Refiners such as HollyFrontier Corp and CVR Energy are exploring opportunities to produce renewable diesel to save money on less profitable refineries and offset compliance costs associated with U.S. blending laws.
The product, however, currently only occupies a tiny corner of diesel production – and logistical hurdles are likely to limit its growth in coming years.
Refiners acquire used cooking oil, animal fats and soybeans from restaurants, grocers and farms to make renewable diesel, which is chemically identical to its petroleum-based peer and can be substituted in most diesel engines. The renewable oils are fed into a diesel hydrotreater to remove sulfur.
Just 1.3 million barrels of renewable diesel were produced in 2019, compared with 4.5 million barrels of conventional distillate fuel oil produced every day. Still, investors anticipate strong growth in output because of policy incentives that encourage production.