EIA now forecasts supply and consumption for biodiesel, renewable diesel, and other biofuels

In our February Short-Term Energy Outlook (STEO), we introduced new forecasts for biodiesel, renewable diesel, and other biofuels. For each of these fuels, we are now providing forecasts of production, consumption, and net imports, which we will update in each month’s STEO (Figure 1). In this edition of This Week in Petroleum, we review these new data and discuss some of the factors driving the forecasts.

Biodiesel is a fuel produced from fats and oils, such as soybean oil and canola oil, which is commonly blended with petroleum diesel in concentrations of 20% or less to be used in vehicles. Renewable diesel is a fuel made from the same feedstocks as biodiesel, but it is processed to be chemically equivalent to petroleum diesel so that it can either function in diesel tanks on its own or be mixed with any concentration of petroleum diesel. Biodiesel and renewable diesel are used to comply with the biomass-based diesel renewable volume obligations in the Renewable Fuel Standard (RFS) administered by the U.S. Environmental Protection Agency (EPA) and also supply 95% or more of the standard’s requirement for non-cellulosic advanced biofuels. Other biofuels include renewable jet fuel and renewable naphtha.

In previous STEO releases, we forecast total biomass-based diesel consumption, which included all production and imports of biodiesel consumed in the United States and imported volumes of renewable diesel, but did not include domestically produced renewable diesel (Figure 1). A summary of the variable changes is available on the STEO variable change page. The new variables of renewable diesel and other biofuels match those published in our Monthly Energy Review (MER), based on new EIA-819 survey data.

This change in data methodology is intended to eliminate confusion around the accounting of biomass-based diesel volumes in different series and will also add insight into the fastest growing biofuel market: renewable diesel production. Renewable diesel has been increasingly used to meet California’s Low Carbon Fuel Standard (LCFS), Oregon’s Clean Fuels Program (CFP), and EPA’s RFS. Blender tax credits and government subsidies related to California’s LCFS and, to a lesser degree, Oregon’s CFP have encouraged several former petroleum refineries—such as Marathon’s Martinez, California refinery and Phillips 66’s Rodeo Renewed project in San Francisco, California—to convert their refineries into renewable diesel facilities. These projects, in addition to several others, would nearly triple the current 77,000 barrels per day (b/d) capacity of renewable diesel production by the end of 2023. According to data collected from various trade press sources, the United States will have 67,000 b/d of new renewable diesel capacity online by the end of 2022 and another 72,000 by the end of 2023. These estimates are based on projects that are currently under construction. Construction has not yet begun on some projects that also could come online during this time period, although we assume for our forecasts that these projects will not come online before 2024.

Given the expectations for capacity expansions based on current construction and EPA’s proposed rule for the 2022 RFS, including increased production targets for biomass-based diesel and non-cellulosic advanced biofuels, we forecast that production of renewable diesel will increase significantly in 2022 and 2023. For 2022, we forecast U.S. renewable diesel production to increase to an average of 72,000 b/d, up 21,000 b/d (41%) from 2021. And for 2023, we forecast production to increase to an average of 82,000 b/d, up 10,000 b/d (14%) from our forecast for 2022 (Figure 2).

Our major assumption behind this forecast is that the significant ramp-up in the U.S. production capacity of renewable diesel will contribute to higher feedstock oil prices, which will limit profitability and result in decreased utilization as more renewable diesel producers compete for a limited supply of feedstocks. Costs of feedstocks such as soybean oil increased to eight-year highs in May 2021 because of limited supply growth and increased demand, and they remain near multiyear high levels in early 2022 (Figure 3). Increased feedstock demand from renewable diesel producers will likely increase feedstock prices in coming years, and we assume these higher prices will limit production below full capacity at new and existing biomass-based diesel refineries. Therefore, even though we expect that the capacity to produce renewable diesel will average at least 50% greater than the 2022 level in 2023 based on current construction completion estimates, we expect actual production to increase by only 14%.

In the February STEO, we adjusted our biodiesel production forecast downward relative to the January STEO based on the assumption that biodiesel producers will be competing with many of the same constrained feedstocks as renewable diesel producers. Given increasing targets under EPA’s RFS and the existing biodiesel tax credit, we still forecast an increase in production for 2022 (Figure 4). Biodiesel production averaged 108,000 b/d in 2021, and we forecast that it will increase by 14% to 123,000 b/d in 2022, compared with the January STEO’s 2022 forecast of 127,000 b/d. We forecast that biodiesel production will increase another 4% in 2023 to an average of 128,000 b/d, down from our 151,000 b/d forecast in the January STEO. Our biodiesel forecast is highly dependent on how much of the new renewable diesel production capacity is realized and the levels of future biomass-based diesel and advanced biofuels targets in the final 2022 and 2023 RFSs.

We also forecast that U.S. production of other biofuels (a much smaller market than biodiesel and renewable diesel) will increase in 2022 and 2023 as a result of increased production of sustainable aviation fuel. Production averaged about 5,000 b/d in 2021, and we forecast that it will reach 6,000 b/d by 2023. We will adjust our forecasts for renewable diesel, biodiesel, and other biofuels in future months, focusing on developments related to new biofuel production capacity under construction, availability of feedstocks, and final rules by EPA.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price increased more than 4 cents to $3.49 per gallon on February 14, 99 cents higher than a year ago. The Gulf Coast and East Coast prices each increased more than 6 cents to $3.19 per gallon and $3.45 per gallon, respectively, the Midwest price increased more than 3 cents to $3.32 per gallon, and the West Coast price increased more than 1 cent to $4.19 per gallon. The Rocky Mountain price decreased less than 1 cent, remaining virtually unchanged at $3.33 per gallon.

The U.S. average diesel fuel price increased nearly 7 cents to $4.02 per gallon on February 14, $1.14 higher than a year ago. The East Coast price increased more than 9 cents to $4.06 per gallon, the Midwest price increased nearly 8 cents to $3.88 per gallon, the Gulf Coast price increased nearly 6 cents to $3.79 per gallon, the Rocky Mountain price increased 5 cents to $3.91 per gallon, and the West Coast price increased nearly 3 cents to $4.65 per gallon.

Residential heating fuel prices increase

As of February 14, 2022, residential heating oil prices averaged $3.96 per gallon, nearly 7 cents per gallon above last week’s price and almost $1.22 per gallon higher than last year’s price at this time. Wholesale heating oil prices averaged more than $3.14 per gallon, more than 3 cents per gallon above last week’s price and more than $1.23 per gallon above last year’s price.

Residential propane prices averaged nearly $2.84 per gallon, more than 1 cent per gallon above last week’s price and more than 54 cents per gallon above last year’s price. Wholesale propane prices averaged more than $1.48 per gallon, 7 cents per gallon below last week’s price but almost 32 cents per gallon above last year’s price.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 5.9 million barrels last week to 41.9 million barrels as of February 11, 2022, 8.6 million barrels (17.0%) less than the five-year (2017-2021) average inventory levels for this same time of year. Gulf Coast, Midwest, and East Coast inventories decreased by 2.5 million barrels, 1.9 million barrels, and 1.6 million barrels, respectively, and Rocky Mountain/West Coast inventories decreased slightly, remaining virtually unchanged.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.