Soy’s stake in renewable fuels

September 8, 2022 | Bethany Baratta

Demand for lower carbon fuel solutions continues to grow as states set targets and incentives for lowering greenhouse gas emissions. As a feedstock used in producing biodiesel and renewable diesel, the soybean industry and its farmers stand to gain from this increased demand.

Panelists discussed this opportunity during a recent event at the Farm Progress Show in Boone, Iowa. Panelists included:

Grant Kimberley, soybean farmer, senior director of market development at Iowa Soybean Association (ISA), and executive director of the Iowa Biodiesel Board;

Kirk Leeds, CEO of Iowa Soybean Association; and

Kevin Lucke, president of the newly-formed Chevron Renewable Energy Group in Ames. An Iowa native, he was named the group's president after Chevron completed an over $3 billion acquisition in mid-June of the Ames-based Renewable Energy Group.

The panel was moderated by Dave Walton, farmer, ISA District 6 director, American Soybean Association (ASA) director and Clean Fuels Alliance America board member.

Walton: Why the partnership between Chevron and Renewable Energy Group? What does this look like going forward?

Lucke: Chevron believes that the future of energy is lower carbon, and we’ve been working in this space the past 3 to 4 years aggressively. We want to have the capacity to produce 100,000 barrels (4.2 million gallons) a day of renewable fuels by 2030. The acquisition of Renewable Energy Group brings Chevron to roughly one-third of the volume of that 100,000-barrel target. Renewable Energy Group has a large expansion underway at its plant in Geismar, Louisiana, that's due to be completed and delivering product at the end of 2023 or early 2024. Once fully online, that added production will bring us to over 50% of that 100,000-barrel target.

Walton: Where will that expanded production go? Will it stay local? Enter markets with the low carbon fuel standards?

Kimberley: It’s been interesting to see where things are going. I think about the industry from two perspectives: as a soybean producer and general industry. One thing we’ve always done in industry is to be collaborative. Working with the oil industry sector and others, we’ve developed a strong partnership in how we approached the industry. There are various policies across the country that will incentivize producers and states to absorb some of the extra production. There’s a policy in Minnesota, other incentives in Illinois and Missouri, and also policies in Northeast states that are starting to look at mandates in Bioheat®. The low carbon fuel standard (LCFS) on the west coast has driven demand for biodiesel and renewable diesel, which work well together.

Regardless, the future is bright for us in the feedstocks side and those on the marketing side as well.

Walton: How does that affect producers and the soybean industry?

Leeds: We welcome Chevron coming into renewable fuels in a big way. I think it’s a positive thing that Chevron is in this market space; they’re not the only large company in this space.

For farmers, it means recalculating how we think about “Big Oil.” “Big Oil” is now partner. We must figure out how we move forward. We haven’t always seen biodiesel in the same light, but now as we work in this new space, we’ll share the tank, so to speak. At the end of the day, ISA is committed to selling more soybeans. Anything we can do to work with Chevron and others to gain market share is a win for Iowa soybean farmers. It’s going to change the marketplace.

Lucke: While Chevron has been active with Renewable Energy Group, we’ve also formed a joint venture with Bunge. Through that venture, we share ownership in two crushing facilities in Cairo, Illinois, and Destrehan, Louisiana. We’ve expanded capacity—in fact, almost doubled our capacity—for the exact reason Kirk explained. The need for more soy oil to meet the renewable fuel demand that’s coming and that’s here today.

Leeds: We’re going to see money coming into the renewable fuels space and see changes coming to the soybean crush industry as well. Normally we see an annual increase in crush capacity of about 2, 3, and 4%. In the next 3 years, we’re expecting to see a 25% increase for domestic crush for U.S. soybeans. That is a game-changer in the marketplace.

Walton: As we see increased demand, how has the industry responded with increased crush capacity?

Kimberley: We’re expecting to see an increase of crush capacity of around 600 million bushels of soybeans. To put it in perspective, Iowa produced nearly 622 million bushels of soybeans in 2021. So, we’re adding crush capacity nearly the equivalent of the state of Iowa. That’s amazing; that’s unheard of. That’s going to change the global marketplace landscape, too. We will now have to become a strong meal exporter and compete with Argentina and other areas for market share in the meal export market arena. It’s a great opportunity and great challenge for us at the same time.

Walton: What adjustments is the crush industry making to move meal now as we keep the whole beans local and ship more meal?

Leeds: We are not currently set up to move this amount of meal into the marketplace. We don’t have existing rail to pick this up, and we’re going to have to figure out how to move it out of existing ports.

Not only will we have to find additional markets, but we’re also going to have to move it efficiently. Soybean meal doesn’t transport as easily as whole beans. Will we get there? I think the market will encourage it, and in time we will have the necessary infrastructure, but there could be hiccups along the way in getting everything up to speed.

Walton: Grant, can you please touch on the AGP facility in Gray’s Harbor and what they’re doing to help move that meal offshore?

Kimberley: We export about 13 million metric tons of soybean meal per year. The export facilities are a key part of that, the gateways. We have to continue to grow those gateways, those export terminals, retrofit some, expand some, to make sure they are more readily equipped and easily able to handle more soybean meal. AGP—Iowa-based cooperative, headquartered in Omaha but Iowa’s largest soy crusher has an export terminal in the Port of Grays Harbor in Washington State. They’ve exported on average 3 million metric tons of meal per year. They have taken some product from the Bunge Council Bluffs plant and others. They are looking at expanding that export facility to double its size to 6 million metric tons. That’s what it’s going to take for us to better service the market and take advantage of some opportunities that we’re going to have with this additional soybean meal. We’ll need more expansions of facilities beyond that.

Walton: A market we don’t hear about much in the Midwest is the heating oil market in the Northeast. Talk about the Bioheat® market and how it relates to legacy plants here in the Midwest.

Kimberley: They have pressure in the Northeast for electrification of heat pumps; historically they have utilized heating oil. The Bioheat market, depending on the winter, uses roughly 5 to 7 billion gallons of biodiesel a year. A shorter-term solution in their efforts to be greener is to incorporate biodiesel and Bioheat into that mix as an alternative to oil.

As states in the Northeast set goals to become greener, it’s an opportunity for biodiesel. However, it does present logistical challenges. A lot of their port terminals and bulk terminals are on the water, but you can’t just stage biodiesel out in the water. We need storage and infrastructure to move Midwestern products out to the coasts.

Lucke: We’re already seeing customers coming to us looking for that fuel today. It’s being driven by incentives like biodiesel requirements and carbon reduction targets in New York. Some of our plants don’t run at full capacity in the winter because fuel here in Midwest does have a high blend rate. We believe that we can use slack capacity to fill sales in the northeast. We’re excited for that market to open up further to us.

Walton: How do biodiesel and renewable diesel play together? Do you see one as replacing the other?

Lucke: Today, we’re seeing an 80% renewable diesel, 20% biodiesel (R80, B20) blend being heavily utilized in California. There’s a push by some of the customers we have, for example Union Pacific Railroad who is testing the products in their locomotives, pushing the envelope for higher blends.

Leeds: This is really an “all the above” play. Renewable diesel, biodiesel: the market wants and needs soybean oil badly. Anything we can do to support REG/Chevron and customers on the coasts is a good thing.

Walton: As we look into future, where do we see biodiesel going? Continue to grow? We hear comments about the low carbon fuel standard (LCFS)--what does everyone think about biodiesel growth and remaining liquid fuels?

Leeds: The overall environment and culture for this has changed radically. Some think this is a flash in the pan based on the current political environment. But based on the research and what we’re seeing—research and farmers working together regardless of policy—will continue.

Government policies will come and go. The speed and policies might change depending on the location, but from ISA’s perspective, we’re thinking about what a LCFS in Iowa looks like. Maybe there are some positive things we can do.

Lucke: There are some areas in the world that you can’t electrify, the shipping or marine, airline and rail industries, for example. The future of those industries is renewable fuels. These companies are driven by shareholders forcing to have policies and programs to reduce their carbon footprints. Those won’t go away, but it will increase the speed to transition to biofuels.

Walton: Not long ago, the marine and rail industries weren’t supportive of using biofuels in their engines. What’s changed?

Kimberley: It’s their customer base telling them they want to reduce their carbon output. They can’t electrify heavy duty, high-horse applications easily, so the options are limited. They need to know what they can do with the technologies available now, and that’s where biodiesel fits in. It’s going to take the leadership of Chevron/REG, of supply chain logistics companies and others to work together to decarbonize.

Lucke: We’ve been working closely with several large brand owners, for example. Retailers are interested in the carbon footprint of moving a product from China, shipped to the west coast, and trucked to the warehouse in Iowa. They’re telling us, the fuel supplier, that we need to have a lower carbon score. That’s why biodiesel and renewable diesel are important to us.

Walton: What do you see as challenges?

Leeds: Getting supply chain right at the same time. Ramping up soon enough, but not too fast. We have to make sure we don’t overpromise and underdeliver.

Lucke: We all need to have seat at the table to have an intelligent discussion on how to provide a lower carbon future. It’s going to take all the solutions and more—some we don’t even know yet. It’s about getting the right people at the table to chart the future.

Kimberley: It’s about working together, collaborating, and not letting the perfect become the enemy of the good. Biodiesel delivers up to an 86% reduction in greenhouse gases. We can back this up with research and facts, but it’s going to take collaboration to reach the full potential that biodiesel and renewable diesel can deliver.

Walton: What can we do as soybean producers to grow better beans? Is it genetics? Oil constituency?

Leeds: Genetics play a key role. We also don’t want to see any changes in the farm program that puts undue pressure on soybeans; let farmers do what they do—grow for the market. If we do those things, we’re going to meet the needs for food, feed, and fuel, I’m confident we’re going to do that.

Years ago, we were talking about soybean production, how difficult it would be on the market if we grew 3 billion bushels in the U.S. Now we’re seeing a 4.5-billion-bushel crop, and, because of the work of the farmers and the checkoff, we have more demand than we know what to do with.

Overall, I’d say continue to do what you do well: Grow soybeans.

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