Photographer: Daniel Acker/Bloomberg

Big Soy Crop No Help for U.S. Biofuel Makers Overrun by Imports

  • Biodiesel plants idled as shipments from Asia, Argentina jump
  • Foreign supplies cheaper or cleaner than fuel from Midwest soy

Makers of renewable fuels derived from the vast soybean fields across the American Midwest can’t seem to catch a break. At a time when crops are cheap and domestic demand for biodiesel has never been better, the industry is shrinking.

Imports from places like Argentina, Singapore and South Korea ballooned to a record 538 million gallons last year from just 7 million in 2009, while the U.S. has idled half of its 3 billion gallons of production capacity, industry data show. Foreign suppliers are accelerating shipments this year and next, capitalizing on new incentives and an expanded federal mandate for usage, as well as tougher emission rules in California, the most-populous state.

Most vehicles in the U.S. run on gasoline mixed with ethanol derived from Midwest corn fields, but about 23 percent of the fuel supply is oil-based diesel used in tractor-trailers, buses and farm equipment. It’s typically mixed with a cleaner-burning additive made from soybeans, palm oil or grease from deep-fat fryers. The problem for the homegrown industry is that biodiesel from overseas is either cheaper or in some cases burns more cleanly.

“We’re being squeezed out by these foreign imports,” said Wayne Presby, a managing principle at White Mountain Biodiesel LLC, which runs a plant in North Haverhill, New Hampshire, capable of producing 3 million gallons a year from waste cooking oil. It’s operating at 71 percent of capacity. “It’s really sort of a strange situation,” he said. “The whole point of the Renewable Fuel Standard was to improve national security by not relying on foreign fuel sources. ”

Escalating Mandates

Under a 2007 energy law, known as the Renewable Fuel Standard, U.S. refiners have been required to use escalating amounts of additives intended to help ease dependence on foreign oil and to reduce greenhouse gas emissions. Unlike in gasoline, where American supplies of ethanol dominate, biodiesel supplies are increasingly coming from overseas.

Imports last year accounted for 31 percent of the 1.73 billion gallons of mandated biodiesel use, government data show. The Energy Information Administration says shipments into the U.S. will expand by about 41 percent in 2016, as the mandate increases to 1.9 billion gallons. Next year, imports will jump 15 percent further to an all-time high of 721 million gallons.

On top of the expanded federal targets for biofuels are even tougher regulations in California, which is encouraging increased demand of additives for gasoline and diesel in a state that is home to about 1 million trucks and 26 million cars.

Burning Dirtier

The Low Carbon Fuel Standard (LCFS) seeks to reduce emissions from transportation fuel in California by 10 percent by 2020, compared with 2009 levels. But under the law’s measure of carbon intensity -- a calculation of the environmental impact of a fuel from how it is produced to when it is burned in engines -- domestic producers are losing out.

Biodiesel derived from Midwest soybeans burns dirtier than fuel shipped all the way from South Korea or Singapore, where refiners including Espoo, Finland-based Neste Oyj use palm oil as a feedstock, according to California Air Resource Board data. Asian suppliers also employ a process that removes more oxygen, yielding a cleaner version of the fuel known as renewable diesel.

Global Biodiesel Plants, via Bloomberg New Energy Finance
Global Biodiesel Plants, via Bloomberg New Energy Finance

California has the highest prices, so it is the most-attractive market. Government data show every drop of the 25.3 million gallons of renewable diesel the U.S. imported in January and February arrived on the West Coast. In that region, biodiesel derived from soybean oil costs $3.71 a gallon, according to data compiled by Bloomberg. At ports in the Gulf of Mexico, the benchmark for the rest of the country, the fuel fetches $3.07, with supplies from Argentina as much as 30 cents cheaper than that, according to Heather Zhang, a biofuels analyst at Prima Markets in Chicago.

Soybean Oil

Argentina, the biggest foreign supplier at 34 percent of imports, has a cost advantage, Zhang said. The country is the world’s third-largest soybean grower and a major industry devoted to making soybean oil and biodiesel at mills that are near the major export terminals. It also has low export taxes, she said. Argentine biodiesel exports almost doubled during the first three months of 2016, government data show.

Global Soybean Supplies
Global Soybean Supplies

To the frustration of Midwest producers, the imported renewable diesel from Asia is eligible for the same $1 tax credit that domestic supplies get. So far, supplies from Argentina don’t meet the California standards, though they do satisfy those in the federal law.

“It puts the domestic producer at a disadvantage,” said Joe Gershen, president of Encore BioRenewables, an industry consultant to Santa Monica, California.

Cash Incentives

The incentives for domestic producers have encouraged foreign suppliers. In 2014, imports plunged 35 percent from a record a year earlier when the $1 tax credit temporarily lapsed and there was uncertainty about the fuel-use targets, the EIA said. Shipments rebounded to an all-time high in 2015 after the tax benefit was reinstated and a new target was set.

While some U.S. suppliers are losing out, the rules are intended to encourage refiners to innovate and come up with better ways to reduce emissions, said John Courtis, an environmental consultant and one of the architects of the California standard.

Still, U.S. producers are concerned that the government is squandering a domestic resource by growing more dependent on foreign supplies of alternative fuels, said Ben Evans, a spokesman for the National Biodiesel Board, a trade group based in Jefferson City, Missouri.

“It really suppresses the market when you have cheaper subsidized imports,” Evans said. “We consider them predatory.”

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