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Biodiesel US

LCFS tempts Darling to build new west coast biodiesel plant

US renderer Darling Ingredients is mulling building its third conventional biodiesel plant on the US west coast in response to California’s expected reconfirmation of its LCFS carbon cap scheme, executives told analysts during a conference call on Monday.
Darling currently runs two conventional biodiesel methyl esterization plants converting waste oils into fuel. The firm operates an 18mn gal/yr plant in Montreal, Canada, and a smaller 2mn gal/yr plant in Butler, KY. But Darling’s dominant asset remains its 160mn gal/yr renewable diesel plant at Norco, Louisiana, situated close to the main US railroad arteries for waste oils such as animal fats, used cooking and corn oils. Darling consumes around 10% of the US supply of waste oils.
Darling lacks the integrated supply of cheap animal fats on the west coast it would need to build another renewable diesel plant, while the state’s benign climate also mitigates against the need for the low-CFPP biomass-based fuels which renewable diesel plants produce. Converting high FFA waste oils into biodiesel gives Darling a 10-16cent/lb price advantage over vegetable oil –based biodiesel producers, with the 1.7 RIN multiplier awarded to renewable diesel further boosting the profitability of the firm’s main production asset.
LCFS and the “green premium”
California LCFS ticket prices jumped to highs of $67 in July as fuel suppliers focused on the looming re-implementation of the state’s own carbon reduction program. The rise in value increases the LCFS’ contribution towards the so-called “green premium” of state and federal supports which biofuel producers largely rely on for profitability.
Unlike the fixed “nested” categories of the RFS2 RIN program, LCFS’ carbon intensity methodology allows producers such as Darling to fully monetise the low carbon pathways of its waste based fuel, the firm’s chief strategy officer, John Bullock, said. At the federal level the price of RINs and the extension of the $1/gallon blenders’ credit remain critical to producer margins. Darling anticipates a late year-extension of the credit for one or two years, with a possible tweak to switch the advantage from blenders to producers as proposed by the Senate Finance Committee earlier in the summer.
Darling sees a credit tweaked to apply only to US producers as a possible legislative outcome, a move which would likely push RINs higher. Darling is lobbying for a NAFTA carve out which would extend the benefit to its Montreal plant. Such a carve out would protect the credit against possible WTO lawsuits aimed at alleged unfair trade practices, Bullock said. A two year extension meanwhile would give producers greater certainty over their cashflow, Bullock said.
Darling anticipates 2016 biomass-biodiesel demand will rise in line with a 440mn gal “advanced gap” between the 3.4bn proposed advanced RIN requirement for 2016 and the 2.75bn nested allotment given to biomass-based biodiesel plus a tiny 210mn gal cellulosic requirement. Imports of biodiesel and sugarcane ethanol are preventing the gap from pushing D4 RIN prices higher, Bullock said. But there is little chance EPA will opt to increase 2014 or 2015 requirements beyond current proposed levels, he added.
MS – 31/08/2015

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