Four years ago, if John Tapp was asked what industry he sourced feedstock for, he would have undoubtedly said biodiesel. After all, his company was—and still is—a supplier of waste oils and greases to the industry’s 2.5-billion-gallon fleet of legacy plants. But today, some 48 months later, Tapp’s book of business looks distinctly different.

“It’s almost all renewable diesel now,” he says. “I’m not doing much in biodiesel these days. I’m highly focused on renewable diesel and serving those larger buyers—companies like Neste, Diamond Green Diesel and REG. Biodiesel was 100% our core business for years and I am proud of that space and thankful for it. This transition to RD was not really strategic as much as it has just happened. There are not many biodiesel companies in our primary market looking for large volumes of material.”

Tapp, who’s been working in and around waste oils collection for more than a decade, has a front-row seat to the sweeping changes taking place in the feedstock arena. His company, Deep South Commodities, is a collector and marketer of waste oils in the Southeast, covering a region from Florida to Texas up to Tennessee and the Carolinas. Not only is the Winter Park, Florida-based company hyper focused on its renewable diesel customers right now, but on the more specific task of finding them used cooking oil (UCO), which is in ultra-high demand.

What Tapp is experiencing in the South is not a regional phenomenon. More than a thousand miles to the north, in Buchman, Michigan, Paul Dickerson, president of Third Coast Commodities, is seeing similar market dynamics.

“The top of the bracket for us right now is renewable diesel, then biodiesel, followed by a small amount of animal feed and everything else,” Dickerson says, describing his company as a middle-market physical merchant specializing in fats, oils and greases (FOG) such as UCO, distillers corn oil (DCO), choice white grease, brown grease, fatty acids and other byproduct.

According to Dickerson, Third Coast handles about 125,000 metric tons of FOG per year and has a small fleet of rail cars. The company has four divisions, including Evergreen Grease Service Inc., that services more than 5,000 restaurants in multiple states. The UCO the company collects is processed and aggregated with other quantities from around the region before it is transported to destinations throughout the country via truck and rail.

Dickerson explains the strategy of aggregation. “If you’re a collection company in Michigan that only produces two truckloads of UCO a week, when someone needs 40 rails cars a day, that’s not going to work. That transaction size doesn’t have much value in the renewable diesel space,” he says. “Companies like ours can aggregate large volumes and make sure it all meets the necessary block-chain regulatory compliance requirements.”    

Dickerson sees his company as a taker of food processing byproduct that is “upcycled” back into the market by restaurants and food processing companies that have other business priorities. “Smithfield is focused on hogs, not choice white grease,” he says. “But that coproduct has to be managed, and that’s what we do.” 

Other UCO collectors around the country are experiencing the same intense demand for the product, partially as a result of renewable diesel’s rapid growth and trajectory. Larry Sharon, owner of Miami-based Green Star Biodiesel—which, as Sharon explains, doesn’t produce biodiesel—says he is currently sourcing as much UCO as possible for renewable diesel producers.

“When we started this company eight years ago, we had every intention of producing biodiesel, but we decided to start on the feedstock side instead, collecting used cooking oil,” he says. “It was a blessing that we started off that way, rather than trying to produce first and collect later, because, for us, the production of biodiesel has never looked economically viable.”

Collecting UCO, on the other hand, has been a good business for Green Star. In less than a decade, the company’s reach has grown dramatically, Sharon says, explaining that Green Star is now servicing the entire state of Florida. “Today, we service more than 3,000 restaurants,” he says. “We have 17 trucks, a depot in Orlando, another one opening up in Jacksonville, and plans to enter the Georgia market as well.”

UCO Prices Rise
UCO, generally defined as a byproduct of fryer grease from restaurants and commercial food processing facilities, is a liquid product that varies in viscosity and color. Sharon, says the product Green Star collects can range in appearance from a golden caramel hue, which is ideal, to dark brown or almost black, depending on the source and storage conditions. In almost all its forms, UCO is now being collected and cleaned up for both biodiesel and renewable diesel production. 

While it is difficult to put an exact number on how much UCO is currently being used for biomass-based diesel production in the U.S., experts believe the feedstock makes up roughly 10-12% of the total pool of raw materials used annually. Yet, even while making up little more than a tenth of the overall feedstock supply, UCO is one of the most coveted biofuel inputs in the country, with demand for the product, along with its price, rising steeply during the past year. Prices for both UCO and other sought after renewable diesel feedstocks like DCO—a byproduct of corn ethanol production—have risen to more than 55 cents a pound recently, or nearly double their usual value.

"We have seen a rather substantial run up in pricing, but I think we may see prices start to fall back as we get to later in Q3 and early in Q4. Bean oil prices combined with demand have really pushed prices across the board,” Tapp says, explaining how UCO traded in the Gulf in April and May in the high $.50s per pound delivered, and as high as the mid-$.50s a pound delivered into Georgia. “Historically those are pretty high values and could be on the verge of representing inflection points. I do see the possibility of coming off these prices later in the year.”  

Sharon agrees that UCO prices should eventually drop. “Nothing goes up forever,” he says. “I think there should definitely be some sort of correction—not a collapse of any kind, but a healthy correction.”

That said, Sharon and others do not envision UCO prices returning to pre-2020 levels. “I think the numbers we saw a year-and-half ago are probably long gone,” he says, predicting that a new floor for UCO might be in the range of 35 to 37 cents per pound. “Our projections for 2021, and going into 2022, are based on those numbers as a floor.”

Meanwhile, with UCO prices bouncing around record highs, the collectors of the product are working long hours to keep up with surging demand while doing their absolute level best to make sure the products they aggregate are precisely what they’re supposed to be.   

Transparency, Vigilance
Whereas the biodiesel industry, for years, struggled with RIN fraud—which has been significantly reduced through the EPA’s Quality Assurance Plan (i.e., Q-RINs)—today’s renewable diesel industry is perhaps a new target for feedstock deception and unintentional identification errors.

Dickerson explains that fraudulent—or, in some cases, “less-than-100% accurate”—feedstock labeling does occur with UCO and other low-CI feedstocks. “People have even been caught reselling B99 as used cooking oil,” he says, explaining that Third Coast encourages its biodiesel and renewable diesel customers to utilize the company’s on-demand lab to intermittently random sample/blind test its UCO and compare it to third-party lab results. “We really encourage this just to keep the whole supply chain honest and make sure a high level of integrity is being maintained. ‘Absolutely, check often,’ we say, but not everyone does.”   
 
Dickerson says Third Coast even helps its affiliated grease collection companies attain International Sustainability and Carbon Certification (ISCC), which assures that food companies producing UCO above a certain threshold provide purchase records to prove that the amount of UCO collected from their facility corresponds with the inbound fresh vegetable oil they purchased and used. “That level of supply chain management is already here, and it would benefit from even wider participation,” Dickerson says. “Unfortunately, there are still some bad actors out there. Yes, people get caught, but probably not enough.”

Green Star is one of only a few companies in the South that has extensive experience exporting ISCC product. “Prior to the market flip, when we were exporting almost all of our product, everything was being exported as ISCC product,” Sharon says, explaining how the program involves annual audits by an ISCC representative—typically conducted in person but carried out virtually during the pandemic. “It’s very thorough. They go over your account list. They look at your collection records. They look at your facility and any changes that you’ve made. They also look at all your ISCC shipments for the previous year, and cross reference that to make sure you haven’t sold more product than what you claimed was ISCC. It’s very stringent.”

After a half decade in the ISCC program, Sharon says, Green Star still appreciates its benefits, especially when it comes to doing business with the world’s largest producers. “Neste, REG—anyone with any substantial presence in the EU almost exclusively buys only ISCC-certified product,” he says.

Closer to home, it’s not UCO fraud, but straight up theft that is an everyday concern for UCO suppliers and collectors. With UCO prices still north of 45 cents a pound, theft is quite common, Dickerson says, explaining that it’s not difficult for thieves to find willing buyers to accept stolen UCO. “Unfortunately, there are people out there that don’t care where they’re buying product, or who they’re buying it from,” he says. “If they can make a buck doing it, they will.”

Dickerson says stealing UCO from restaurants, while brazen, is not complicated. “All it really takes is a fuel pump and a water-tight container,” he says, explaining that the criminal phenomenon is on par with the theft of copper pipe from buildings or catalytic converters from cars, but easier to get away with and harder to stop. “At least when a car is missing a major piece of equipment, you notice, but when used cooking oil is missing from behind a restaurant, who notices—and when? It could be 60 or 90 days later before anyone realizes it’s gone.”

Sharon is also seeing plenty of UCO theft. He estimates there may be 90,000 to 100,000 gallons of UCO stolen weekly from source companies in Florida alone. He says there are precautions that can be taken to deter theft—storing the product in rugged steel containers, locking gates, installing surveillance—but nothing seems to stop it completely. “There is only so much you can do,” he says.

Supply Outlook
As more U.S. renewable diesel plants are commissioned, Sharon predicts, the UCO market will inevitably be challenged to keep up with demand. “Product will be tight for a while, especially when you consider that a lot of product was being exported from the U.S. to Europe just last year,” he says, explaining how, prior to late 2020, Green Star was exporting most of the UCO it collected, and is now selling 95% of its product domestically. “So, we’ve already redirected that export volume.”

Dickerson agrees that meeting the rising demand for UCO will be challenging, but he says consumer trends bode well for the feedstock’s long-term availability. “The U.S. is a growth economy, so as our population grows and our service side grows with it, you’re going to see restaurant growth, too,” he says. “I don’t think companies like Darden (parent company of restaurants such as Olive Garden and LongHorn Steakhouse) or McDonalds are predicting ‘less than’ sales. I think they’re predicting ‘greater than’ sales, so there should be more byproduct coming out of that sector.”

It has been widely predicted that the U.S. population is trending toward a healthier diet comprised of less fired foods, which would in theory produce less restaurant waste oil. But Dickerson says such predictions are simply not materializing. “We can all envision people eating less fried food in the future, but as of right now it’s not happening,” he says. “We’re still seeing plenty of fried, fatty food in the United States and we don’t think that’s going to change in the near term. Used cooking oil isn’t going away.”          

UCO Drivers
It would be unusual, if not impossible, for any large U.S. renewable diesel producer to feed its hydrotreater with 100% UCO—rather, the feedstock is commonly a supplement to higher-volume inputs like soybean oil—but UCO is nonetheless coveted by refiners because it gives their renewable diesel a lower carbon-intensity (CI) kick under California’s Low-Carbon Fuel Standard (LCFS). “With the finished-product going into California, or other low-carbon markets, those lower-cost, lower-quality feedstocks provide a higher value at the end because they have a low CI,” Tapp explains. “A renewable diesel producer shipping product into California is going to want to use as much UCO as possible because that’s going to land them the highest value.” 

Ultimately, though, it is not the only the alure of LCFS credits, but a layering of that incentive on top of RIN values and the $1-per-gallon biodiesel tax credit that makes renewable diesel production attractive. In fact, the appealing economics of renewable diesel, combined with the fact that the fuel is virtually indistinguishable from petroleum diesel, has left some industry observers questioning the long-term competitiveness of its conventional cousin, biodiesel. 

While Sharon says he is indifferent to where Green Star’s UCO is ultimately directed, he’s sold on the viability of renewable diesel, given the characteristics of the fuel, the incentives to produce it and the companies investing in the play.
“I definitely think renewable diesel is the future,” he says. “The economics make sense because of the scale, and the fact that these refining operations are typically joint ventures between a feedstock collector, or processor, and a large oil concern.”

Sharon continues, “If you ask me, ‘Will renewable diesel continue to grow and continue to be the primary, or only, market for this type of feedstock?’ I would have to say yes. But that will depend on federal and state mandates and credits—the California LCFS, and with Oregon and Washington following suite—and if we start to see those things happening in more states, renewable diesel will take off like nothing else.”

Tapp agrees that the scale and momentum of renewable diesel production works well for aggregators and suppliers of the feedstock. “There’s a lot less biodiesel in my world than in the past, even just in terms of who’s interested in transacting volume,” he says. “I’m much more interested in a larger renewable diesel facility that’s open 24/7 with much better terms and not as much credit risk. A lot of different factors go into the final transaction, but I am very excited about renewable diesel, which has been my primary book of business for the past few years and will probably continue to be that way.”

Tapp continues, “I’m not advocating for things either way, but when two different types of customers want the same product and one is very large, pays timely and fast, and wants as much product as you can get, you’re going to gravitate toward that opportunity.”

While echoing likeminded praise for renewable diesel, Dickerson diverges to compliment the biofuel that came before it. “Let’s all remember that biodiesel has been very consistent and good to our business,” he says. “And anyone in the byproducts space should thank their lucky stars for biodiesel because it has certainly added value to their bottom line for years. Biodiesel has done great things for this country, but the truth is, it may end up being a bridge fuel to this new technology called renewable diesel. And eventually, renewable diesel itself might fall to coprocessing.”

Dickerson says he believes the characteristics of renewable diesel—a “look-alike” molecule to diesel with no blending or seasonality restrictions—give it an edge in the marketplace. “It can be used 100% of time at 100%, if you want,” he says. “So, if you are a fuel supplier, do you want a product that comes with limited access to the market? Or do want a product that looks just like diesel, meets all your regulatory needs and, oh, by the way, generates more RINs and extra credits in California?”

The bottom line, Dickerson says, is that the massive renewable diesel producers bringing production online in the U.S., and globally, want to procure whatever UCO they can, and suppliers like Third Coast are more than happy to help them do it. “I think everyone understands there is a big difference between a 5-million-gallon biodiesel plant looking for UCO and a 500-million-gallon renewable diesel refinery looking for UCO,” he says.
 
Tapp concurs, explaining that a single renewable diesel facility like Diamond Green Diesel’s plant under expansion in Norco, Louisiana, for example, will produce 675 MMgy—requiring 7.5 pounds of feedstock per gallon. And that same scale of production is being repeated at dozens of sites globally. "Neste has export tanks in Houston, Savannah, New Jersey and the Midwest, and they have the capability to take hundreds of truckloads a month at each of those locations and send it by vessel to Singapore to make renewable diesel,” he says. “I think that tells the story.”

Tapp says the unprecedented change happening in the biofuel feedstock space will inevitably result in consolidation. "We've seen renewable diesel producers acquire larger collectors,” Tapp says. “In my opinion, there is going to be continued interest form producers about acquiring, merging or getting into exclusive off takes with collectors to have more integrated supply chains.” 

Biodiesel plants themselves may also be acquired by large renewable diesel producers, or perhaps form joint ventures with them. Darling Ingredients, for example, formed a high-profile joint venture with a subsidiary of Valero to form Diamond Green Diesel not long ago, retooling its biodiesel operations to supply feedstock to the joint venture’s renewable diesel projects. Likewise, last year, Marathon Petroleum Corp. purchased the 50 MMgy Duonix biodiesel plant in Beatrice, Nebraska, with the intention of using the facility to aggregate and pretreat feedstock for renewable diesel production in Dickinson, North Dakota.

That and other big picture questions about feedstock supply, control and consolidation, however, are taking a back seat to more immediate concerns about UCO logistics amid nearly exhausted over-the-road transport resources.      

Tight on Trucks
With the U.S. economy kicking into full swing this summer as the restrictions of the pandemic ease, feedstock suppliers like Tapp and Dickerson are seeing extraordinary demand for over-the-road trucks, including their own. “Trucks are really covered up right now,” Tapp says. “The logistics part of this business is very challenging at the moment. When the economy comes to a grinding halt like it did and then picks back up overnight, everyone is going to have a hard time getting it all done—whether it’s staffing a restaurant or hotel or, for us, getting trucks to cover this increased demand.” 

Being a Florida-based company, Tapp says, Deep South Commodities was able to stay busy throughout the pandemic because the state, and much of the surrounding region, largely remained open for business during the pandemic. "Our volumes may be off a little bit, but we decided to take this period to aggressively grow and focus on the longer-term outlook,” he says. “We have added staff and assets, and we are fortunate to be busy."

Sharon says Green Star has not yet experienced a trucking pinch in and around Miami. “We’re 15 minutes away from Port of Miami, 20 minutes away from Port Everglades, and 20 minutes away from Transflo—a rail terminal in Ft. Lauderdale,” he says. “If and when we sell export, we take our product to one of the ocean ports, and when we sell domestic, we take product to the rail terminal here in Ft. Lauderdale. Our logistics in either direction take 20 minutes, and we have tankers of our own that allow us to transport the product ourselves.” 

Dickerson says Third Coast Commodities, with its trucking subsidiary Evergreen, is managing incredibly high demand for its trucks while commerce more fully opens up nationwide. “It’s unprecedented,” he says. “Our trucks have been sold out and, at times, it’s been tough to find the capacity to even help ourselves because we’re so busy helping other people get this economy going. It’s a huge challenge, but we’re happy to help everyone keep things moving.”

Author: Tom Bryan
Biodiesel Magazine
tbryan@bbiinternational.com
701-746-8385