May 2, 2021 [Oil Price] – The U.S. renewable diesel market is hot—so hot, in fact, that one of the feedstocks for the highly profitable renewable fuel is running low, according to Valero.
That feedstock—used cooking oil, or rather, “waste oil”—is considered less carbon intense than vegetable oil when it comes to making renewable diesel. And this makes it a highly profitable enterprise for those companies hoping to earn trading credits under California’s low-carbon fuel standard (LCFS).
In fact, those incentives, which include a $1/gallon blender’s credit, are the main catalyst for the commodity.
At the start of the pandemic, when gasoline demand in the United States tanked, several refiners took that time of slack demand to retool their refineries to process used cooking oil—instead of crude oil. At a time when demand was soft, those sizable federal and state incentives looked pretty enticing. Of course, many of those projects could take years.
Even without those projects coming online, that feedstock is in such high demand that the United States is “close to being tapped out right now”, Martin Parish, senior vice president of alternative fuels at Valero said on its Q1 earnings call on Thursday, according to Reuters.
Compared to crude oil, the used cooking oil market is small, but that doesn’t mean it is without impact. An estimated 21.4 million barrels of renewable diesel are used in the United States each year. And if all the renewable diesel refinery projects announced last year come online as planned, it could mean a removal of 300,000 bpd of would-be crude oil feedstock from the market, according to an August 2020 Reuters analysis.
Valero is one of those companies looking to expand its renewable diesel operations—in St. Charles, Louisiana. It hopes to beef up its production capacity by 400 million gallons per year—but the shortage of cooking oil means it will have to rely on other, less LCFSy feedstocks such as animal tallow and distillers corn oil to produce its renewable diesel.
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