FocusUS bio-crude glycerine supply tightens on biodiesel issues

06 July 2012 22:03  [Source: ICIS news]

By Judith Taylor

HOUSTON (ICIS)--US biodiesel crude glycerine (bio-crude) supply is becoming tighter in July and August because of production fluctuations in the biofuel, active traders said.

Although the US biodiesel industry continues to strive to meet the Environmental Protection Agency (EPA) production mandate for 2012, slightly over 1bn gallons (4bn litres), it appears to be struggling to do this.

Crude glycerine, a 10:1 co-product of biodiesel production via transesterification, was expected to show increasing supply in relation to the increased mandate, but a variety of market elements have altered this prospect.

The EPA mandate for 2011 was for 800m gallons of biodiesel production, making the approximately 1bn gallon mandate for 2012 a significant increase, with subsequent increase expected for glycerine.

According to the National Biodiesel Board (NBB), the US biodiesel industry exceeded the 2011 production mandate, hitting nearly 1bn gallons by the end of the year.

The 2012 mandate includes biodiesel from production methods other than transesterification as the industry strives to shift from food-related feedstocks to utilisation of biomass and the production of "drop-in" biofuels.

The most recent biodiesel production statistics from the NBB were released on 22 June, showing 114.9m gallons of biodiesel were produced in May, with year-to-date production of nearly 445.9m gallons at end May.

However, the NBB’s tabulated production is 120.9m gallons when biomass-based diesel is included, as stipulated within the EPA mandate.

Because of such shifts in the biofuels industry, projecting actual production streams of the co-product glycerine is challenging.

Additionally, traders say that biodiesel production is down in June and expected to remain so in July and August because of the absence of the $1.00/gal federal tax credit, which failed to gain renewal for 2012.

In discussions about what expectations exist for the return of the tax credit in 2013, market sources said, “How can you do a blender credit with the current economic situation?”

Without the tax credit, smaller biodiesel producers fade out of the market, reducing the biofuel output and co-product glycerine production commensurately decreases.

Adding pressure to the situation is the growing caution in handling the Renewable Identification Numbers (RINs), a hedging device put in place for obligated parties that are mandated to purchase biodiesel to use if not able to buy sufficient volumes of the fuel.

Alleged misuse of RINs in the industry is causing more stringent review of these within the biodiesel production community and the buyers seeking to purchase the fuel as obligated parties.

Increased caution about the RINs is another factor causing a pushback in production by many smaller producers that are unwilling to deal with potential risks in handling either the physical transactions or the paper trading, traders said.

In fact, traders said that regulatory checkpoints are underway to investigate “is there a plant there” and “is biodiesel being made”.

This is happening because of the instances in which biodiesel production was claimed taking place at a location, but no production facility was actually at the physical location, sources said.

Another complication in tracking the RINs is that each RIN code is different depending upon the feedstock.

While much of the biodiesel industry uses soybean oil, multi-feedstock plants can use a variety of fats, oils and greases.         

From the glycerine point of view, such fluctuations from the biodiesel sector have caused regular glycerine buyers to try to source bio-crude requirements primarily from large biodiesel producers.

In so doing, this widely ensures that the buyer can source the bio-crude routinely and have confidence in the consistency of specifications.

However, it has developed a tiered bio-crude market wherein product not clearly specific in its specifications can be ignored while the majority of the market’s supply is contracted forward.

The animal feed market is over 50% of bio-crude demand, but only about 90% of the crude glycerine from biodiesel is suitable for the feed industry, market sources said.

Bio-crude prices were most recently assessed by ICIS at 6-8 cents/lb FOB Midwest.

Traders said that with biodiesel production stalled less glycerine trading is taking place. Although animal feed buyers were seeking lower prices, traders expected the 6-8 cent/lb range to hold firmly for the next several weeks, unless there are pertinent changes in the biodiesel production levels in July.

Insofar as the bio-crude glycerine supply is viewed for July and August, market sources said that biodiesel production could ramp up in August to try to meet the full level of the mandate, increasing bio-crude supply moving towards the fourth-quarter.

However, the sum comment on bio-crude supply expectations for July and August came in one sentence: “It is too hard to guess.”

By: Judith Taylor
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