The U.S. imported a record volume of biomass-based diesel in 2015. Imports of biodiesel and renewable diesel soared to an estimated 670 million gallons in 2015, up from 510 million gallons in 2014, according to U.S. EPA data. This increase in imports is particularly interesting because 2015 was a year with no forward-looking $1-per-gallon blender&rsquo;s tax credit, and, for 11 months of the year, no RFS targets were in play. In 2013, however, an increased RFS mandate over 2012 coupled with a forward-looking tax credit made for another record year of imports. Nearly 350 million gallons biodiesel entered the U.S. in 2013, and more than 200 million gallons of renewable diesel from Neste Corp.&rsquo;s Singapore production facility alone entered U.S. ports. That&rsquo;s according to Susan Olson, who leads the ag and biofuels division at Genscape Inc., which hosted a webinar March 3 titled &ldquo;Impacts of International Trade on the U.S. Biofuels Market.&rdquo; U.S. production in 2015 remained flat at about 1.42 billion gallons, compared with around 1.47 billion gallons in 2014 and 1.50 billion gallons in 2013.&nbsp; Olson says biodiesel imports to the U.S. have been much more substantial since 2013. &ldquo;The core factors influencing this are RFS increases, California&rsquo;s low carbon fuel standard (LCFS), foreign exchange rates and the existence&mdash;or nonexistence&mdash;of the blender&rsquo;s tax credit,&rdquo; she says. In 2013, imports saw a big jump, from less than 50 million gallons in 2012 to nearly 350 million in 2013. The make-up of countries exporting biodiesel to the U.S. has changed since 2013, too. Argentina and Canada have increased their flows while the EU is not exporting much to the U.S. at all now, Olson says.&nbsp; U.S. imports are expected to grow even more this year over 2015&rsquo;s record volumes, Olson says, primarily because of the forward-looking tax credit that is in effect through the end of this year, and the additional 170 million gallons of biomass-based diesel growth in RFS volume obligations. Olson adds that diesel prices continue to be too low for exports from Argentina to North Africa to be economical, and entrants into the CARBIO survey program&mdash;an EPA-approved alternative feedstock tracking mechanism for RFS registration to generate RINs&mdash;have implemented the program over the past year. Imports from Argentina are expected to increase by 20 to 25 percent in 2016, totaling upwards of 240 million gallons this year, Olson says. She adds, however, that Argentina&rsquo;s recent increase in export taxes is worth watching, as it could affect projected volume increases.&nbsp; Matthew Stone, managing director of Prima Markets, provides some perspective to the Argentinian export tax hike. He says the Argentinian government caused a lot of confusion by mistakenly publishing a tenfold hike in the biodiesel export tax in its official journal following the Oct. 25 election. &ldquo;In actual fact,&rdquo; Stone says, &ldquo;biodiesel export taxes were actually reduced to zero through November and December from 3.31 percent in October, rising to 1.69 percent in January and 3.89 percent in February.&rdquo; At press time, Argentina raised export taxes yet again, from 3.89 to 6.4 percent through March. As to why Argentina did this, Stone says, &ldquo;They are balancing their ambition to turbocharge Argentina&rsquo;s agriculture-based exports against the need to keep cash rolling into the treasury coffers.&rdquo; He says so far this uptick in export taxes from 1.69 percent in January to 6.4 percent through March has increased costs by $35 a ton, or nearly 12 cents a gallon. Of 2015&rsquo;s 670 million gallons of imports, a majority of those specific biodiesel volumes entered the U.S. through the Gulf Coast, followed by the East Coast, then into California and on through the Midwest via Canada.&nbsp; The California Market&nbsp; The carbon market developing in California as a result of AB 32 (The Global Warming Solutions Act of 2006) and LCFS is a pioneering achievement, one only rivaled by Germany, Stone says. &ldquo;The transition toward carbon savings is the main justification for biofuel&rsquo;s existence,&rdquo; says Stone, who gave a presentation at the 2016 National Biodiesel Conference &amp; Expo in Tampa, Florida, titled, &ldquo;Global Biodiesel: Preparing to Cut Carbon.&rdquo; Stone highlighted California and Germany as two unilateral carbon pioneers, and he said carbon will be the main driving force of this industry moving forward.&nbsp; The LCFS was readopted in 2015, and legacy pathway and carbon intensity (CI) values associated with the various feedstocks for biodiesel and renewable diesel will expire Dec. 31, according to Shelby Neal, director of state governmental affairs for the National Biodiesel Board. &ldquo;California Air Resources Board is doing things differently now,&rdquo; Neal says. &ldquo;Before, it had default pathways, but now every producer goes in and enters their own numbers, and each fuel has its own CI.&rdquo; This new approach takes more variables into account, such as individual processing techniques and transportation, to name a few. &ldquo;Having said that,&rdquo; Neal says, &ldquo;they do have reference values because people want an idea of what it is, but these are generally worst-case scenarios.&rdquo;&nbsp; Soy, canola and distillers corn oil biodiesels were the most affected by the changes; soy and canola CI reference values improved compared to their previous CIs&mdash;moving from 83.25 to 51.83 and 62.99 to 50.23, respectively&mdash;while distillers corn oil increased significantly from a CI of 4 to 28.68. Tallow also improved from 40.18 to 32.83. Used cooking oil increased slightly from 18.44 to 19.87.&nbsp; &ldquo;California is the only market in the U.S. at the moment that allows producers to differentiate pricing based on the carbon credentials of their product, and this has already had a tangible effect on import flows,&rdquo; Stone says. &ldquo;This is something that&rsquo;s going to develop this year, and we can take away lessons as to how to develop and gain insight into wider U.S. and overseas markets as policy develops to carbon savings. This is a trend producers are well-advised to get ahead of.&rdquo;&nbsp; Biodiesel Magazine caught up with Stone and Prima Markets&rsquo; analyst Heather Zhang after the NBC in Tampa, Florida, to further discuss the California market, which Stone calls &ldquo;red hot&rdquo; right now.&nbsp; Though biodiesel and renewable diesel imports to California in 2015 are rather anticlimactic compared to overall U.S. imports, Zhang says they are on the rise and expected to grow in coming years. Zhang says biodiesel imports in 2015 topped out at 44.6 million gallons, 4.6 million of which were from Argentina. According to Stone, California imported slightly more than 32 million gallons of biodiesel in 2014.&nbsp; &ldquo;Argentina is not really relevant as a supply source to the LCFS biofuel economy at present because none of the pathways registered under CARB is from Argentina, to the best of my knowledge,&rdquo; Zhang says. &ldquo;That means Argentine biodiesel consumed in California can&rsquo;t be counted toward LCFS offsets.&rdquo; Stone says unless Argentinian biodiesel producers successfully register under CARB, he doesn&rsquo;t expect the volume to go up. &ldquo;Inflows will be restricted to just occasional shipments, perhaps to plug some shorts or because of other logistical issues,&rdquo; he says.&nbsp; Of the 40 million gallons of biodiesel that can generate LCFS credits, Zhang says 20.4 million gallons came from Korea, 18 million from Canada and 1.5 million from Taiwan. &ldquo;These volumes represent material declared customs cleared at California ports,&rdquo; Zhang says. &ldquo;So the figures don&rsquo;t necessarily mean these volumes have actually been sold for consumption within California, especially the Argentina portion. We estimate, however, that most of the biodiesel imported into California ends up being consumed in-state excluding Argentina biodiesel.&rdquo;&nbsp; The import volumes to California provided by Genscape via Olson are more robust than Zhang&rsquo;s and Stone&rsquo;s. &ldquo;Our independent access to customs records and proprietary ship tracking indicate 56 million gallons of biodiesel imported to California,&rdquo; Olson says. &ldquo;These shipments came from Canada, South Korea and Argentina.&rdquo; The conversion factor used is 300.8 gallons per metric ton. &ldquo;For biodiesel, the things to watch are additional shipments from South Korea and potential movement of biodiesel into California from Argentina,&rdquo; Olson says. In addition, she points out that a new, RFS-qualified biodiesel producer in Hong Kong just registered in February. The company is ASB Bio-Diesel Hong Kong, and it carries a 30 MMgy production capacity. &ldquo;New producers registering for LCFS is a trend we are tracking,&rdquo; Olson adds.&nbsp; California imported nearly 126 million gallons of renewable diesel in 2015, up from about 107 million gallons in 2014, Stone says. Again, Genscape&rsquo;s figures on renewable diesel imports in 2015 are higher than Prima&rsquo;s, as Olson says 164 million gallons entered California ports last year. &ldquo;These shipments all came from Neste&rsquo;s Singapore facility,&rdquo; Olson says, adding that the conversion factor used for renewable diesel is 339.3 gallons per metric ton. &ldquo;The majority of renewable diesel product we get into the U.S. is from Neste&rsquo;s Singapore plant. Seventy-nine percent of renewable diesel imports from Singapore enter California ports. Neste is definitely taking advantage of the LCFS credit, as well as RINs and the blender&rsquo;s tax credit.&rdquo; She says if additional waste feedstock or new qualified feedstock streams become available for renewable diesel production in Singapore, there would be an increased potential for qualified LCFS deliveries to California in 2016. &ldquo;We&rsquo;re continuing to monitor deliveries on a weekly basis as the year continues,&rdquo; Olson says.&nbsp; Neste is currently the only source of renewable diesel imports to the U.S., and its financial reporting indicates the renewable diesel production capacity utilization rate at its three facilities (two in Europe and one in Singapore) is 94 percent, meaning there&rsquo;s not a lot of room for production supply increases. However, as Olson points out, the company&rsquo;s 2015 split for product sales was 31 percent to North America and 69 percent to Europe, with a 4 percent shift toward North America from 2014 to 2015. With the forward-looking federal blender&rsquo;s credit, increased RFS volume obligations and higher LCFS GHG reduction requirements pushing up carbon credit prices, Olson says the economics could shift more product to the U.S. When Neste was asked whether the company will shift shipments from Europe to North America to take advantage of the favorable economics currently in play, Osmo Kammonen, senior vice president of communications and brand marketing for Neste, responded, &ldquo;Our first priority is take care of our customer commitments. With the rest of the volumes, we look for the best market at any given time. Therefore, it is difficult to predict the shifts between markets.&rdquo;&nbsp; Consumption of both biodiesel and renewable diesel in California topped out at an estimated 285 million gallons, according to Neal, who adds that CARB&rsquo;s final numbers on this aren&rsquo;t out yet. &ldquo;California is really kind of a microcosm of the national picture,&rdquo; he says. &ldquo;From a volume standpoint, it&rsquo;s been a really positive, impressive picture. California consumption has gone from 14 million gallons in 2011 to 285 million gallons in 2015. Do the math on that and we&rsquo;ve gone from a decimal point to 8 or 9 percent of diesel fuel in California, which is probably the third-highest blend rate in the country behind Illinois and Minnesota.&rdquo;&nbsp; In-state production of biomass-based diesel in California last year topped off at around 33 million gallons, or just 12 percent of demand. &ldquo;We are enjoying the environmental benefits of the LCFS, but the vast majority of the economic benefit is being enjoyed by South America, Asia and other parts of the United States,&rdquo; says Jennifer Case, president of San Diego-based New Leaf Biofuel and chair of the California Biodiesel Alliance.&nbsp; Brazilian Sugarcane Ethanol The discussion on imports of advanced biofuels into California would not be complete without highlighting the importance of Brazilian sugarcane ethanol to meeting the LCFS mandate. According to Will Martin, lead ethanol analyst at Genscape, CARB plans on a lot of Brazilian ethanol hitting the ports. &ldquo;It&rsquo;s how they plan on meeting the mandate initially,&rdquo; he says. Overall, ethanol imports into the U.S. are relatively small at less than of 1 percent of consumption, Martin says.&nbsp; According to Martin, California received a considerable amount of Brazilian ethanol in the latter part of 2015, which coincides with a dramatic increase in LCFS credit prices. &ldquo;We&rsquo;ve seen them jump from $40 to $120 already,&rdquo; Martin says. &ldquo;So there&rsquo;s the potential for a lot more imports into California. That&rsquo;ll be one of the major factors looking toward 2016&mdash;are those LCFS credit prices going to keep encouraging imports into California? Right now, it&rsquo;s unclear whether that arbitrage window is still open, just based on how much more expensive Brazilian ethanol is at the moment. And who knows where LCFS credit prices are going?&rdquo;&nbsp; Stone says last July the price was about $50, after spiking from the $20s in June. &ldquo;The readoption of the LCFS scheme confirmed the need for obligated parties to secure tickets against their carbon offset requirements over the next few years,&rdquo; Stone says. &ldquo;The compliance scheme is set to get steadily tougher, stoking a scramble for short covering against pending offset obligations. Given the ticket scheme is currently price-capped at $200, some participants were scrambling to secure tickets at lower prices to offset their obligation given fears that the price spiral would soon send ticket prices toward the cap.&rdquo;&nbsp; From Q2 through Q4 2015, three California ports&mdash;Los Angeles, San Francisco and Carquinez Straight&mdash;imported a total of more than 40.6 million gallons of Brazilian ethanol, according to Martin. &ldquo;A major player in this is the LCFS market and the price of those credits,&rdquo; Martin says. Stone adds that the Brazilian domestic ethanol price is high compared with low U.S. domestic prices. &ldquo;The price relationship between the U.S. and Brazilian markets might start to change when the new Brazilian sugar crop harvest gets into full swing from April, and supply starts to reemerge,&rdquo; Stone explains, adding that most of the LCFS market is expecting ticket prices to continue rising. &ldquo;California has sufficient sources of supply to cover immediate requirements, but the market is not likely to become oversupplied because it is faced with sharp rises in yearly compliance,&rdquo; he says. Foreseen Growth The new LCFS implementation schedule is less linear and more like a hockey stick, so demand for advanced biofuels will pick up increasingly through 2020. In 2015, a 1 percent reduction in GHGs from transportation fuels was required; in 2016, this is doubled to 2 percent; in 2017, it moves to 3.5 percent; in 2018, the reduction requirement is 5 percent; in 2019, the target is 7.5 percent; and finally, in 2020, a 10 percent reduction in GHGs from transportation fuels must be met. According to Neal, CARB laid out what it calls &ldquo;illustrative scenarios&rdquo; on what sort of biodiesel and renewable diesel demand this stepped increase in GHG reductions might provide. CARB&rsquo;s illustrative scenario is 379 million gallons for 2016; 460 million gallons for 2017; and 785 million gallons for 2023.&nbsp; &ldquo;Five years ago, in-state production was just 3 million gallons a year,&rdquo; Neal says. &ldquo;Then, last year, it was above 30 million gallons. On a percentage basis, that&rsquo;s a tenfold increase in five years. In-state capacity is now 75 MMgy.&rdquo; He says the LCFS never really took off like people thought. &ldquo;People made investments and they thought it would be smooth, but it got stuck in neutral for a few years. This had a significant effect on our members. Now, implementation is going well, the lawsuits have been dealt with and the future is more certain. But we&rsquo;re facing an onslaught of imports. The dollar is strong, there&rsquo;s weak demand in China and India for diesel, we have robust RIN and LCFS prices, and the blender&rsquo;s tax credit. Add all those up and it makes sense why California is swamped with foreign product.&rdquo; Neal says restructuring the federal biodiesel and renewable diesel blender&rsquo;s tax credit to a producer&rsquo;s credit &ldquo;would go a long way in straightening out this issue.&rdquo; Domestic product still has the advantage, he says, and there is a lot of growth to be had in California.&nbsp; &ldquo;The LCFS scheme should start altering feedstock pricing patterns in the U.S. to reflect the advantage that low carbon waste fuels in particular enjoy under the LCFS program relative to the feedstock-undifferentiated RFS program,&rdquo; Stone says. &ldquo;To an EU observer used to higher prices for waste fuels than those for agriculture-based fuels, it makes little sense to see low carbon waste feedstock such as corn oil price at a discount to soybean oil, although this is quite natural given the format of the RFS program. The uptake of LCFS-style schemes in neighboring states and Canadian provinces will accelerate this trend.&rdquo; Author:&nbsp;Ron Kotrba Editor, Biodiesel Magazine 218-745-8347 rkotrba@bbiinternational.com

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Increased reductions of greenhouse gas emissions from transportation fuels required by California's low carbon fuel standard (LCFS) are driving up carbon credit prices, demand for advanced biofuels, and imports. 

Importing to meet California demand

Importing to meet California demand

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