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MPC - Marathon Petroleum News Story

$53.31 1.3  2.4%

Last Trade - 21/04/21

Sector
Energy
Size
Large Cap
Market Cap £24.95bn
Enterprise Value £53.09bn
Revenue £50.46bn
Position in Universe 370th / 6852

INSIGHT-Renewable diesel boom highlights challenges in clean-energy transition

Wed 3rd March, 2021 12:00pm
By Rod Nickel, Stephanie Kelly and Karl Plume
    March 3 (Reuters) - For 17 years, trucker Colin Birch has
been hitting the highways to collect used cooking oil from
restaurants.
    He works for Vancouver-based renderer West Coast Reduction
Ltd, which processes the grease into a material to make
renewable diesel, a clean-burning road fuel. That job has
recently gotten much harder. Birch is caught between soaring
demand for the fuel - driven by U.S. and Canadian government
incentives - and scarce cooking oil supplies, because fewer
people are eating out during the coronavirus pandemic.
    "I just have to hustle more,” said Birch, who now sometimes
travels twice as far across British Columbia to collect half as
much grease as he once did.
    His search is a microcosm of the challenges facing the
renewable diesel industry, a niche corner of global road fuel
production that refiners and others are betting on for growth in
a lower-carbon world. Their main problem: a shortage of the
ingredients needed to accelerate production of the fuel.
    Unlike other green fuels such as biodiesel, renewable diesel
can power conventional auto engines without being blended with
diesel derived from crude oil, making it attractive for refiners
aiming to produce low-pollution options. Refiners can produce
renewable diesel from animal fats and plant oils, in addition to
used cooking oil.
    Production capacity is expected to nearly quintuple to about
2.65 billion gallons (63 million barrels) over the next three
years, investment bank Goldman Sachs said in an October report.
    Rising demand is creating both problems and opportunities
across an emerging supply chain for the fuel, one small example
of how the larger transition to green fuels is upending the
energy economy. A renewable diesel boom could also have a
profound impact on the agricultural sector by swelling demand
for oilseeds like soybeans and canola that compete with other
crops for finite planting area, and by driving up food prices.
    Local and federal governments in the United States and
Canada have created a mix of regulations, taxes or credits to
stimulate more production of cleaner fuels. President Joe Biden
has promised to move the United States toward net-zero
emissions, and Canada's Clean Fuel Standard requires lower
carbon intensity starting in late 2022. California currently has
a low-carbon standard that provides tradable credits to clean
fuel producers.
    But the feedstock supply squeeze is constraining the
industry's ability to comply with those efforts.
    
    ‘SPINNING FAT INTO GOLD’
    Demand and prices for feedstocks from soybean oil to grease
and animal fat is soaring. Used cooking oil is worth 51 cents
per pound, up about half from last year's price, according to
pricing service The Jacobsen.
    Tallow, made from cattle or sheep fat, sells for 47 cents
per pound in Chicago, up more than 30% from a year ago. That's
boosting the fortunes of renderers such as Texas-based Darling
Ingredients Inc  DAR.N  and meat packers such as Tyson Foods Inc
 TSN.N . Darling shares have about doubled in the last six
months.
    "They're spinning fat into gold," said Lonnie James, owner
of South Carolina fats and oil brokerage Gersony-Strauss. "The
appetite for it is amazing."
    Clean fuels could be a boon for North American refiners,
among the pandemic's hardest-hit businesses as grounded airlines
and lockdowns hammered fuel demand. Refiners Valero Energy Corp
 VLO.N , PBF Energy Inc  PBF.N  and Marathon Petroleum Corp
 MPC.N  all lost billions in 2020.
    Valero’s renewable diesel segment, however, posted a profit,
and the company has announced plans to expand output. Marathon
is seeking permits to convert a California refinery to produce
renewable fuels, while PBF is considering a renewable diesel
project at a Louisiana refinery.
    The companies are among at least eight North American
refineries that have announced plans to produce renewable fuels,
including Phillips 66  PSX.N , which is reconfiguring a
California refinery to produce 800 million gallons of green
fuels annually. 
    Once new renewable diesel production capacity comes online,
feedstocks are likely to become more scarce, said Todd Becker,
chief executive of Green Plains Inc  GPRE.O , a biorefining
company that helps produce feedstocks.
    Goldman Sachs estimates that an additional 1 billion gallons
of total capacity could be added if not for issues with
feedstock availability, permitting and financing.  urn:newsml:reuters.com:*:nL1N2GT25L
    "Everybody in North America and around the world are all
trying to buy low carbon-intensity feedstocks," said Barry
Glotman, chief executive of West Coast Reduction.
    His customers include the world's biggest renewable diesel
maker, Finland’s Neste  NESTE.HE . A spokesperson for Neste said
the company sees more than enough feedstock supply to meet
current demand and that development of new feedstocks can ensure
supply in the future.
    
    SOYBEAN, CANOLA BOOM
    Renewable diesel producers are increasingly counting on
soybean and canola oil to run new plants. 
    The U.S. Agriculture Department (USDA) is forecasting
record-high soybean demand from domestic processors and
exporters this season, largely because of soaring global demand
for livestock and poultry feed. 
    Crushers who produce oil from the crops are also scouring
Western Canada for canola, helping to drive prices in February
to a record futures high of C$852.10 per tonne. Soybeans reached
$14.45 per bushel in the United States last week, the highest
level in more than six years.
    Rising food prices are a concern if the predicted demand for
crops to generate renewable diesel materializes, said USDA Chief
Economist Seth Meyer. U.S. renewable diesel production could
generate an extra 500 million pounds of demand for soyoil this
year, Juan Luciano, chief executive of agricultural commodities
trader Archer Daniels Midland Co  ADM.N , said in January. That
would represent a 2% year-over-year increase in total
consumption.
    Greg Heckman, CEO of agribusiness giant Bunge Ltd  BG.N , in
February called the renewable diesel expansion a long-term
"structural shift" in demand for edible oils that will further
tighten global supplies this year.
    By 2023, U.S. soybean oil demand could outstrip U.S.
production by up to 8 billion pounds annually if half the
proposed new renewable diesel capacity is constructed, according
to BMO Capital Markets. 
    That same year, Canadian refiners and importers will face
their first full year complying with new standards to lower the
carbon intensity of fuel, accelerating demand for renewable
diesel feedstocks, said Ian Thomson, president of industry group
Advanced Biofuels Canada.
    Manitoba canola grower Clayton Harder said it is hard to
envision a vast expansion of canola plantings because farmers
need to rotate crops to keep soils healthy. Farmers may instead
have to raise yields by improving agronomic practices and sowing
better seed varieties, he said.
    British Columbia refiner Parkland Corp  PKI.TO  is hedging
its bets on feedstock supplies. The company is securing canola
oil through long-term contracts, but also exploring how to use
forestry waste such as branches and foliage, said Senior Vice
President Ryan Krogmeier.
    The competition to find new and sustainable biofuel
feedstocks will be fierce, said Randall Stuewe, chief executive
at Darling, the largest renderer and collector of waste oils.
    "If there is a feedstock war, so be it," he said.

 (Reporting by Rod Nickel in Winnipeg, Stephanie Kelly in New
York and Karl Plume in Chicago; editing by David Gaffen, Simon
Webb and Brian Thevenot)
 ((rod.nickel@tr.com; Twitter: @RodNickel_Rtrs;
1-204-230-6043;))
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