February 13th, 2024 | Nebraska Farm Bureau News Release
A recent Tidbits article took note of the sizable growth in Nebraska’s soybean processing capacity in progress. The driving factor in the growth is the explosive demand for soybean oil for producing renewable diesel. Renewable diesel can replace petroleum diesel gallon-for-gallon and is less carbon intensive than petroleum diesel.
With state and federal policies mandating and incenting low carbon fuels, the demand for renewable diesel has boomed. At the federal level, the renewable fuel standard (RFS), blender tax credit of $1.00/gallon, and tariffs on imports of biodiesel have sparked demand. And low carbon fuel standards (LCFS) adopted by California, Oregon, and Washington mandating the use of low carbon fuels have added fuel to the demand fire. The LCFS in California is especially key. Scott Gerit, chief economist for the American Soybean Association, says 97 percent of the country’s renewable diesel consumption occurs in California.
As a result, renewable diesel refining capacity has grown phenomenally since 2020 (Figure 1). Refining capacity amounted to 800 million gallons in 2020 and grew to in excess of 4 billion gallons last year. It is expected to surpass 7 billion gallons later this decade. Consequently, soybean crush capacity has also grown (Figure 2). Capacity last year had grown to 2.1 billion bushels, and it is expected to expand an additional 600 million bushels by 2026. FIGURE 1. RENEWABLE DIESEL NAMEPLATE PRODUCTION CAPACITY
Source: Dr. Scott Irwin, Department of Agricultural and Consumer Economics, University of Illinois
FIGURE 2. CURRENT & EXPECTED SOYBEAN CRUSH CAPACITY
Source: Dr. Scott Irwin, Department of Agricultural and Consumer Economics, University of Illinois
Scott Irwin, an agricultural economist with the University of Illinois, says the renewable diesel boom is entirely driven by government policy. Left to the private market, there would be no demand for renewable diesel because it is too expensive. And because demand is government driven, there’s a demand cap which Irwin pegs at 4.0-4.5 billion gallons.
But renewable diesel production capacity will approach 7 billion gallons. Thus, according to Irwin, something’s got to give. Expansion projects might get shelved. Existing facilities or expansion projects might reduce capacity. Facilities might get mothballed. Or perhaps additional demand can be created by increasing the mandate or reducing imports. There’s also the potential for exports to Canada. In any case, adjustments will need to be made to balance demand and supply.
The boom in renewable diesel demand, refining capacity, and crush capacity will benefit the state’s soybean producers and economy. Just don’t expect it to continue indefinitely. Unless government policies spur more demand in the future, it seems it will fizzle.
