Expert Update: Ethanol, Biodiesel, and Renewable Diesel (Text Version)
This is a text version of the podcast episode Expert Update: Ethanol, Biodiesel, and Renewable Diesel from Oct. 12, 2022.
Mollie Putzig: Welcome to On the Go, an on-the-road transportation podcast with Clean Cities. In this episode we're talking about the current ethanol and biodiesel markets, including vehicle uses, prices, and availability. To kick us off, let's introduce our hosts.
I'm Mollie Putzig and today my colleague, Sarah Cardinali, will be talking about biofuels with two guests, Kristi Moriarty and Scott Irwin. They'll give you some background on both ethanol and biodiesel and talk about what's going on in the industry, including how E15 helped alleviate oil pricing this summer. Let's turn it over to Sarah to introduce you to Kristi Moriarty from the National Renewable Energy Laboratory and Scott Irwin from the University of Illinois Urbana-Champaign College of Agricultural, Consumer, and Environmental Studies.
Sarah Cardinali: All right. Well, good morning. Today we have Dr. Scott Irwin from the University of Illinois and Kristi Moriarty from the National Renewable Energy Lab here to talk to us today about ethanol and biodiesel. I'd like to welcome both of these guests to the podcast today. And if each of you could just take some time to introduce yourselves and talk a little bit about your background, your qualifications, and your interest in this area, that'd be great.
Scott Irwin: Well, I can jump in and get started. I've been fascinated by grain markets ever since I grew up on a grain and livestock farm back in the 1960s and '70s. And so, when I went into academics, I've continued to do research, teaching, and extension related to grain and commodity markets. And with the rise of biofuels and their importance in grain pricing, it was a natural extension for my interests and research. And so, I've done a lot of writing and research in the last decade on biofuels markets.
Kristi Moriarty: And hello, I'm Kristi Moriarty. Previous to here, I worked for a small company that was based out of Minnesota building biofuels plants and had never really given much thought to how you move it to the end user markets. And when I moved into a job at the National Renewable Energy Laboratory one of my first roles there was working with UL in Illinois just to get standards in place to enable the market for higher levels of ethanol and biodiesel, and from that point on lots of research and thought area for all sorts of biofuels and how you get them into pipelines and gas stations and aircraft and all sorts of other end uses.
Sarah Cardinali: Excellent. Thank you both. Well, let's get started. We're going to learn a lot today about ethanol and biodiesel. Kristi, can you kick us off by just talking a little bit more about what the current market looks like for ethanol?
Kristi Moriarty: Yes. There's more than 200 ethanol production facilities in the US in 25 states, though they're largely concentrated in the US. In the last few years, perhaps discounting part of 2020 with COVID, production has been around 15 billion gallons a year, and last year consumption was 14 billion gallons. We still are a net exporter of ethanol to various parts of the world where that fuel is used. Most of it in the US is sold as E10, so it's a ten percent blend with gasoline because most of our refineries are making what they call a sub-octane blend and they need that ten percent ethanol to get to that 87 at the gas station pump that you see and hit when you buy gas out there. And there's also E15, which is a blend that's approved for 2001-or-newer vehicles, and more than 95 percent of light duty vehicles that use gasoline meet that criteria, so that's a growing market and opportunity. And E85 is a blend of 51 to 83 percent ethanol, and that just depends on geography and season and it's for use in a specific type of vehicle called a flexible fuel vehicle, or an FFV for short.
And for a long time USDA has put out reports just comparing reports of gasoline and ethanol and biodiesel and other such things, and over the last few months with the recent high increased in gasoline prices ethanol – the Gulf Coast market has generally been trading for less than a gallon – a dollar a gallon lower, so that's presented some opportunity for ethanol as well. And another potential future market that's being researched is upgrading ethanol into sustainable aviation fuel, which can be used in the airplanes that we all fly in today.
Sarah Cardinali: Excellent. You mentioned E15 when you were going through the list there. Can you talk a little bit more about what E15 is and what the status is currently of its use in the US?
Kristi Moriarty: Sure. So, E15 is like it sounds. It's just the blend that's above E10 and up to 15 percent. It does require a little bit of upgrades for use at gas stations, and like I said, it can only be used in 2001-and-newer vehicles, but that point those are 20-plus years old, so that represents nearly all of the market in the US. And it's currently available at about a little more than 2600 stations in 30 states, and we expect that to grow because both the agricultural industry as well as USDA have supplied grants to stations under numerous different programs to extend the availability of E15. And most of those participants were really large chains, like Sheetz, that you might be familiar with, and they tend to sell larger volumes of fuels. And the data collected under the USDA programs continues to show an increase in E15 sales year over year.
And just recently, in April, Iowa passed legislation where they're going to require the sale of E15 at nearly all of their gas stations beginning in 2026. And with all the recent activity in the world with oil pricing and markets and the Russian oil embargo, DOE and the White House have looked at some different scenarios where biofuels could help alleviate that cost as they're produced domestically, and E15 came up quite a bit. And there is one barrier with E15 with the fuel property that's called Reid Vapor Pressure, which measures the volatility of the fuel, and while E10 has a one-pound waiver in summer months, E15 does not. And it's just a matter of language from some older laws that are out there. So, what happened this summer to help alleviate prices is that the EPA issued an emergency waiver to allow E15 fuels nationwide and throughout 2022. Hopefully, in the future there can be a legislative change to allow E15 year-round so consumers don't get confused.
Scott Irwin: I was just going to add to that about E15 it's really interesting, its – implementation has certainly not been without controversy, but regardless of that you've really seen a steady uptick in the aggregate data on blend rate, ethanol blend rate in US the gasoline pool from 5 years ago, sitting at right about 10 percent to now about 10.3, 10.35 percent. So, all of the programs that were mentioned have really contributed to a nice uptrend in E15 use. Again, it's not huge, but it is certainly a building base.
Kristi Moriarty: Yeah, and Scott, that's a really good point because what happened with some of the stations that got USDA funding – as everyone's aware, gas stations tend to be across the street from each other and they're allowed to advertise their lowest price, and in many cases E15 is generally cheaper than regular gasoline. So, that led to some stations that didn't receive government grants feeling like they also had to sell E15 to remain competitive in their market.
Sarah Cardinali: So, if I'm a driver and I'm pulling up at a gas station and I have the option to use kind of the regular E10 or the E15, what are the pros or cons of choosing the E15 over the E10? And will drivers notice any difference in performance or towing or anything like that if they select E15?
Scott Irwin: I don't think that – as far as I know – Kristi can certainly comment on this; she probably has better technical knowledge. But it's my understanding is that there's no real difference in performance other than there will be a slight drop in miles per gallon because ethanol has about two-thirds of the energy value of petroleum gasoline, so that adding five percent ethanol replacing five percent petroleum, you'll see a small drop in miles per gallon. And so, a driver would have to trade off the price drop and see if that price drop was enough to compensate them for the drop in gas mileage, which is very small, maybe around one percent or so.
So, from what I've been seeing in the data, and there isn't really any comprehensive national data, it looks like the price drops for E15 that I'm seeing probably do compensate drivers for that drop in miles per gallon. I don't know if, Kristi, maybe you guys have better data than I do. What are you picking up on that?
Kristi Moriarty: Yeah, I definitely agree with what you said. The fuel economy drops maybe one to two percent but fuel economy can also be impacted by if you have AC going, how fast you push on the accelerator. So, we think it's negligible. In terms of pricing, hopefully there will be some publications out with that sort of information soon. It really depends on the year and the market dynamics and economics, which we all know change over time. But currently, it could be $0.10 or $0.20 a gallon less compared with conventional E10 fuel.
Sarah Cardinali: Great. Now, let's talk a little bit about E85 as well. Kristi, can you start us off and just talk a little about what the current status of E85 is as well as maybe dig into a little bit what flexible fuel vehicles are and what their current status is as well in the marketplace?
Kristi Moriarty: Flexible fuel vehicles were introduced quite a long time ago, and they're able to operate on pretty much any level of ethanol that's available, whether there's no ethanol in the fuel at all up to 83 percent – so, up to the E85 fuel, as it's called in the marketplace. And they generally don't cost more than conventional vehicles, and they were attractive to vehicle manufacturers because they could receive a credit on their corporate average fuel economy standards – so, that's just of all the vehicles that they make they need to meet certain requirements and fuel economy standards.
So, it was attractive to them to produce and sell these vehicles. More than 20 million are registered throughout the US today. However, there was a change that comes from federal policy that kicked in not too long ago that was requiring the vehicle manufacturers to show that the vehicle was using E85 in order to get a credit, and the technology wasn't equipped in that way. So, there has been a pretty marked decline in the availability of FFVs. And in the data from USDA grant programs we are starting to see a decline in E85 sales just in maybe the past two years.
E85 is at a lot of stations where E15 is sold because sometimes the stations can't get E15 directly from their fuel terminal or fuel distributor, so they blend E85 and E10 in a blender pump to offer E15.
Sarah Cardinali: Yeah, I think that's actually a good point that a lot of people might not realize how that works actually. You mentioned the blender pump. So, do gas stations blend all of these different fuels onsite or are they getting them delivered in this way?
Kristi Moriarty: Blender pumps have been around a really long time. They're often associated with ethanol, but when you go to a station and there's regular, midgrade, and premium, in the tanks there's just regular and premium. The midgrade is offered by blending the premium and regular.
And in the case with E15, I think it's pretty mixed in and it really depends on the market and if you're selling E85 already, if you get E15 directly from a fuel distributor or terminal or if you blend it with E85 and E10 to offer it to the consumer. The same is true for biodiesel blends and diesel fuels.
Scott Irwin: One of the things, again, kind of different from E15, E85 basically, as long as I've studied it, has really struggled to be priced competitively, consistently across the country in order to attract the consistent interest of drivers who have the flex fuel vehicles. Once again, the real issue is miles per gallon. Interestingly, it's called E85 but it usually seasonally varies the ethanol: On an average, about 25, 26 percent of E85 rather than 15 percent is the amount of ethanol that's in it. Excuse me, I got that backwards. It's about 75 percent; it would be 6 percent ethanol, not 85 percent. And so, that is going to be a fairly significant hit in terms of miles per gallon. And so, the price of E85 to attract drivers has to compensate for that third less miles per gallon on about three-quarters of the gasoline mix you're buying.
So, that takes a pretty hefty price discount. And basically, retailers have struggled to price it competitively enough to really expand its usage across the United States. That's disappointed a lot of ethanol advocates and there's a lot of complicated reasons for that. But it's basically really struggled to gain a foothold in the retail market, would be my summary of E85 to date.
Sarah Cardinali: Thanks, Scott. You mentioned that there was a seasonality aspect to that as well. Why is that? Is that because of just the availability of the crops that are creating the ethanol? Or is there another aspect to the seasonality?
Scott Irwin: No, it's – there's year-round availability of crops to make ethanol due to storage. You can store corn through the year, so you can make the ethanol through the year. It's my understanding – and I'd have to go back and remember it exactly, and Kristi can help me out, but I believe there's a reason why the blend level of ethanol varies. I can't remember which it is, due to vapor pressure issues – it's either higher or lower in the summer, and I believe it gets a lower amount of ethanol because of vapor pressure issues. It's the same thing that affects the RVP waiver for E15. So, you can bail me out, Kristi, if I've got that wrong.
Kristi Moriarty: Sure. It's just for the coldest states in the country, and anyone who's had the pleasure of working outside in North Dakota or Northern Minnesota can appreciate it. It's for performance. It's so that the vehicle will still start. So, it's just a fuel properties thing, so it's just to enable every state to – and region to have what they need to allow for flexibility in the fuel formula so that the vehicles will start and perform as expected.
Scott Irwin: Thanks, Kristi. I had it just backwards. I knew there was a good reason but I just couldn't remember it off the top of my head.
Kristi Moriarty: And this happens in formulas; this isn't limited to E85. It happens in formulas for diesel and other fuels that struggle at the colder temperatures.
Sarah Cardinali: That makes sense. All right. Let's switch a little bit over and talk about feedstock pricing and markets and things like that and how they can affect the production and pricing for fuel, these different fuels. Scott, let's start with you. Can you talk a little bit about the impact of corn prices on ethanol production?
Scott Irwin: Sure. Corn is the number one production cost for making ethanol. In the model that I follow I believe it's about 80 percent of the cost typically of making ethanol. So, whatever happens to the price of corn is one way or another going to have a big impact on the price of ethanol. And sometimes the price of ethanol feeds back and affects the price of corn, but more often that not, because it's such a huge part of the input cost structure of making ethanol, the movements in corn prices will lead the movements in ethanol pricing. And we've certainly seen that in the last year with corn prices approaching record highs, that that has pushed up the price of ethanol.
So, definitely very important and type relationship between corn and ethanol prices on one hand. And we might want to get into this a little bit more later, but we see something similar with regard to soybean oil and other vegetable oils that are feedstocks into making FAME biodiesel and renewable biodiesel.
Sarah Cardinali: All right. And Kristi, what is the current market for biodiesel? Maybe talk a little bit about the current production and consumption and just give everybody a little bit of an overview of the biodiesel market right now, if you wouldn't mind.
Kristi Moriarty: Yeah. So, the biodiesel market, the production and consumption tend to be pretty well matched in the US. What we're producing domestically we're consuming domestically. There's not a lot of imports or exports. And in 2021 that was about 1.6 billion gallons for both production and consumption. There's 75 plants spread out across 33 states. That's a little bit more geographical diversity when compared with ethanol just because there's different feedstocks used, just a greater variety in that market.
And certainly, biodiesel is very driven by the renewable fuel standard and the low carbon fuel standard in California. And it's usually used in lower-level blends, like five percent – up to five percent biodiesel. A consumer gas station might not even know that it's going into their gas station or into their vehicle because it hasn't a negative impact. So, quite a long time ago it was incorporated into the ASTM standard for petroleum diesel, so it's treated the same and can be used in all existing infrastructure and engines.
And then, another common blend is B20, which is 6 percent to 20 percent biodiesel. It may require some minimal infrastructure upgrades and it can be used in most existing engines. Blends above that are a little less common. It's for specific fleets or sometimes in mining. And there's also another fuel, renewable diesel, which is not the same as biodiesel, that's really been coming on strong in the marketplace in the past few years, and it's chemically identical to petroleum diesel and it meets that same petroleum diesel ASTM specification, so it can be used in all existing infrastructure and engines.
And last year, maybe there was about a billion gallons of consumption in the US from both domestic production and imports, but that is expected to grow quite a bit this year because a lot of oil refinery companies are converting existing refineries to produce renewable diesel. So, I think we'll see it expand outside of the California marketplace and it could even overtake biodiesel in terms of production numbers and consumption numbers in the US.
Sarah Cardinali: So, if I have this right, you can take either B5 or the renewable diesel and essentially just swap it out for when you would use traditional diesel for any engine or vehicle or industrial use like that. Is that correct?
Kristi Moriarty: That's correct.
Sarah Cardinali: Okay. And how is renewable diesel created or made? What is it made from?
Kristi Moriarty: There's several different technology pathways, and there's the main one with hydrotreating. But yeah, with the feedstock, Scott, if you can give input on that, I'm not quite up to date on what they use right now.
Scott Irwin: Sure. Basically, the same feedstocks from a technical standpoint that are used to make traditional biodiesel, what I call FAME biodiesel, through that technology process can be used to make renewable diesel. We don't have great data on actually what's being used right now, but probably to date things like used cooking oil, waste grease, animal fats, those are the most preferred feedstocks for renewable diesel because those get very high – or basically, excuse me, low carbon intensity scores out in the California low carbon fuel standard, so that's what these new refineries prefer. But there's an awful lot of soybean oil also being used to make renewable diesel. So, the really important message is that basically the same pool of feedstocks is used to make biodiesel and renewable diesel.
Kristi Moriarty: Yeah, and I believe hydrotreating is the most common technology used today to produce it, but there's certainly a lot of other technology pathways, other viable or being researched for future production, and certainly different feedstocks. For example, if you're using municipal solid waste, you'd be looking at a different technology production pathway to get a fuel like renewable diesel.
Scott Irwin: Yeah, it's my understanding, Kristi, that the vast majority of the refinery conversions that are going on is some version of the hydrotreating technology. In fact, one company is doing virtually all of the conversions that are going on. And it is important for listeners to understand that production processes for what I call traditional FAME biodiesel and renewable diesel are drastically different and do result in chemically different fuels. FAME biodiesel is basically a chemical conversion process, whereas the renewable diesel is literally put through a same kind of cooking and cracking process that is used when you're making petroleum products out of crude oil. Instead of crude oil going through the refining, cracking towers they put in vegetable oil or animal fats. They use a lot of heat and pressure and chemical catalysts and they crack the fats and oils and then a variety of other processes and out comes renewable diesel.
And renewable diesel is a 100 percent drop-in fuel chemically indistinguishable from petroleum diesel so that basically you don't have to blend it. You can use 100 percent renewable diesel, whereas FAME biodiesel, as Kristi explained, generally is used in blends like 2 or 5 percent, maybe some up to 15 or 20 percent, but most common it's probably about 5 percent. That's because FAME biodiesel is chemically not exactly the same as petroleum diesel.
Sarah Cardinali: Scott, would you be able to talk a little bit about – is there any competition between biodiesel and renewable diesel for the same feedstocks?
Scott Irwin: Absolutely. This is one of the biggest economic stories in the entire biofuel sector right now, is the feedstock battle between FAME biodiesel and renewable diesel. And the evidence certainly says that renewable diesel is winning. And at some point in 2022 renewable diesel production in the US is going to surpass domestic FAME biodiesel production. And FAME biodiesel producers have been put under extreme margin stress because renewable diesel producers have at least to date been able to drive the price of feedstocks up to a level which makes it difficult for the FAME biodiesel producers to profit.
Sarah Cardinali: All right. So, Scott, I've got a little bit of an offbeat question for you. I noticed in doing my research before this interview that you have an interest in auto racing, and I was wondering if you could talk a little bit about the use of these feedstock fuels and alternative fuels in auto racing and what that brings to the table there.
Scott Irwin: That's a great question. I am an auto racing enthusiast. And as I understand it – I'm no technical expert on racing fuels, but ethanol is a – can be used in many high-performance racing engines. Traditionally, a fuel that would be used is called methanol, and ethanol is very close chemically, so that it makes a very good high-performance racing fuel. I don't know any other biofuels that are used in racing engines other than ethanol. I think there's some effort to get ethanol into Formula 1 engines, which is the leading racing series in the world. I'm not exactly sure of the status of that. But I know that there's a lot of different series here in the US that do use ethanol.
Sarah Cardinali: All right. And as we close out our session today, is there anything else that either of you would like to add in or talk about that we didn't get to yet?
Kristi Moriarty: I guess, Scott, I would ask you to comment too just on the soybean market and how that's impacted, because while we're not 100 percent sure on the mix of feedstocks, what percentages are used for renewable diesel, we know that for biodiesel, for the FAME biodiesel the majority of the feedstock still is soybean oil.
Scott Irwin: Right. It's really been something remarkable to watch, Kristi. The best way I can describe the monumental impact the renewable diesel boom has had in the soybean complex is that traditionally the value of a bushel of soybeans came from – was about two-thirds from the high-protein soybean meal that would result from crushing the soybeans and about a third from the oil content that comes out of the crushing process. So, basically two-thirds, one-third. And those proportions have been fixed for literally eons. There's a little variation over time and year, depending on whether meal or oil is a little more valued. But there's not a lot of variation.
And then, starting in early 2021 the world just got turned upside down. And right now, we're looking at soybean oil prices as high as almost $1.00 per pound because of this feedstock competition from renewable diesel producers. It has resulted in about 50 percent of the value of a bushel of soybeans coming from soybean oil and 50 percent coming from soybean meal. Maybe that doesn't sound like a lot, but from a historical standpoint, that's a sea tide change in the valuation of soybeans, and it has really upended pricing in the entire sector globally.
Kristi Moriarty: Thank you. That was really interesting.
Sarah Cardinali: Scott, do you have anything additional you'd like to add that we didn't get to?
Scott Irwin: No. I can't think of anything off the top of my head. I guess we didn't talk a lot about policy, and I just think our listeners probably – it's just important that much of the trajectory of biofuels production and usage is really driven by policy and it's a complex mix of policies. So, I think that's just important to understand – if you're trying to understand the biofuels industries, is that it's deeply enmeshed and entangled with both federal and state policies.
Sarah Cardinali: Yes, that's a good point. Kristi, anything else from you before we close out?
Kristi Moriarty: I do not have anything else. Thank you.
Sarah Cardinali: All right. Well, thank you both, Scott and Kristi, for your time today to talk about ethanol and biodiesel with our listeners. I thought this was super interesting and we really appreciate your time.
Kristi Moriarty: Thank you.
Scott Irwin: Thank you. Really glad to participate. This was a lot of fun. And thank you for the invitation.
Mollie Putzig: Thank you, Sarah. And thanks to Kristi and Scott for joining us. That's it for this episode of On the Go. Stay tuned for future episodes on electric school bus resources and technical assistance for transportation.
As we wrap up, I want to thank the US Department of Energy's Vehicle Technologies Office and our team here at the National Renewable Energy Lab for their support. Also, a big support to Brittany Conrad and Vern Slocum, our podcast editors. We couldn't do it without you.
If you want to learn more about Clean Cities and its partnerships to develop affordable, efficient, and clean transportation options to accelerate the development and widespread use of a variety of innovative transportation technologies, visit us at CleanCities.energy.gov.