“Whither Asian biodiesel exports?” seems to be the most asked question in the Asian palm methyl ester (PME) market these days.
With rapidly escalating palm oil prices pushing the PO-GO spread, between Bursa Malaysia palm oil futures and ICE gasoil futures, rapidly north (it hit a record $380.68/mt on April 5) and Indonesian PME producers suffering from European anti-dumping duties, Asian PME producers have not been able to sell much palm methyl ester to Europe in 2016.
Expensive palm oil translates into expensive PME, and European blenders are currently veering toward used cooking oil or UCO to convert into UCOME, or used cooking oil methyl ester, which is double counted in most European countries and acts as a cheaper blending feedstock.
This is where the US market becomes relevant.
In December 2015, a two-year extension of the $1/gal biodiesel and renewable diesel “blender’s credit” was passed by both chambers of the US Congress and subsequently signed into law by the US president.
The credit was applied retroactively from January 1, 2015 to last until December 31, 2016. This translates into a subsidy of around $300/mt to be applied to each mt of biodiesel.
With such as substantial subsidy available in the US, Malaysian and Indonesian PME producers should have been rushing to sell into the US.
However, constraints in the export process have held back the tide of Asian sales.
There are currently only two Asian palm oil companies that have the ability to export PME to the US: Wilmar and Musim Mas.
Another Singapore-based plant that actively exports fuel to the US is Neste Oil, but while Neste uses palm oil derivatives among other feedstock to produce bio-based diesel, its product is considered similar to straight-run gasoil and does not need any further blending.
The first roadblock to US export is that Asian producers need to be registered with the EPA. Currently, the EPA registration list includes only a handful of Malaysian and Indonesian producers.
To qualify for EPA registration, producers must have a “grandfathered plant,” construction of which started prior to December 19, 2007.
A market source states that in Indonesia, there are five companies owning grandfathered plants that qualify for registration under the EPA program.
Secondly, Asian producers must be able to trans-esterify and distill the PME before it can be exported to the US. The biodiesel generally has to be ASTM D6751 compliant.
Most Asian producers need to upgrade their plants to ensure compliance to the US specifications for PME.
The registration process, which involves US EPA approved consultants, is complex, expensive and time consuming.
Some Asian producers have decided not to pursue the process due to the expense and length of time involved.
However, other producers, still keen to pursue US opportunities, are actively pursuing registration.
Only one additional Asian PME producer currently claims to be in the final stages of registration with the EPA.
The EPA created the Renewable Identification Number (RIN system) within the Renewable Fuel Standard (RFS) to set annual targets for renewable transport fuels in the US.
A RIN number is attached to each gallon of renewable fuel produced inside the US or imported into the US.
Once the biofuel is blended into transportation fuel, the RIN is detached from the biofuel and this can then be traded.
If the blender is an obligated party, the blender would submit the RINs to the EPA to exhibit compliance with the blending mandate.
However, if the blender is not the obligated party, then the blender can trade the RINs on the market.
Therefore, biofuel that is imported into the US must have RINs attached for the blender to be able to trade within the US. PME generates the D6 code RIN, or “ethanol RIN.”
Meanwhile, a limitation in the use (and therefore import potential) of PME is that within the US market, PME is described as a “warmer weather product” by a North American biofuels broker.
Since PME has a higher cloud point, which is the temperature at which the biowax in biodiesel begins to form a cloudy appearance and such wax clogs fuel filters, than SME or soy methyl ester, it cannot be used for blending in the North American winter, he adds, therefore PME is imported into the US from Asia from April until September.
PME has a cloud point of 15 Deg Cel versus 0-2 Deg Cel for SME.
The regular flow of Asian PME is going into the US Gulf region, and is primarily supplied into the US market by a large Asian producer, the broker said.
There are multiple shipments during the summer months, but some PME may also be shipped in October, during a season of lower demand, and stored for the next year, he added.
The flow has been quite lucrative for the two Asian producers currently involved, in the absence of other competitors.
However, with at least one more producer due to complete its EPA registration within 2016 and another additional producer also upgrading its facilities for registration compliance, competition is looming on the horizon.
–Samar Niazi, firstname.lastname@example.org
–with Wes Swift, associate editor for Americas agriculture