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Why US imports are a concern, but don't have to be

The latest in US biodiesel imports, what to expect this summer, and why the domestic industry can grow in spite of more imports
By Ron Kotrba | June 05, 2013

On June 3, I published a story about a big increase in U.S. imports of biodiesel, notably with the first shipments of biodiesel from Argentina since 2009, according to the EIA, and the first on record from Indonesia. This is of great interest because as I wrote in a blog entry two weeks ago, there is concern that shipments from these two biodiesel-exporting powerhouses, now facing provisional tariffs from their favorite dumping ground, the EU—with additional antisubsidy duties pending if the European Biodiesel Board gets its way—will increase significantly if RFS2 registration with U.S. EPA is achieved. Recent reports have suggested that Argentine soy biodiesel producers are close to gaining this registration. Two weeks ago Ben Evans with the National Biodiesel Board, the trade association representing interests of U.S. biodiesel producers, told me the NBB is monitoring the situation and looking at the impact any change could have on the U.S. industry. He said RFS2 registration with EPA, particularly proving no land use changes, “is a difficult process to complete, and we’re not aware of anything at EPA that’s pending at this time.” If Argentina were to export as much biodiesel to the U.S. as it had to the EU prior to the trade war initiated by EBB last year, nearly a half a billion gallons a year of Argentine soy biodiesel could make its way into U.S. ports.

To recap my story from June 3, U.S. imports of biomass-based diesel spiked in March as the nation imported nearly 17.3 million gallons, up from only 2.2 million gallons in February. Roughly half of that came from Argentina (6.3 million gallons) and Indonesia (2.1 million gallons). The rest originated from Germany (5.5 million gallons) and Canada (3.3 million gallons). The U.S. also exported biodiesel to Germany and Canada, so some of that is a wash. In addition to biomass-based diesel imports, the U.S. imported nearly 8.5 million gallons of “other renewable diesel” in March from Finland, Singapore and Canada.

Anne Steckel, the vice president of federal affairs with NBB, told me, “We’re clearly seeing some small volumes of imports starting to come in given market economics with the tax incentive, but we expect the vast majority of production will continue to be from domestic producers. We have always advocated that the biodiesel tax incentive be structured for producers instead of blenders, and we will continue to push for that change.”

Another source close to the situation tells me this morning that this recent spike in U.S. biodiesel imports is “only the beginning,” as the summer will bring about 21 million gallons of imports per month. 

If 21 million gallons a month doesn’t sound like much when considering a 1.28 billion gallon a year RFS mandate, let me add perspective. The average monthly output of a 5 MMgy biodiesel plant is about 417,000 gallons. The importation of 21 million gallons a month displaces the monthly production volume of 50-5 MMgy biodiesel facilities (that’s Fifty 5 MMgy plants).

On those summer imports we can expect to see, the source says, “Most of it is RINless and is in very strong demand because there are no RFS requirements risks associated. The economics of the tax credit make it viable like no tomorrow. This is very complex but rest assured that this, combined with the [provisional tariffs from Europe] and the potential of a newly implemented traceability requirement for [used cooking oil] to Europe, will be a game changer. The U.S. is clearly not prepared for the maelstrom that will happen. I expect depression in feedstock prices. The soy boys will get a lesson in world economics.”

The very NBB members that were on the Hill complaining about palm entering the country—and these members operate some of the largest biodiesel plants in the U.S.—are actually producing palm biodiesel and generating D6 RINs, my source says, indicating that another major U.S. producer is attempting to source palm. A recent article written by a colleague of mine at Ethanol Producer Magazine, Erin Voegele, states that “more than 4.08 billion D6 renewable fuel RINs were generated during the first four months of 2013. The vast majority of these RINs were generated for ethanol. However, 152,186 D6 renewable fuel RINs were generated for biodiesel during the four-month timeframe, along with 490,138 D6 RINs for nonester renewable diesel.

I’m told there will be dumping in U.S. ports because these biodiesel deliveries were scheduled for import months ago, and many cargos are booked through September already. “The economics of the dollar make it very rewarding, and there are other factors too,” but the source would not elaborate. “Indonesia will be stalled as the EPA already approved the company and has since delayed answering Wilmar’s questions and inquiries. They have put them off for well over three years. Regardless, it is cheaper to import the fuel than to produce it in the U.S.”

You gotta love world economics and global trade. Several years ago now, after RFS2 was passed, I wrote about how absurd the idea of allowing imported fuel to satisfy a renewable fuel standard passed in energy policy titled the Energy Independence and Security Act was. But again, let’s add perspective.

Closing the loophole would require opening up RFS2 and there is concern this could be a slippery slope. The summer peak of 21 million gallons a month mentioned above, annualized, comes to 252 million gallons. There is enough room in the advanced biofuel pool under RFS2 in 2013, including the nestled biomass-based diesel carve-out, for 1.83 billion gallons (at 2.75 billion ethanol-equivalent RINs). If the annualized peak import figures were subtracted from this, it would leave room for more than 1.5 billion gallons of U.S.-produced biomass-based diesel—the biomass-based diesel carve-out for this year sits at 1.28 billion gallons. As the advanced biofuel pool grows, as designed in the statute, the advanced biofuel pool could reach 5.5 billion gallons in 2015. Even if Argentina were to dump a half a billion gallons of product into U.S. ports, there would be more than enough room in advanced biofuel mandate growth—and hopefully in the biomass-based diesel carve-out increases in years to come—to allow the U.S. biodiesel industry to prosper and expand as much as it desires. The NBB has done a good job so far proving to EPA that increasing the biodiesel carve-out is the right thing to do. Also, if domestic producers want to import palm feedstock or biodiesel and generate D6 conventional RINs, that leaves more room for D4 and D5 RIN generation. At the same time, concerns over imports can provide stimulus to incentivize low-cost domestic production, and this requires investment in the U.S. biodiesel complex. As producers cash in on the retro tax credit through the end of this year, and as the economy recovers, I anticipate investment dollars should start flowing into the industry again. In fact, we are already seeing heightened construction and expansion activity in the domestic sector. Here is just a taste of some domestic developments Biodiesel Magazine has reported on in the past month:

-May 23 - Flint Hill Resources, Benefuel created JV (Duonix LLC) to develop biodiesel projects across U.S., starting with idled 50MMgy Beatrice, Neb., plant

-May 20 - Bio Plant Technologies LLC, operating as ClearEcos, and GHP Biodiesel USA Inc. signed agreement to establish a new 11.5MMgy biodiesel plant in Boulder, Colo.

-May 15 – 30MMgy Iowa Renewable Energy inks tolling agreement with REG; REG to purchase feedstock and market IRE biodiesel

-May 8 – Intertek lab awarded BQ-9000 certification

-May 7 – Sanimax expanding 20MMgy facility in DeForest, Wis.; using Apache Stainless Equipment Corp. for tankage

-May 3 – REG signs agreement to buy 30MMgy Soy Energy LLC in Mason City, Iowa

-April 26 – 13MMgy Community Fuels in Stockton, Calif., earns BQ-9000 lab certification

-April 23 – Kinder Morgan announces installation of biodiesel blending at Las Vegas, Phoenix terminals

-April 22 – BlackGold Biofuels opens Charlotte, N.C., trap grease recycling center