Review of U.S. Biodiesel Market: Production, Imports and Profitability
In this month’s article, we look at pure biodiesel production, imports and potential profitability for the first seven months in 2018 and compare that information to the same period in 2017. A previous update covering pure biodiesel production in 2017 can be found in the April 2018 Report. U.S. pure or traditional biodiesel is known as Fatty Acid Methyl Ester (FAME) and is our focus here in this report, excluding renewable diesel (also known as Hydrotreated Vegetable Oil or HVO).
Figure 1 shows the U.S. pure biodiesel production from 2009 to 2017, and a comparison of the January-July period in 2018 to the same period in 2017. The U.S. production of pure biodiesel during the January-July period was 1.005 billion gallons in 2018, compared to 0.856 billion gallons during the same period in 2017, an increase of 17 percent. In comparison to the 2016 production during the same period (0.861 billion gallons), January-July 2018 production also increased by approximately 17 percent.
The increase in biodiesel production in the first seven-month period in 2018 compared to the same period in 2017 can be attributed to a couple of factors. First, the 2018 biomass-based diesel (BBD) volume requirement under the Renewable Fuel Standard is 2.1 billion gallons, an increase of 0.1 billion gallons from the 2017 volume requirement. Second, there is a significant reduction in U.S. biodiesel imports during the first seven-month period in 2018 compared to the same period in 2017.
Figure 2 shows U.S annual BBD imports from 2009 to 2017, plus the first seven months of 2017 and 2018 as a comparison. The U.S. BBD imports during the January-July period was 1.935 million barrels in 2018, compared to 6.475 million barrels during the same period in 2017, a decrease of 70 percent. Also, U.S. BBD imports totaled 9.374 million barrels in 2017, a 44 percent decrease from 2016, which was a historical record at 16.879 million barrels.
Argentina has been the largest BBD exporter to the United States. Argentina’s biomass-based diesel accounted for 63 percent in 2016 and 86 percent in 2017 in total U.S. imports. According to the data published by the U.S. Energy Information Administration (EIA), the United States has not imported any BBD from Argentina since September 2017. This is largely because the U.S. Department of Commerce (DOC) imposed anti-dumping and countervailing duties on foreign biodiesel volumes sourced from Argentina and Indonesia. The DOC first published the preliminary determination August 28, 2017, about the anti-dumping and countervailing duties on Argentina’s biodiesel (See Federal Register 82 FR 53477). The DOC determines the total estimated countervailable subsidy rates to be 72 percent for Argentina.
Figure 3 presents the monthly estimates of net returns per gallon over all costs (variable and fixed costs) from January 2016 to September 2018. The data presented here is purely based on the model update done by Iowa State University’s AgMRC. At the beginning of 2016, the biodiesel tax credit ($1 per gallon) was implemented, and then expired at the end of the year. Therefore, 2016 was a very profitable year for the biodiesel industry. Biodiesel tax credits were not in place for 2017, and have not been so far in 2018.
On average, the net return per month during January-September 2018 is $0.20 per gallon, compared to $0.05 per gallon during the same period in 2017. The highest net return of $0.28 per gallon was recorded in June 2018, and the 2018 monthly lowest was seen in January and February at $0.15 per gallon. Relative high net returns per month in 2018 compared to 2017 are largely due to good blending economics in 2018. The blending economics have been supported by relative low cost of feedstocks in 2018. Feedstock prices relationships to soybean oil in 2018 were historically low at least from 2012 forward.