Upside Down - Renewable Diesel Boom Sets Off Aftershocks in Soybean Oil, Used Cooking Oil Markets

The boom in renewable diesel (RD) production has triggered a race to secure the dozen different bio-feedstocks suitable for refining into diesel fuel. It’s an interesting story that impacts both the oil and agriculture industries, with twists and turns that will take years to play out. In today's RBN blog, we describe the current state of the market and highlight recent happenings in supply chains for two of those increasingly important bio-feedstocks — soybean oil and used cooking oil. 

There are two types of biomass-based diesel, commonly called fatty acid methyl ester (FAME) biodiesel and hydrogenated RD. Both are derived from oxygen-containing organic compounds called triglycerides that make up bio-feedstocks like vegetable oils and animal fats. The triglyceride molecule resembles a three-legged barstool. If you detach the legs from the stool, you get three very good diesel fuel molecules, which is why these bio-feedstocks are good raw materials.

The process for making FAME biodiesel fuel detaches the triglyceride’s “legs” by reacting them with methanol, which yields diesel fuel molecules called fatty acid methyl esters, which still contain oxygen atoms. By contrast, the process for making hydrogenated RD detaches the triglyceride’s “legs” by a reaction with hydrogen, yielding oxygen-free fuel molecules identical to those in petroleum-derived diesel. The feedstocks for the two processes are the same, but because FAME biodiesel still has oxygen atoms embedded in its molecules, it must be blended with conventional diesel before being sold as fuel, whereas hydrogenated RD is a pure hydrocarbon just like conventional diesel and can be used directly as a diesel substitute (see Driver’s Seat and Come Clean for more on the process).

The hydrogenation of bio-feedstocks to produce RD is done in oil refineries using the same process used to remove sulfur from conventional diesel and gasoline. Hydrogenation is the most widely used process in petroleum refining — there are more than 1,000 hydrogenation units in refineries around the world. Today, many of them have been redeployed to produce diesel from vegetable oils and animal fats. (In the process, the feedstock is combined with hydrogen gas and the feedstock/gas mixture is pumped through a reactor packed with catalyst. In the reactor, the catalyst promotes the reaction of hydrogen with the feedstock molecules to remove sulfur, nitrogen and oxygen atoms from the feedstock molecules to improve fuel quality and reduce undesirable emissions from burning the fuel. Sulfur is the primary contaminant removed in petroleum refining, while it is almost entirely oxygen which is removed with renewable feedstocks.) U.S. nameplate production capacity of hydrogenated RD has been ramping up at a rapid pace, from 600 million gallons in 2019 (~39 Mb/d) to a scheduled 7.4 billion gallons (~480 Mb/d) in 2024; this year’s growth of 1.4 billion gallons (~91 Mb/d) includes the 680-MMgal/year (~44 Mb/d) Phillips 66 refinery in Rodeo, CA, which has been fully converted from a petroleum refinery to a bio-feedstock refinery to produce hydrogenated RD.

The RD boom — production has risen from 35 Mb/d in 2020 to an expected 227 Mb/d in 2024 and 262 Mb/d by 2026 (see Figure 1 below) — has stressed the upstream markets supplying bio-feedstocks, which come in three broad categories: vegetable oils (like soybean oil, canola oil and corn oil), animal fats (like beef tallow, pork lard and poultry fat), and waste oils (like used cooking oil). Together they are now a 500 Mb/d market as bio-feedstocks.