Viewpoint: SBO demand lags on delays in new RD capacity

US renewable diesel (RD) capacity is expected to more than double to 4.7bn USG/yr by 2027, but a slew of project delays is weighing on demand for soybean oil, a primary feedstock for biofuels.

Chicago Board of Trade (CBOT) soybean oil futures have fallen by 25pc from their all-time high of 90.60¢/lb on 28 April to 67.65¢/lb on 27 December, reflecting weaker demand for both domestic consumption and exports. Differentials for refined/bleached/deodorized (RBD) soybean oil, which is expected to be a primary feedstock for most of the delayed plants, closed at CBOT +13¢/lb in Chicago on 28 December, dropping by 47pc from its 2022 high of CBOT +24.5¢/lb on 1 April. Seasonality and recession fears also affected RBD SBO prices, but losses were primarily driven by the backlog of inventory from disrupted or delayed RD plant operations.

The Argus margin indicator for soybean oil-based renewable diesel at the US Gulf coast rose to an all-time high of 284.56¢/USG on 7 October, but then tumbled to the year's low of 52.88¢/USG on 28 November.

Changes in CARB ULSD outright prices during the same timeframe drove the margin shifts. CARB ULSD fob San Francisco prices closed at a 2022 high of 461.87¢/USG on 7 October before dropping to the year's low of 244.05¢/USG on 7 December. Increased ULSD production and higher imports pressured CARB ULSD prices downward, squeezing margins for RD.

Of the total RD plants announced for 2022, 40pc have been pushed back to 2023.

PBF Energy's 20,000 b/d RD plant in Louisiana, Vertex Energy's 9,800 b/d RD plant in Alabama, Global Clean Energy's 13,700 b/d RD plant in California, and Neste and Marathon Petroleum's joint 17,000 b/d RD plant in California got rescheduled for startup in 2023, rather than the second half of 2022 as previously planned.  

The projects that came on line faced start-up challenges that delayed production plans and led to weaker demand for soybean oil compared with market expectations. Seaboard Energy's 5,550 b/d RD plant in Kansas, HF Sinclair's 5,900 b/d RD plant in Wyoming and 7,000 b/d plant in New Mexico, and CVR Energy's 7,000 b/d RD plant in Oklahoma came on line during the first half of 2022.

In the second half of the year, Diamond Green Diesel III, Darling's joint venture with US refiner Valero, started operations at its 31,000 b/d RD plant in Texas, while Calumet commissioned its 9,000 b/d RD plant in Montana this fall, bringing some relief to feedstock suppliers.  

The backlog of inventory, which could extend to next year, is also aided by higher soybean oil production as soybean crush margins have expanded on the back of higher soybean meal futures. Soybean meal futures surged to the highest in nearly eight years at $487.90/t on 25 March, and have remained relatively elevated, closing at $447.83/t on 27 December.

Multiple agriculture companies have announced new soy crush plants or investments in expansions, riding on the biofuel boom. But demand from biofuel producers is progressing more slowly than expected, while concerns about finding new markets for the excess soybean meal remain. At least 13 new crush plants are expected to come on line by 2025.  

The release of biofuel blending targets by the Environmental Protection Agency (EPA) are adding to concerns for 2023. The biomass-based diesel mandate for 2023 is proposed at 2.82bn USG, just 60mn USG over the 2022 mandate of 2.76bn USG. That level is below market expectations that were based on new RD capacity coming on line.

Discussions of limiting the use of crop-based feedstocks for renewables in California and The European Parliament's plans to phase soybean oil out of its biofuel feedstocks pool in 2023 are adding to concerns.

Soybean oil is still the most commonly used feedstock in the US, with the last reported consumption for biofuels at 906mn lbs in October. But it is poised to face increased competition from canola oil in 2023 as the EPA approved a RIN pathway for biofuel produced from canola oil through a hydrotreating process. Cover crops like camelina and carinata are yet to be commercialized for biofuel production, but the EPA recently approved a D4 RIN pathway for the latter, signaling some advancement of the process.

By Jamuna Gautam

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