U.S. biodiesel production has seen smaller reductions in recent months compared with other transportation fuels, according to the U.S. Energy Information Administration’s (EIA) Petroleum Supply Monthly. As a result of mitigation efforts for the 2019 novel coronavirus disease (COVID-19), motor gasoline demand has declined significantly since March 2020. The decline in demand also reduced ethanol demand. Biodiesel production through May 2020, on the other hand, is largely unchanged from year-ago levels because biodiesel is not constrained by the same blending limits as ethanol.
Biodiesel is the second-most consumed biofuel in the United States behind ethanol. The lack of significant blending restraints and the presence of incentives for producing and blending biodiesel have helped support biodiesel demand so far in 2020. Biodiesel consumption meets the Renewable Fuel Standard and also receives a relatively favorable Carbon Intensity score within the Low-Carbon Fuel Standard (LCFS) in California.
From March to May, when COVID-19 mitigation efforts were at their peak, biodiesel production averaged 114,000 barrels per day (b/d), compared with 116,000 b/d during the same period in 2019. Similarly, distillate fuel oil production, which averaged 4.96 million b/d from March to May, was also 2% lower compared with year-ago levels. However, unlike distillate production, distillate demand fell by 10% in the same period compared with 2019.
Lower distillate demand has pushed inventories to their highest levels since December 1982. Total U.S. distillate fuel oil inventories reached 176 million barrels at the end of May 2020, an increase of 35% compared with the same month last year and 27% higher than the recent five-year average. Biodiesel inventories were down 9.6% year over year in May and were almost equal to the recent five-year average.
Temporary reductions in demand amid the general economic downturn drove biodiesel margins down in mid-April; they have since recovered to generally normal levels. From March to May, biodiesel producer margins averaged $0.43 cents per gallon (gal), barely lower than the year-ago average of $0.44/gal in the same period and a little higher than the recent five-year average of $0.42/gal. EIA largely estimates biodiesel margins based on the methodology provided by Iowa State’s Center for Agricultural and Rural Development (CARD) and assumes that the primary costs are related to soybean oil.
In its latest Short-Term Energy Outlook (STEO), published on August 11, EIA forecasts that U.S. biodiesel production will average 110,000 b/d in 2020, about 2% less than the 2019 average. Lower U.S. distillate fuel oil demand and an increasing share of renewable diesel imports are contributing factors in the slight biodiesel production decline. EIA expects biodiesel margins to remain largely stable. EIA collects biodiesel statistics primarily from its Form EIA-22M, Monthly Biodiesel Production Survey, the results of which are published in the Monthly Biodiesel Production Report.
Principal contributors: Sean Hill, Estella Shi
