Biodiesel Renaissance

From the Winter 2017 print edition of Biodiesel Magazine, this cover article dives into the past year's resurgence in U.S. biodiesel project expansions, upgrades, imports and M&As. It was a time unlike any in recent history. But what will 2017 bring?
By Ron Kotrba | January 13, 2017

The U.S. biodiesel sector experienced a revival period in 2016 unlike any other, thanks to favorable market conditions resulting from stabilized renewable fuel standard (RFS) policy and the December 2015 passage of the two-year retroactive biodiesel tax credit, effective Jan. 1, 2015, through Dec. 31, 2016. Despite sustained low diesel prices, more biodiesel plant expansions, upgrades, and mergers and acquisitions (M&As) were announced in 2016 than in any time in recent memory, signaling a sound industry future by strategic investors. U.S. market consumption of biodiesel and renewable diesel was expected to reach upwards of 2.5 billion gallons of biodiesel and renewable diesel. 

In November, just as biodiesel producers settled into a newfound, welcomed market stability, a different kind of uncertainty was introduced: a newly elected Donald J. Trump. The election results brought rampant speculation on how the new president and a Republican-controlled Congress would affect biodiesel policy. Mixed messages on the campaign trail—Trump’s outspoken support for RFS before the Iowa caucuses juxtaposed with his declarations to dismantle the U.S. EPA—and his subsequent nominations of fossil fuel industrialists and advocates to cabinet posts have made Trump’s position on biodiesel difficult to predict.

But just two weeks after the elections, Obama’s EPA issued its final RFS ruling before the new administration took over, and its message was strong—keep RFS and renewables growth on track. The 2017 advanced biofuels category was boosted by 19 percent from 3.61 billion ethanol-equivalent gallons (2.41 billion biodiesel gallons) in 2016 to 4.28 billion ethanol gallons in 2017. Moreover, the agency increased the category by 7 percent from its proposal in May of 4 billion ethanol gallons. The 2018 biomass-based diesel subset of the advanced category was finalized at 2.1 billion gallons, up 100 million over 2017.

The picture is not entirely rosy though. At press time, the tax credit was set to lapse again and the positive, bullish domestic market has brought an influx of imports, anticipated to hit new highs following 2015’s record of 670 million gallons—a trend U.S. producers and the National Biodiesel Board hope to curb in 2017 by reforming the $1-per-gallon blenders tax credit to a domestic producers credit.

“We need to move the needle on biodiesel in the U.S., and imports are a critical issue for us,” says Donnell Rehagen, NBB’s new CEO. “It makes for a challenging time for producer-members who are making investments in their plants.” 

Project Expansions, Upgrades
Hundreds of millions of gallons of U.S. biodiesel and renewable diesel productive capacity project expansions are either currently underway or have been recently completed. “The investments we’re seeing in increasing production capacity indicates the future is bright for biodiesel,” Rehagen says. John Campbell, a managing director with Ocean Park Advisors, says his tally of the additional annual capacity these project expansions bring approaches 400 MMgy. “These project expansions and M&As we’ve seen over the past year are a show of confidence,” he says.

The U.S.’s first commercial-scale biodiesel plant, AGP Inc.’s 30 MMgy facility in Sergeant Bluff, Iowa, is in the midst of a major expansion project. The plant, built in 1996, is doubling capacity from 30 to 60 MMgy. Matt Caswell, an AGP vice president, says the project is going well and is on schedule for completion in late 2017. A new soy crush facility is set to open on-site this spring. “It’s nice to have a dedicated feedstock on-site instead of shipping it in,” Caswell says.

AGP has three plants—two in Iowa and one in Missouri—and once expansion in Sergeant Bluff is complete, it will have more than 150 MMgy of biodiesel production online. “We’re still strong believers in the biodiesel industry,” Caswell says. “There’s still market opportunities now and in the future for high-performing advanced biofuel with multiple benefits. There’s a strong policy foundation in place—at least for the next couple of years from Washington—and we believe the importance of biodiesel to the soy industry is well-known.”

In New Hampshire, White Mountain Biodiesel LLC is undergoing a major expansion at its biodiesel production facility in North Haverhill. Announced in February 2016, the two-year project will increase production capacity from 3 to more than 16 MMgy. The company says improvements will be made using proprietary technologies developed in-house over the past decade, and the project will result in significant cost reductions from increased efficiencies. Presby Construction will complete the new building addition, and the tank installation, piping, pumps and electrical improvements will be completed by the current White Mountain Biodiesel staff. BQ-9000 accreditation is also being pursued.

The nation’s largest biodiesel producer, Renewable Energy Group Inc., began or completed several project expansions and upgrades at its facilities in the Midwest. In May, REG announced the addition of 14 million gallons of biodiesel and feedstock tank capacity at its Danville, Illinois, plant. In October, REG celebrated completion of more than $30 million in upgrades and enhancements in Danville, including the addition of biodiesel distillation and other manufacturing upgrades, allowing the 45 MMgy plant to use a wider array of lower-cost feedstocks. The project, which began July 2015, also included logistical improvements such as an additional truck loadout, new warehouse and office space.

Earlier this year REG acquired Sanimax Energy’s 20 MMgy biodiesel plant in DeForest, Wisconsin. Shortly afterwards, REG began a $7 million upgrade project on-site to the renamed REG Madison plant. The upgrades include process improvements, a dedicated entrance for the plant, additional biodiesel storage and locker rooms for the team.

REG also broke ground on a major expansion project in Ralston, Iowa, this November. The $24 million project will boost capacity from 12 to 30 MMgy. The adjacent Landus Cooperative soy crush facility was recently expanded and REG President and CEO Daniel J. Oh says the biodiesel plant expansion matches the greater output volume from the crushing facility. The project also includes logistics improvements and other site enhancements. Up to $20 million in long-term debt financing is expected to be provided for this project. The Ralston expansion will increase REG’s cumulative nameplate capacity from the company’s 11 active U.S. biomass-based diesel plants to 470 MMgy.

In Louisiana, Diamond Green Diesel, a joint venture between Darling Ingredients Inc. and Valero Energy Corp., is expanding production at its 160 MMgy renewable diesel facility in Norco to 275 MMgy. The project includes expanded outbound logistics for servicing the many developing low-carbon fuel markets in North America and globally. Completion is expected late 2017, with production to ramp-up in early 2018. The plant is operating at full capacity throughout the expansion excluding minimal downtime for final tie-ins.

After years of rework, Flint Hills Resources and Benefuel Inc. started commercial biodiesel production at Duonix LLC, the 50 MMgy plant formerly known as Beatrice Biodiesel in Nebraska. It’s the first commercial-scale application of Benefuel’s Ensel technology, a solid acid catalyst process capable of converting a range of lower-cost feedstocks into biodiesel. The multiyear project included an upgraded, backend distillation process. “The start of production at Duonix Beatrice is a major milestone and a significant step toward demonstrating the commercial viability of the Ensel technology,” says Rob Tripp, CEO of Benefuel. “The key question has been whether the technology can be scaled up and applied to a large production facility, so we’re very pleased to be able to say that production at Duonix Beatrice is now underway and the results are very encouraging. We believe this provides us with a strong base to grow additional production within the U.S. and worldwide.”

Crimson Renewable Energy LP in Bakersfield, California, showcased its newly upgraded and expanded biodiesel plant in October. The expansion tripled production on-site to 24 MMgy, the company says, and upgrades performed by Austria-based biodiesel technology provider BDI-BioEnergy International AG included expansion of steam and other existing systems, as well as the installation of new second-generation systems, which will enable the plant to reduce unit energy and water consumption by up to 15 percent. The plant is producing ultra-low carbon biodiesel made entirely from used cooking oils and other inedible raw materials, says Harry Simpson, Crimson’s president and CEO. BDI’s RetroFit program includes raw material preparation, esterification of feedstock with high free fatty acid (FFA) content, and biodiesel and glycerin distillation. “The excellent cooperation of the project teams of Crimson and BDI led to a smooth, fast workflow resulting in a successful commissioning of our newly expanded biodiesel plant,” Simpson says. BDI Chief Sales Officer Edgar Ahn says with the completion of this project, BDI strengthens its presence in the U.S. biodiesel market. “Our internationally successful retrofit program helped our customer to update its existing plant to the latest technology,” says Ahn.

High Plains Bioenergy, a subsidiary of Seaboard Foods, celebrated the grand opening of its newly acquired 28 MMgy biodiesel plant in October, HPB-St. Joe Biodiesel, located in St. Joseph, Missouri. The plant was formerly known as Blue Sun Biodiesel and was converted to enzymatic processing in 2013. Including its Guymon, Oklahoma, plant, HPB’s total biodiesel production capacity is now approximately 60 MMgy.

Louis Dreyfus Company LLC inaugurated its new glycerin refinery at its subsidiary’s soybean crushing and biodiesel plant in Claypool, Indiana. The refinery is the second largest in the U.S. producing USP-grade kosher refined glycerin, with a capacity of 80 million pounds per year. The company has marketed crude glycerin, a coproduct of biodiesel production, since the facility began operations in 2007. The new glycerin refinery allows the plant to process up to 100 percent of its crude glycerin production into kosher- and halal-certified USP food-grade glycerin, with a minimum 99.7 percent purity.

To help support additional U.S. biodiesel production and demand, Evonik Corp. completed a capacity expansion at its sodium methylate plant in Mobile, Alabama. Sodium methylate is a base catalyst used in the transesterification process for biodiesel production. The company has increased capacity from 60,000 to 72,000 metric tons per year through operational excellence and infrastructure investments, the company says. “The U.S. market for biodiesel will continue to grow,” says Stefan Plass, head of business line functional solutions at Evonik. “Ensuring our customers have a key raw material they need, when they need it, is why we have invested our resources here in Mobile—to better meet our customers’ needs.” Alexander Weber, Evonik’s general manager and vice president North America, business line functional solutions, says this growth represents just the first phase of expansion plans for sodium methylate and demonstrates Evonik’s continuing commitment to the biodiesel industry. “Evonik has also increased its rail fleet for sodium methylate ensuring that the additional volume will be available throughout the U.S.,” he says. Evonik also produces sodium methylate in Germany and Argentina.

M&As
In addition to the REG acquisition of Sanimax Energy’s DeForest, Wisconsin, biodiesel plant, as well as HPB’s purchase of Blue Sun Biodiesel in Missouri, several other North American biodiesel M&As took place in late 2015 and 2016.

In late 2015, Hero BX bought the former 15 MMgy Veros Energy plant in Moundville, Alabama, expanding the facility to 20 MMgy and renaming it Hero BX Alabama LLC. Production came online in 2016.

Six days into 2016, Kolmar Americas Inc., an integrated petroleum, petrochemicals and renewable fuels marketing and trading firm based in Bridgeport, Connecticut, announced its in-state acquisition Greenleaf Biofuels, a 15 MMgy biodiesel facility in New Haven. “This is a very important acquisition for Kolmar,” says Raf Aviner, president of Kolmar Americas. “It is the first such acquisition in the company’s history, and it shows the deep commitment Kolmar has to Connecticut, the environment, the biodiesel industry, in general, and to the employees at the plant, in particular.” The plant has been renamed American Greenfuels LLC. In 2015, the plant made $1 million in capital improvements.

In June, Canadian biodiesel producer Biox Corp. acquired Methes Energies Canada Inc.’s 50 MMly (13.2 MMgy) biodiesel facility in Sombra, Ontario, for US$4.5 million. Built in 2009, the plant never reached nameplate capacity due to working capital and market challenges, and was idle at the time of acquisition. Biox is spending several million dollars on upgrades to improve efficiency and enable use of lower-cost feedstock. The acquisition complements Biox’s production in Hamilton, Ontario, and increases the company’s capacity by 75 percent.

Just days after Biox announced the Sombra acquisition, Biox and World Energy formed a joint venture (JV) to purchase the idled 90 MMgy Green Earth Fuels biodiesel plant in Houston, Texas. Each company committed $10 million to the World Energy Biox Biofuels joint venture. The facility is located within the Kinder Morgan Liquids terminal on the Houston Ship Channel and is one of the largest biodiesel plants in North America.

Two months later, World Energy acquired Elevance Natchez Inc.’s 72 MMgy biodiesel plant in Natchez, Mississippi. World Energy had been supplying BQ-9000-certified biodiesel from the plant under a production contract with Elevance Natchez since January 2013. The plant is currently staffed and in full operation, according to World Energy, which stated that customers, employees, suppliers and the Natchez community can expect little change in the ownership transition. Campbell tells Biodiesel Magazine that, in his opinion, World Energy’s two purchases combined are, gallons-wise, “the most notable M&A transactions of the year.”

In November, Cielo Waste Solutions Corp. signed a commercial purchase agreement with XR Resources Inc. to buy the former Western Biodiesel Inc. facility in High River, Alberta, an idled16 MMly (4.2 MMgy) biodiesel production plant. Don Allan, president and CEO of CWS, says once the purchase is complete, the new site will house CWS’s scaled-up thermal catalytic depolymerization technology to produce renewable diesel from cellulosic-rich waste feedstock. The facility was built in 2009. “It’s in good shape,” Allan says. “The plant shut down in 2013 and it only ran for maybe two years.” CWS has already awarded construction contracts for the project.

Finally, in mid-December, days before press time, two Singapore-based companies, Agritrade Resources Ltd. and Solfuels Holdings Pte Ltd., jointly acquired the former Delta American Fuel biodiesel plant in Helena, Arkansas. Agritrade Resources stated it paid $2.97 million for its 51-percent share of the idled 40 MMgy plant. Henri Bardon, CEO of Solfuels, tells Biodiesel Magazine the joint venture has hired Frazier, Barnes & Associates to perform plant engineering services and that the facility, originally built to process vegetable oils, will be retrofitted with Solfuels’ multifeedstock technology. Solutions 4 Manufacturing brokered the deal, according to Bardon. The plant will operate as Solfuels USA LLC. 

Imports
In 2015, the U.S. imported roughly 670 million gallons of biomass-based diesel, a record that Larry Schafer, co-founder of legislative advocacy group Playmaker Strategies LLC and senior advisor to the National Biodiesel Board, says will likely be broken once 2016 final import volumes are tallied. Schafer spoke at Christianson & Associates’ Biofuels Financial Conference Oct. 17-18 in Minneapolis, where he said the U.S. is on track to receive more than 800 million gallons of biodiesel and renewable diesel imports in 2016.

In December, the U.S. Energy Information Administration released its Short-Term Energy Outlook. In the report, EIA said net imports of biomass-based diesel—gross imports minus exports—are expected to increase from 31,000 barrels per day in 2015 (475 MMgy), to 45,000 barrels per day in 2016 (690 MMgy) and 51,000 barrels per day in 2017 (782 MMgy).

John Kruse, the principal and director of quantitative analysis of World Agricultural Economic and Environmental Services, tells Biodiesel Magazine the often-ignored and underestimated source of biodiesel is imports. “Certainly Argentina has been underestimated as a source of biodiesel by many groups, but 2016 will provide a good flavor of its potential,” Kruse says. “The U.S. is on track to import nearly 400 million gallons of biodiesel from Argentina alone this year. Europe, Southeast Asia, Canada and Brazil all represent potential sources of imports depending on policy and economics.” Furthermore, Kruse notes U.S. imports of renewable diesel could exceed 275 million gallons in 2016. Rehagen says the challenge of imports has not gone unnoticed, which is why NBB and its producer-members are urging for reformation of the tax credit from a blenders to a producers incentive.

Campbell says imports are part of a multiheaded Hydra and there’s a lot of forces at work. “You always have imports putting pressure on domestic margins and the domestic price is limited by the pressure from imports and the upward pressure on feedstock prices,” he says. “And the other is how many excess RINs are being cashed in, so obligated parties ask whether they should buy physical gallons, use excess RINs or import material, and producers have to weigh this up and know that they can’t count on the tax credit if it lapses, so they need to get enough out of their production to cash flow and not dig a hole for themselves.”

Outlook
No one knows what a Trump administration will mean for biodiesel, although industry stakeholders are trying to remain positive. “We’re hearing good things about a Trump administration, its interest in agriculture, energy and renewable energy, so we’re looking forward to working with him,” Rehagen says. “He’s an advocate of performance, it’s been one of his criticisms, and our industry is a performer.”

Biodiesel is consistent with Trump’s platform of energy security and independence, the creation and retention of domestic jobs, and reforming the tax credit to exclude imports would support Trump’s call for the U.S. to stop sending dollars overseas to support foreign manufacturing. “I think we’re making headway with the Trump administration on the impact of Argentine biodiesel and its negative effect on domestic biodiesel producers,” Caswell says. “We’re starting to see material in real volumes come from Argentina and, with the budget question and allocation of resources being reexamined with the new administration, we don’t want to subsidize Argentine production. We’re hopeful on the outcome of that, and we’re doing our best to make a change.”

“We still see 2017 as a period of growth,” Rehagen says. “We need to keep working hard at it though, nothing’s going to come easy for this industry. But I continue to be amazed at the resiliency of our industry in the face of challenge after challenge for 25-plus years. Uncertainty is a certainty in our industry.”

Caswell says, “We’re definitely looking toward uncertainty for 2017, primarily due to the election, but Trump has said strong things about RFS in his campaign. And while the tax credit will lapse, as it has done many times before, we don’t believe it has anything to do with a lack of support in Washington.”

Q1 this year will be obviously slower, Campbell says, as producers sort through the lapsed tax credit, and if and when it’ll return, and in what form. “That uncertainty will require the gallon to carry the load,” he says. “And there’s a new ‘sheriff’ in town, controlled by the Republicans, so we don’t know what tax reform and what extenders will look like, and anyone who says they do are being speculative. There’s far more uncertainty about an extension than in the past. And with that uncertainty, producers can’t afford to take those risks as much, so when they sell those gallons they’ll need to at least break even.” Campbell says he believes the tax credit will be part of an enormous tax reform bill put before Congress this year.

Tax credit aside, Campbell says, “The RFS and the overall environment for biodiesel and renewable diesel is really positive. In my opinion, it’s highly unlikely Congress changes the RFS. It’s had its critics from day one. Congress has bigger fish to fry. And EPA has wide authority to manage RFS that doesn’t require legislative change. The boiling issue isn’t the program’s basic structure but rather the obligated parties don’t have downstream blending and they have to buy RINs to comply. The whole debate of point of obligation is front and center. I would look for battles to be around those sorts of implementation issues rather than need to get rid of RFS. Trump won those important states where renewables are so important, and I just don’t see those in the oil industry who don’t like it prevailing.”
 
Author: Ron Kotrba
Editor, Biodiesel Magazine
218-745-8347
rkotrba@bbiinternational.com

 
 
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