Spotlight: Ethanol plants part of the solution for forthcoming renewable diesel feedstock problem

This Spotlight from S&P Global Platts Analytics was first published August 13.

With US ethanol production only around 85% of capacity on weak margins, recent news about new renewable diesel (RD) capacity provides a genuine reason for optimism in the industry. Distillers corn oil (DCO) is a co-product of corn ethanol production and is one of several vegetable oils used as RD feedstock.

According to the US Department of Agriculture, 1.85 million short tons of DCO were extracted from ethanol plants in 2019, most of which was used for ester-based biodiesel production and animal feed.

With domestic RD capacity expected to grow in leaps and bounds over the next few years, there will be a much greater demand for DCO, putting upside pressure on prices and boosting ethanol production economics.

Diamond Green Diesel, the joint venture of Valero and Darling Ingredients, is the most recent biofuel manufacturer to receive approval from the California Air Resources Board for a pathway for RD produced from DCO. The company receives the DCO by rail at its facility in Norco, Louisiana, and transports the finished fuel to California by rail and ocean tanker. Its pathway was assessed a favorable Carbon Intensity score of 27.42 g/MJ. With LCFS credit prices currently valued at $193/mt, Valero's RD from DCO commands a premium of around $1.64/gal in the California market.

Of course, RD produced from DCO also qualifies for RINs under the federal Renewable Fuel Standard. RD co-processed with petroleum generates advanced biofuel (D5) RINs (58.25 cents currently) and RD not co-processed with petroleum generates a more valuable biomass-based diesel D4 RIN (60.25 cents currently). Most RD generates 1.7 RINs/gal.

With many new entrants into the RD space, the availability of feedstock is among everyone's biggest concerns. In addition to Diamond Green Diesel, East Kansas Agri-Energy already uses DCO to produce RD at its facility in Garnett, Kansas.

HollyFrontier named DCO as one of its intended feedstocks for its upcoming RD units in Artesia, New Mexico and Cheyenne, Wyoming. ReadiFuels Iowa also plans to use DCO at its future facility in Hull, Iowa. Several plants listed as multi-feedstock are considering DCO as well.

Currently, DCO contributes around 6 cents/gal to ethanol production margins. The ethanol industry is able to produce larger volumes of DCO and would certainly benefit from a surge in DCO values due to an increase in demand.