by Helena Tavares Kennedy (Biofuels Digest) ... RFA told The Digest that about 4.4 billion gallons of capacity has come offline since March 1, plus what was already idle, the total is about 5.2 billion gallons idle – that’s approximately 30% of the industry’s total. Growth Energy told The Digest nearly half could come offline in the coming weeks.
...
There’s talk of protecting employees and the RFS, biojet fuel offtakes still progressing. National Biodiesel Board for example still expects to exceed 6 billion gallons by 2030 and 15 billion gallons by 2050.
In today’s Digest, we asked biofuel leaders what they thought numbers might look like as a result of ‘Rona, how long they think the impacts will last, if they foresee a wave of M&A movement like in 2008-09, what actions could alleviate the pain for the industry, and more.
...
“Motor fuel demand is plummeting, with many analysts expecting a 40-60% drop in U.S. gasoline consumption in the next few months,” said Geoff Cooper at Renewable Fuels Association. “Because nearly every gallon of U.S. gasoline contains at least 10% ethanol, the collapse in consumption is hitting ethanol producers especially hard. These demand challenges are compounded by the effects of the ongoing Saudi-Russia oil price war, trade disputes, and refinery exemptions under the RFS. In response to plunging demand, ethanol prices have fallen to record lows in recent weeks and onsite storage tanks are completely full at most production facilities.”
“Our latest tally suggests 36 plants with annual capacity of 2.7 BG have fully idled production since the beginning of March. Another 63 plants have reduced their output rates by a collective 1.7 BG (these plants have reduced production anywhere from 10-50%). Another 13 plants with 0.8 BG of capacity were closed/idled due to other factors prior to March 1 (i.e., prior to the onset of the COVID-19 pandemic). ... We’re aware of another 15-20 plants that have stopped buying corn and are likely taking steps to wind down production in the next week or two.
...
She (Emily Skor, CEO of Growth Energy) highlighted that this week’s EIA weekly data “showed that gasoline demand is the 10th lowest EIA has ever recorded and the lowest in more than 25 years.
...
Her prediction? “Nearly half the industry may be offline within weeks, and without swift and decisive action in Washington, many more may soon halt grain purchases or close their doors completely,” said Skor.
...
Donnell Rehagen, National Biodiesel Board CEO, shared his thoughts with The Digest from the biodiesel perspective: “While diesel fuel has seen a drop in demand, it has been somewhat less drastic than on the gasoline side so far – the decline in demand is likely to become more pronounced as more of the economy is shuttered. Jet fuel demand has been hit hardest, which had an immediate impact on sustainable aviation fuel. Our industry uses a wide variety of feedstocks – about 40% come from recycled fats, oils, and greases – that are also impacted in a variety of ways by the emergency.
...
When asked if he thinks we might see a wave of M&A as we saw in 2008-09 when we had some of these same market conditions, Geoff Cooper at Renewable Fuels Association told The Digest, “It is hard to guess what structural changes the industry will go through as a result of the pandemic, but it is probably safe to say the industry will look different on the other end of this crisis.”
Emily Skor at Growth Energy told The Digest, “It is hard to say exactly what happens until we have a better sense of when we return to normal on fuel demand, but we already know that market conditions are really pushing plants to the breaking point.”
There is optimism in the air from the biodiesel side, with Donnell Rehagen from the National Biodiesel Board who told The Digest, “Once we get through the current uncertainty that is ahead of us in the near term, I believe the future of biodiesel and renewable diesel in America is extremely bright. Our organization sees a future where biodiesel, renewable diesel, and renewable jet fuel will exceed six billion gallons by 2030 and 15 billion gallons by 2050.”
...
"I wouldn’t be surprised to see some assets that went idle during the last downturn to come back online in 2020, though that recovery is being delayed by the current emergency. In 2019, 10 biodiesel producers shut down or cut production due to economic factor such as small refinery exemptions; so far, only one has reopened.”
...
So what actions ARE alleviating the pain?
“We expect that most ethanol producers will be able to utilize some of the small business loan and employee retention provisions that were included in the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act,” said RFA’s Geoff Cooper. “This could help many producers retain their workers and manage through this crisis. But those provisions certainly do not cure the ills in the marketplace. The only thing that will truly help our industry get back on its feet again will be a swift economic recovery and a rapid recovery in gasoline consumption.”
...
Growth Energy’s Emily Skor: “While the law did not include provisions specific to the biofuel industry, it did include funding for several priorities that may be helpful to rural communities, including $9 billion for USDA to provide assistance to farmers and those hurt by COVID and another $14 billion to refill existing authorities and provide price and demand support to farmers. That means there will be will continued focus on how the USDA’s Commodity Credit Corp. deploys those funds.”
NBB’s CEO, Donnell Rehagen, told The Digest, “We’ve encouraged our members to apply as soon as possible for the loans and grants made available by Congress in the CARES Act if they need them. We’ve also made certain that employees of biodiesel and renewable diesel production facilities and their suppliers are included on the Department of Homeland Security’s guidance for essential critical infrastructure workers.
...
What actions COULD alleviate the pain?
Growth Energy’s Skor told The Digest there are some key things to be done still, “We need proactive support from Washington to:
- Restore certainty and stability around the Renewable Fuel Standard, starting with applying the 10th Circuit’s ruling on refinery exemptions nationally and to the pending 2019 refinery exemption requests.
- Provide emergency assistance to ethanol producers;
- Expand markets for higher biofuel blends;
- Lift regulatory barriers to vital markets; and
- Ensure that any boost in the energy economy is applied to biofuel plants so we will be able to remain operational through the worst of the crisis.”
“It is more critical than ever that EPA faithfully enforce the requirements of the Renewable Fuel Standard,” said RFA’s Geoff Cooper.
...
As for biodiesel producers, NBB’s Rehagen, told The Digest that “Biodiesel producers are enormously diverse, including geographic location, production capacity, feedstock availability and market demand. All of those factors affect our producers uniquely. The primary objective is to ensure that production can continue regardless of feedstock and market dynamics. Short of that, support for producers to ensure that they can maintain their highly skilled workforce and weather this economic turmoil as best as possible will be critical.”
“It is critical for biodiesel and renewable diesel producers for the IRS to process the retroactive 2018-2019 tax incentive applications as quickly as possible. It is our understanding that some of our producers have recently received these payments. That is really good news. These payments will provide critical cash flow for producers that would be extremely beneficial in this current time of uncertainty.”
“Protecting the RFS and sending a signal of certainty regarding small refinery exemptions is also an easy step the Trump administration could take.
...
There may also be a lot more movement in supply chains to the U.S., said another webinar participant, Joel Stone from ConVergince LEC. People are taking second look at supply chains now due to coronavirus and bringing their supply chain to North America instead of China or Europe. He also predicted companies will be looking at upgrading ethanol to higher value products (for example through synthesis chemistry or shifting to produce plastics from ethanol, so there is more diversification and risk management).
...
Yes, there is significant impact on airlines and it will impact the next several months, said Steve Csonka from CAAFI, but they are still in talks with airlines about offtake agreements, as they are in it for the long term. Airlines are certainly in a different mode, an emergency mode, but there is still a lot of activity that is progressing keeping Csonka optimistic about the long-term fate of biojet fuel.
To sum it up, we anticipate more news of biofuel facility closures, declined capacity due to lower demand, but hopefully not too much will change in terms of existing investments, deals already in progress, discussions moving forward. If even the aviation industry which is essentially at a stand-still globally is still talking about sustainable aviation jet fuel, there is hope. We also foresee some possible M&A activity, restructurings, and definitely an opportunity for a lot of innovation coming out of this – like the pivot from ethanol to hand sanitizer for some producers, or finding ways to diversify their business to weather this storm. READ MORE
Biofuels Market: Emerging Trends, Highlights and Challenges Forecast 2024 (Futures Trading Charts)
A Closer Look at the Ethanol Dilemma | Trading Bits and Bytes with Jeff Peterson (KNEB includes VIDEO)
Editorial: Virus infects already ailing farm economy (WCF Courier)
Letter: President needs to stand up for RFS (NWestIowa.com)
DDG supply shortage already impacting livestock rations and price (Real Agriculture)
Empty roads crushing ethanol market, creating anxiety on Iowa farms, Carroll ag leader says (Carroll Times Herald)
Missouri farmers face unstable markets for the start of corn planting (KSDK includes VIDEO)
Ethanol tries to survive amid pandemic (RFD TV)
2020 corn: A story of ethanol, acres and livestock feed (The Fence Post)
Corn prices fall back to 2016 levels as COVID-19 lockdowns cut ethanol demand (Market Watch)
Rex idles One Earth Energy plant in Illinois (Ethanol Producer Magazine)
Feds ask justices to reject RFS appeal (E&E News)
Ethanol industry seeks to protect employees during pandemic (Ethanol Producer Magazine)
SIRE navigates ‘uncharted territory’ of COVID-19, falling prices (Ethanol Producer Magazine)
ACE: Economic stimulus needed amid COVID-19 market fallout (Ethanol Producer Magazine)
US biofuel industry fears: ‘Half the industry may be offline within weeks’ (Biofuels International)
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