Renewable fuel companies edge out some refiners on feedstock
17/08/2021 10:00
By Stephanie Kelly and Laura Sanicola
NEW YORK, Aug 17 (Reuters) - Both renewable fuel processors
and oil refiners are trying to profit off the growing market for
sustainable aviation fuel and renewable diesel, but high prices
for feedstocks like soybean oil has been more of a hazard for
refiners, as their most recent earnings showed.
These renewable fuel products are a fraction of overall
sales of gasoline, diesel and other products, but it is growing.
However, demand has helped cause the prices of the ingredients
needed - like soybean oil and animal tallow - to rise sharply.
Refiners were forced to put off plans for expansion into
renewable fuel production, but competitors who specialize in
such fuels were able to shift to processing lower-cost
feedstocks.
"We are making sure we are not dependent on one or the other
feedstock," said Peter Vanacker, Neste's chief executive, in an
interview with Reuters. "In the future it's going to be more and
more about margin management."
Companies such as Renewable Energy Group Inc REGI.O ,
Darling Ingredients Inc DAR.N and Neste NESTE.HE all beat
estimates for second-quarter earnings even as refiners crowd
into the market.
The companies have more flexibility to switch between
feedstocks such as used cooking oil and animal fat to make
in-demand renewable diesel, said Dhruv Kharbanda, an associate
at investment bank Tudor, Pickering, Holt & Co.
Refiners, by contrast, are reliant on more carbon-intense
feedstock such as soybean oil that costs more because incumbent
producers have used up much of the used cooking oil.
urn:newsml:reuters.com:*:nL1N2MF28I
"Darling, Neste and Renewable Energy Group benefitted from
feedstock flexibility during the quarter, whereas (CVR Energy)
CVI.N and Marathon MPC.N highlighted the weak economics of
running soybean oil," the bank said in a research note.
Margins to produce renewable diesel from soybean oil have
averaged so far this quarter about $1.35 per gallon, while
margins to produce the fuel from used cooking oil have averaged
are around $2.28 per gallon, according to the bank's data.
Soybean oil prices have more than doubled in the past year,
causing Carl Icahn's CVR Energy to put off plans to produce
renewable fuels at its Wynnewood, Oklahoma, facility after the
refinery geared up for production. urn:newsml:reuters.com:*:nL1N2PA2N9
Marathon Petroleum MPC.N , which operates America's second
largest renewable diesel facility in North Dakota that primarily
runs soybean oil, called the feedstock's economics "challenged"
because the heightened prices coupled with the relatively higher
carbon intensity of the oil limits the refiners' ability to
profit on production.
Renewable Energy Group's gross profit, meanwhile, rose by
more than 400% from a year earlier by processing a higher
percentage of lower carbon-intensive materials, said the
company's chief executive Cynthia Warner.
(Reporting by Stephanie Kelly and Laura Sanicola; editing by
Aurora Ellis)
((Stephanie.Kelly@thomsonreuters.com; 646-223-4471; Reuters
Messaging: stephanie.kelly.thomsonreuters.com@reuters.net))