedstock providers and customers.”
With a new administration and one-party rule in Washington, D.C., REG leaders continue to have an optimistic outlook for the renewable fuel standard (RFS). “I believe the RFS is one of the best market-oriented programs implemented by the federal government in some time,” Oh says. “What some policymakers and others don’t realize is that we have to earn business every day. We do not have a guaranteed sale on any day of any volume at any price to any customer. That’s the way we like it. We have been earning our business for more than 10 years, and we look forward to being a leader in the biomass-based diesel business for years to come.”
Author: Anthony Hulen
Executive Director-Corporate Affairs, Renewable Energy Group Inc.