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EIA forecasts supply and consumption of biofuels

Published by , Editorial Assistant
Hydrocarbon Engineering,

In its February Short-Term Energy Outlook (STEO), the EIA introduced new forecasts for biodiesel, renewable diesel and other biofuels. For each of these fuels, it is now providing forecasts of production, consumption and net imports, which will be updated in each month’s STEO.

In previous STEO releases, the EIA forecasted total biomass-based diesel consumption, which included all production and imports of biodiesel consumed in the US and imported volumes of renewable diesel, but did not include domestically produced renewable diesel.

This change is intended to eliminate confusion around the accounting of biomass-based diesel volumes in different series and will also add insight into the fastest growing biofuel market: renewable diesel production. Renewable diesel has been increasingly used to meet California’s Low Carbon Fuel Standard (LCFS), Oregon’s Clean Fuels Program (CFP), and EPA’s RFS. Blender tax credits and government subsidies related to California’s LCFS and, to a lesser degree, Oregon’s CFP have encouraged several former petroleum refineries –such as Marathon’s Martinez, California refinery and Phillips 66’s Rodeo Renewed project in San Francisco, California – to convert their refineries into renewable diesel facilities.

These projects, in addition to several others, would nearly triple the current 77 000 bpd capacity of renewable diesel production by the end of 2023. According to data collected from various trade press sources, the US will have 67 000 bpd of new renewable diesel capacity online by the end of 2022 and another 72 000 by the end of 2023. These estimates are based on projects that are currently under construction. Construction has not yet begun on some projects that also could come online during this time period, although the EIA assumes for its forecasts that these projects will not come online before 2024.

Given the expectations for capacity expansions based on current construction and EPA’s proposed rule for the 2022 RFS, including increased production targets for biomass-based diesel and non-cellulosic advanced biofuels, it is forecast that production of renewable diesel will increase significantly in 2022 and 2023. For 2022, it is forecast that US renewable diesel production to increase to an average of 72 000 bpd, up 21 000 bpd (41%) from 2021. And for 2023, production will increase to an average of 82 000 bpd, up 10 000 bpd (14%) from the EIA’s forecast for 2022.

The major assumption behind this forecast is that the significant ramp-up in the US production capacity of renewable diesel will contribute to higher feedstock oil prices, which will limit profitability and result in decreased utilisation as more renewable diesel producers compete for a limited supply of feedstocks. Costs of feedstocks such as soybean oil increased to eight-year highs in May 2021 because of limited supply growth and increased demand, and they remain near multiyear high levels in early 2022. Increased feedstock demand from renewable diesel producers will likely increase feedstock prices in coming years, and we assume these higher prices will limit production below full capacity at new and existing biomass-based diesel refineries. Therefore, even though it is expected that the capacity to produce renewable diesel will average at least 50% greater than the 2022 level in 2023 based on current construction completion estimates, actual production is expected to increase by only 14%.

In the February STEO, the biodiesel production forecast was adjusted downward relative to the January STEO based on the assumption that biodiesel producers will be competing with many of the same constrained feedstocks as renewable diesel producers. Given increasing targets under EPA’s RFS and the existing biodiesel tax credit, it is still forecast that there will be an increase in production for 2022. Biodiesel production averaged 108 000 bpd in 2021, and the EIA forecasts that it will increase by 14% to 123 000 bpd in 2022, compared with the January STEO’s 2022 forecast of 127 000 bpd. It is forecast that biodiesel production will increase another 4% in 2023 to an average of 128 000 bpd, down from the 151 000 bpd forecast in the January STEO. The EIA’s biodiesel forecast is highly dependent on how much of the new renewable diesel production capacity is realised and the levels of future biomass-based diesel and advanced biofuels targets in the final 2022 and 2023 RFSs.

It is also forecast that US production of other biofuels (a much smaller market than biodiesel and renewable diesel) will increase in 2022 and 2023 as a result of increased production of sustainable aviation fuel (SAF). Production averaged about 5000 bpd in 2021, and it is forecast to reach 6000 bpd by 2023.

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