US West Coast/Gulf Coast Renewable Diesel Market Growth Accelerates

by Eric Wieser, Max Tang and Bayan Raji (OPIS) Renewable diesel (RD) shipping volume between the U.S. Gulf Coast and U.S. West Coast has quickly gained market spotlights in 2022 after the joint-ventured Diamond Green Diesel (DGD) RD plant in Norco, Louisiana, completed its expansion to 45,000 b/d of RD in October 2021.

"Starting this year, there have been three Jones Act Vessels moving between coasts on a regular basis" one West Coast trader told OPIS.

Looking at recent vessel movements, Chevron's California Voyager on Sept. 13 landed at Long Beach, Market Intelligence Network (MINT) ship tracking data showed. The tanker was reported to be on a dedicated U.S. Gulf Coast to California trade carrying renewable diesel cargoes, according to ship a broker. The tanker has a capacity of 321,260 bbl.

That delivery marked the second such cargo for the California Voyager tanker to California from the U.S. Gulf Coast in the past few months. For the first half of 2022, the tanker was moving clean petroleum cargoes to Florida ports from the U.S. Gulf Coast.

Another Jones Act tanker moving renewable diesel cargoes was the Valero-chartered Overseas Key West, which has been ferrying renewable diesel to California from the U.S. Gulf Coast since November 2021, MINT data showed. The tanker has a capacity of 331,903 bbl and is owned by Overseas Shipping Group (OSG).

Looking forward, a DGD plant at Valero's Port Arthur, Texas, refinery is slated to begin production during the first half of 2023, with RD capacity of 30,658 b/d. Together with its Norco facility, DGD's RD production in PADD 3 will climb to about 78,300 b/d and renewable naphtha production to a total of around 32,600 b/d.

With the expected PADD 3 RD supply increase, in an August 2022 quarterly earnings conference call, OSG President and CEO Sam Norton noted that the U.S. Gulf Coast/U.S. West Coast renewable diesel trade "could by the middle of next year see as many as five of [OSG] vessels dedicated to this new trade" with new players in the mix.

Renewable diesel imports into the West Coast (PADD 5) have ranged between 13,000 b/d and 21,000 b/d each month between January and July, according to the most recently available data from the U.S. Energy Information Administration (EIA). RD imports into PADD 5 reached an all-time peak of 36,000 b/d in June 2021, according to EIA data.

In August, seven cargoes representing about 576,500 bbl of RD landed in the U.S. from Singapore, Netherlands and Finland, where the majority of these vessels were anchored on the U.S. West Coast, PIERS U.S. Customs data showed.

Between Q2 2021 and Q1 2022, total RD volume transacted in California as a percentage of all diesel fuel sold has increased to 36.01% from 23.04% per quarter, according to data compiled by the California Air Resources Board.

This double-digit increase on RD percentage was only partially due to maritime trades, however. Locally, many refiners in California have also been boosting their RD production capacity.

By mid-year 2022, the Marathon Martinez plant began producing 23,000 b/d of RD, and its capacity is expected to increase to 48,000 b/d by the end of 2023.

Also, beginning in early 2024, the Phillips 66 Rodeo refinery will receive up to 80,000 b/d of renewable feedstocks to produce up to 67,000 b/d of renewable fuels, which includes the Rodeo refinery's existing capacity of 12,000 b/d of renewable fuels in 2022, OPIS reported earlier this year.

On in-land RD shipping in California, Kinder Morgan aims to provide more terminals, pipeline space and rail capacity to meet the state's demand for renewable fuels. Kinder said its Southern California renewable diesel hub will see shippers aggregate renewable diesel in the Los Angeles area via the SFFP pipeline to destinations in Colton (Inland Empire) and Mission Valley (San Diego area).

"Kinder Morgan will be moving fungible batches of renewable diesel on SFPP's Southern California system," a Kinder Morgan spokesperson informed OPIS. "The decision on when to move is ultimately up to shippers, but we expect the movement of renewable diesel to start no later than February 1, 2023. Shippers have been notified of a change in the diesel quality specifications related to the commencement of these renewable diesel movements."

The initial goal is to move 20,000 b/d of blended diesel that will eventually move through truck racks, the company said in a news release. In concert with the effort, Kinder said it is creating renewable storage capacity at the Carson terminal in the Port of Los Angeles. The downstream Colton terminal will receive product from an existing 16-inch SFFP pipeline segment that will handle movement from Watson to Colton. The Colton facility will accommodate 15,000 b/d of blended diesel with a potential expansion to 20,000 b/d, OPIS previously reported.

"As RD market dynamic develops, becomes a fungible product on the Kinder Morgan pipeline, and increases liquidity on the spot market, RD is likely to overtake CARB diesel in market share, and thus trading independently of traditional distillates products," one West Coast trader commented.

"RD is a far superior product than biodiesel and cleaner than traditional diesel fuel. However, due to lack of public knowledge on RD, confusion against the inferior biodiesel products and the 5% RD federal labeling requirement, RD production has been limited and undervalued in the market," another veteran trader added. READ MORE