Renewable Diesel Backs into UCO

June 17, 2021

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by Tom Bryan (Biodiesel Magazine) The low-quality, low-carbon byproduct of restaurant fryer grease, once largely reserved for modestly-sized biodiesel production, is now a darling input of the industry's new mega plants. Used cooking oil is in high demand as renewable diesel booms.

Four years ago, if John Tapp was asked what industry he sourced feedstock for, he would have undoubtedly said biodiesel. After all, his company was—and still is—a supplier of waste oils and greases to the industry’s 2.5-billion-gallon fleet of legacy plants. But today, some 48 months later, Tapp’s book of business looks distinctly different.

“It’s almost all renewable diesel now,” he says. “I’m not doing much in biodiesel these days. I’m highly focused on renewable diesel and serving those larger buyers—companies like Neste, Diamond Green Diesel and REG. Biodiesel was 100% our core business for years and I am proud of that space and thankful for it. This transition to RD was not really strategic as much as it has just happened. There are not many biodiesel companies in our primary market looking for large volumes of material.”

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His company, Deep South Commodities, is a collector and marketer of waste oils in the Southeast, covering a region from Florida to Texas up to Tennessee and the Carolinas.

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More than a thousand miles to the north, in Buchman, Michigan, Paul Dickerson, president of Third Coast Commodities, is seeing similar market dynamics.

“The top of the bracket for us right now is renewable diesel, then biodiesel, followed by a small amount of animal feed and everything else,” Dickerson says, describing his company as a middle-market physical merchant specializing in fats, oils and greases (FOG) such as UCO, distillers corn oil (DCO), choice white grease, brown grease, fatty acids and other byproduct.

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Dickerson explains the strategy of aggregation. “If you’re a collection company in Michigan that only produces two truckloads of UCO a week, when someone needs 40 rails cars a day, that’s not going to work. That transaction size doesn’t have much value in the renewable diesel space,” he says. “Companies like ours can aggregate large volumes and make sure it all meets the necessary block-chain regulatory compliance requirements.”

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Sharon agrees that UCO prices should eventually drop. “Nothing goes up forever,” he says. “I think there should definitely be some sort of correction—not a collapse of any kind, but a healthy correction.”

That said, Sharon and others do not envision UCO prices returning to pre-2020 levels. “I think the numbers we saw a year-and-half ago are probably long gone,” he says, predicting that a new floor for UCO might be in the range of 35 to 37 cents per pound. “Our projections for 2021, and going into 2022, are based on those numbers as a floor.”

Meanwhile, with UCO prices bouncing around record highs, the collectors of the product are working long hours to keep up with surging demand while doing their absolute level best to make sure the products they aggregate are precisely what they’re supposed to be.

Transparency, Vigilance
Whereas the biodiesel industry, for years, struggled with RIN fraud—which has been significantly reduced through the EPA’s Quality Assurance Plan (i.e., Q-RINs)—today’s renewable diesel industry is perhaps a new target for feedstock deception and unintentional identification errors.

Dickerson explains that fraudulent—or, in some cases, “less-than-100% accurate”—feedstock labeling does occur with UCO and other low-CI feedstocks. “People have even been caught reselling B99 as used cooking oil,” he says, explaining that Third Coast encourages its biodiesel and renewable diesel customers to utilize the company’s on-demand lab to intermittently random sample/blind test its UCO and compare it to third-party lab results.

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Dickerson says Third Coast even helps its affiliated grease collection companies attain International Sustainability and Carbon Certification (ISCC), which assures that food companies producing UCO above a certain threshold provide purchase records to prove that the amount of UCO collected from their facility corresponds with the inbound fresh vegetable oil they purchased and used.

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Green Star is one of only a few companies in the South that has extensive experience exporting ISCC product. “Prior to the market flip, when we were exporting almost all of our product, everything was being exported as ISCC product,” Sharon says, explaining how the program involves annual audits by an ISCC representative—typically conducted in person but carried out virtually during the pandemic. “It’s very thorough. They go over your account list. They look at your collection records. They look at your facility and any changes that you’ve made. They also look at all your ISCC shipments for the previous year, and cross reference that to make sure you haven’t sold more product than what you claimed was ISCC. It’s very stringent.”

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Closer to home, it’s not UCO fraud, but straight up theft that is an everyday concern for UCO suppliers and collectors.

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... Green Star was exporting most of the UCO it collected, and is now selling 95% of its product domestically.

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UCO is nonetheless coveted by refiners because it gives their renewable diesel a lower carbon-intensity (CI) kick under California’s Low-Carbon Fuel Standard (LCFS).

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“I definitely think renewable diesel is the future,” he (Sharon) says. “The economics make sense because of the scale, and the fact that these refining operations are typically joint ventures between a feedstock collector, or processor, and a large oil concern.”

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“Let’s all remember that biodiesel has been very consistent and good to our business,” he (Dickerson) says. “And anyone in the byproducts space should thank their lucky stars for biodiesel because it has certainly added value to their bottom line for years. Biodiesel has done great things for this country, but the truth is, it may end up being a bridge fuel to this new technology called renewable diesel. And eventually, renewable diesel itself might fall to coprocessing.”

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"Neste has export tanks in Houston, Savannah, New Jersey and the Midwest, and they have the capability to take hundreds of truckloads a month at each of those locations and send it by vessel to Singapore to make renewable diesel,” he (Tapp) says. “I think that tells the story.”

Tapp says the unprecedented change happening in the biofuel feedstock space will inevitably result in consolidation. "We've seen renewable diesel producers acquire larger collectors,” Tapp says. “In my opinion, there is going to be continued interest form producers about acquiring, merging or getting into exclusive off takes with collectors to have more integrated supply chains.”

Biodiesel plants themselves may also be acquired by large renewable diesel producers, or perhaps form joint ventures with them. Darling Ingredients, for example, formed a high-profile joint venture with a subsidiary of Valero to form Diamond Green Diesel not long ago, retooling its biodiesel operations to supply feedstock to the joint venture’s renewable diesel projects. Likewise, last year, Marathon Petroleum Corp. purchased the 50 MMgy Duonix biodiesel plant in Beatrice, Nebraska, with the intention of using the facility to aggregate and pretreat feedstock for renewable diesel production in Dickinson, North Dakota. READ MORE

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biodiesel Renewable Diesel/Green Diesel/HVO/Paraffinic Diesel BioRefineries/Renewable Fuel Production aggregation used cooking oil (UCO) markets/sales Florida Michigan co-products food processing waste food waste feedstock prices supply chain Sustainability certification fraud crimes theft trucks railroad feedstock transportation RINs (Renewable Identification Numbers) FOG (Fats/Oils/Grease) grease Carbon Intensity (CI)/Carbon Footprint Louisiana Texas Georgia New Jersey co-processing Singapore Nebraska North Dakota repurpose Investing history European Union (EU)

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