As demand for U.S. gasoline production began flattening in 2005, departing from a steady upward climb through the 1990s, Americans’ driving habits and improved fuel economy of their cars and trucks became important factors to the nation’s farmers producing corn for fuel-alcohol. Less gasoline burned meant less ethanol blended, and that meant weakening demand for an important cash crop.
In 2017, gasoline’s sideways consumption figures took an actual downward dip which became at least a medium-size pot hole in 2020’s “lockdown era” — furthering market doubts about the link between farm prices and taillights on the highway.
Today, however, soybean and livestock producers, along with restaurant owners and fast-food chains, are welcoming some quiet changes in the nation’s refineries that could help buoy farm-gate prices for products other than corn.
Late in 2020, CVR Energy’s board of directors approved a $110 million renovation to a small Southern Oklahoma refinery near Wynnewood, which will leverage unused refining capacity (created as gasoline demand moderated) to begin producing so-called “renewable diesel” fuel. The repurposed use of a hydro-cracker and hydrogen plant will allow CVR to produce 90-million gallons of profitable low-carbon renewable diesel per year, along with an additional 10 million gallons of industrial naphtha.
Renewable diesel is chemically the same as petroleum diesel fuel but in the CVR refinery, and a number of others across the U.S., it is largely produced from soybean oil processing byproducts, animal fat wastes and used vegetable oil from the restaurant trade. It can also be produced from cellulosic biomass materials such as wood chips, sawdust, switchgrass and other crop residues.
Renewable diesel is classified as a low-carbon fuel because tests have shown it can reduce carbon emissions in diesel engine exhaust by as much as 50-80%.
Since renewable diesel also meets the ASTM International specifications for petroleum diesel it can be co-mingled in existing storage tanks and pipelines, and is termed a “drop in” fuel because it burns identically to petroleum diesel in compression-ignited engines. Unlike bio-diesel, renewable diesel requires no blending before it can enter end-user markets or fuel injectors.
The CVR project, at 100 million gallons per year, and a similar upgrade being planned by HollyFrontier Corp. are dwarfed by Valero Energy Corp., which plans to be producing 675 million gallons of renewable diesel at its upgraded Louisiana refinery by the middle of 2021. Valero is also studying an additional 400 million gallons of capacity for a Texas refinery it owns. Similarly, Phillips 66 is projected to produce about 800 million gallons of the fuel by 2022 at a refinery it is currently refurbishing.
Worldwide, Valero is currently the number two producer of renewable diesel, behind refineries in Singapore.
In a recent news release, Valero CEO Joe Gorder says the company expects low-carbon fuel mandates in the U.S. and across the globe to continue to drive growth for renewable fuels for the foreseeable future.
“This production would meaningfully expand our renewable diesel segment, which continues to generate strong returns,” he explains. The product is profitable and it helps refiners meet renewable fuel blending mandates, which can become expensive.
While total annual renewable diesel figures are not reported by the U.S. Energy Information Administration, the Environmental Protection Agency estimated in 2019 U.S. consumption of renewable diesel was about 900 million gallons, most of which was burned in municipal diesel fleets in larger West Coast cities.
In 2019, California consumed nearly all U.S.-produced renewable diesel fuel because of its locally-mandated low-carbon fuel standards. Today, however, the obvious renewed emphasis on carbon emissions by a new Administration in Washington, D.C., along with increasingly-stringent “green-house gas” standards being rolled out in the EU, seem to improve the chances for widespread consumption of the fuel U.S. refiners will be producing.
Market watchers say U.S. agriculture likely will benefit from future environmental regulations on transportation and industrial fuels. In the meantime, the industry will have to develop logistical systems to supply the waste feedstocks to refineries capable of converting them into marketable fuel.
Still, Allen Schaeffer, executive director of the Diesel Technology Forum is optimistic and says, “As long as we grow soybeans and produce livestock, the waste derived after these products have been processed into food can be refined into a clean, low-carbon fuel.”
University and refining industry economists say renewable diesel can, and probably will become a popular fuel in the U.S., but it likely will be more expensive than current prices for petroleum diesel.