Amid US Diesel Shortage, Can Biofuels Soften the Impact?

The diesel market is facing low refining capacity and high prices because of production cuts.
Biodiesel and renewable diesel can emerge as prominent alternative energy sources for commercial transportation.
However, the market is still developing and production capacity remains low.

March 11, 2024 | Procurement Strategy

The United Sates, since 2022, is facing a diesel supply shortage. This is because of three reasons: disinvestment in refining capacity during the pandemic, elevated natural gas prices reducing refining margins, and limits on the export of refined products from the European Union to Russia following the Ukraine war.

In 2023, Saudi Arabia and Russia opted to prolong heavy crude production cuts. This decision coincided with increased seasonal demand for oil in the U.S. The Energy Information Administration (EIA) has suggested that the U.S. enhance its refinery capacity.

Diesel Production & Consumption

According to EIA, all the diesel fuel (ultra-low sulfur distillate or ULSD) consumed in the U.S. is produced domestically while some of it is exported as the production often exceeds domestic consumption.

In 2022, U.S. refineries produced 1.75 billion barrels of ULSD of which ~83% was consumed domestically and the rest was exported. Although there was apt production, the U.S. also imported about 0.07 billion barrels of ULSD.

Biodiesel and Renewable Diesel Market

Biodiesel is a renewable biodegradable fuel made from vegetable oils, animal fats, or recycled restaurant grease. In 2020, biodiesel ranked second to ethanol as the most extensively produced and utilized biofuel in the U.S. It constituted nearly 11% of the total production and 12% of the total consumption of biofuels in the country, respectively.

However, biodiesel comprises the smallest portion of U.S. biofuel capacity, totaling 2.1 billion gallons per year.

us-biodiesel-production-capacity-2021-2023

According to IEA, renewable diesel production is projected to go up, with anticipated averages of 230,000 b/d in 2024 and 290,000 b/d in 2025, marking annual increases of nearly 30%.

The majority of biodiesel consumed in the U.S. is used in blends.

However, there are vehicle fleets that utilize pure biodiesel (B100) as well. However, many petroleum diesel fuel blends sold in the U.S. contain up to 1% biodiesel.

Can Biodiesel Rise to the Challenge?

Biodiesel and renewable diesel can emerge as prominent alternative energy sources adopted within commercial transportation due to their sustainability, offering a means to diminish dependence on conventional fossil fuels.

However, their mass application is far away given the market is still developing and production capacities are negligible compared to conventional diesel.

Also Read: The Rise of Renewable Diesel

Conclusion

While the demand and supply of biodiesel and renewable diesel are on the rise in the U.S., these fuels cannot serve as a comprehensive substitute for conventional diesel today since their supply falls short of meeting the demand for diesel.

However, the outlook looks optimistic for the scale implementation of biodiesel and renewable diesel as alternative fuels. In the U.S., fuel stations have started offering biodiesel and biofuel blends, including E10, B5, and B2, which combine conventional fuels with bio-based components, providing consumers with diverse options.

Author: Anshuman Saini