Corrects name of World Energy in first paragrah.
Shifting trade flows and tax credit certainty favor US biodiesel producers this year, World Energy chief executive Gene Gebolys told the Argus Americas Motor Fuels Summit this week.
But political uncertainty will continue to discourage spending in the industry, he said.
"Because of all the noise in the space, relatively few people are going to be making substantial investment in production and in distribution," Gebolys said.
Steep tariffs on Argentinean biodiesel cut off shipments in 2016 from what was the largest US exporter and enticed deliveries from Europe, Gebolys said. The US industry last year won a finding by domestic trade regulators that Argentinean production was unlawfully subsidized, a ruling that, though not finalized, had already shut off the flow of cargoes.
That left considerable room for the US biodiesel industry to fill. US refiners must still ensure that federally-set volumes of the blendstock enters the domestic transportation supply each year. Rising Canadian interest in biodiesel, too, would drive demand for the fuel as well, he said.
But refiners chafing against the mandates have stoked enough political uncertainty to mute investment in the industry, he said. Constant battles over the appropriate federally-set minimum blending levels of the fuel under the Renewable Fuel Standard (RFS) and threats to abolish that program have made it difficult to invest confidently. Companies that have realized strong margins from blending the cheaper, federally supported biodiesel into the fuel at levels from 5pc to 20pc, depending on the season.
"So long as they are here they will be the small, tricky part of the business, which ends up driving value," Gebolys said.
US congressional support has added to the uncertainty. Legislators have retroactively reinstated a $1/USG blending credit seen as key to blending economics four times since 2010. Senator Orrin Hatch (R-Utah) included the credit, which last expired at the end of 2016, in a legislative package waiting congressional attention. The proposal would again retroactively renew the credit, for 2017, and extend the benefit to the end of this year.
The biodiesel industry will benefit from certainty on the credit this year –- whether it passes or fails, Gebolys said. The absence of the credit will increase compliance costs under the RFS, he said.
Biodiesel would also begin moving in more US pipelines, replacing rail and reducing transportation costs, he said, citing movements on the Explorer and Plantation pipeline system.
Such shipments are capped at a 5pc blend of biodiesel and diesel, well below the most lucrative 20pc blend. But even lower level blending and pipeline movements would break the current hold of downstream blenders on the business, he said.
