OREANDA-NEWS. April 12, 2016. US biodiesel production got off to a strong start in January.

The US Energy Information Agency released its first domestic biodiesel production numbers on April 4. According to the agency’s data, US producers churned out 105 million gallons of B100 biodiesel in the first month of 2016.

That was the best first month of production in the last five years. Biodiesel refineries produced 73 million gallons in January of 2014 and 2015 each, so the 2016 data shows represents a 44% increase year on year.

Why the difference? Two factors could be in play here.

First, for the first time since 2013 producers entered the new year knowing how much biodiesel they need to produce under the Renewable Fuel Standard. After waiting for what seemed like an eternity, the US Environmental Protection Agency approved the 2014, 2015 and 2016 Renewable Volume Obligations in late November. The federal requirements require that 1.90 billion gallons of biodiesel be blended into US diesel fuel transportation stocks in 2016.

Also, the \\$1/gal blenders tax credit is already in place, the first time in several years that the credit won’t have to be passed retroactively.

Last year, without the 2015 RVO in place, producers started the year slowly, generating only 151 gallons of fuel in the first two months of the year. Now, it appears, domestic biodiesel producers – aided by certainty about demand and the tax credit – are ramping up production.

But will this good start be enough to satisfy the mandate?

Domestic biodiesel production peaked in 2013 with 1.339 billion gallons of B100, the last year the industry entered the year with a clear mandate. In 2015, domestic producers created 1.268 billion gallons, according to the EIA.

Data from 2011 onward shows a distinct pattern in domestic biodiesel production. The first three months of the year are tepid and usually comprise the lowest quarter of production for the year. Production generally peaks in the summer, coinciding with the peak driving season, before sliding a bit toward the end of the year.

The distribution is as follows:

Monthly US biodiesel production

As you can see, production typically peaks in August, representing 9.62% of the year’s production. If the trend holds true, then the 105 million gallons of biodiesel generated in January would extrapolate to 1.909 billion gallons of biodiesel for 2016, fulfilling the mandate.

It’s important to note that, of course, one month does not a trend make. Biodiesel production could crater in February and March and throw the entire projection off. We’ll have a better idea about the rest of the year in July when we have a full quarter of numbers and can tell if production is indeed following the trend.

But to play devil’s advocate, let’s play this out. Why is this important? Well, the EIA also released the last biodiesel import data for January, and 2016 is off to anything but a whiz-bang start on that front. Imports of biodiesel slipped 80% month on month to 211,000 barrels – 8.862 million gallons – and reached their lowest level since May 2014.

It’s hard to extrapolate any type of trend on imports because the data is so varied, as you can see:

US biodiesel imports

About the only things we can say conclusively about imports is that in 2015, the US imported 7.957 million barrels, or 334.19 million gallons of biodiesel, according to the federal government. That’s an average of 27 million gallons a month. So far, the US is about two-thirds behind the pace.

Part of the problem has been a lack of interest in biodiesel blending. High feedstock prices and low diesel prices have kept blenders from mixing biodiesel with diesel stocks outside the required levels. (There are some places where that doesn’t hold true: California seems to be a booming market for biodiesel because of its value under that state’s Low Carbon Fuel Standard.)

That could change, of course, but biodiesel production costs have been above diesel costs since late 2014. Even if you factor in the blenders tax credit, blenders would still lose nearly 40 cents/gal according to the March 6 boho factor.

Meanwhile, outside factors may also impact imports. Argentina, the source of most of the US biodiesel imports last year at 4.377 million barrels (183.83 million gallons) of biodiesel in 2015, sent only 49,000 barrels (2.058 million gallons) in January. Platts analyst attribute the drop to a lack of seasonal demand.

But the Argentinian government recently doubled the biodiesel export tax, and we haven’t yet seen the impact that tax scheme will have on the flow of biodiesel to the US.

So domestic producers will have to continue the torrid pace if imports continue to slide this year.

And regardless of imports, biodiesel producers may keep churning out at a high clip. A projected shortfall in ethanol consumption has led some to speculate that D4 biodiesel RINs could be especially valuable when it comes time to settle up with the EPA. So production could remain high just to take advantage of the prices from the associated RINs.

A caveat, however. To reach 1.909 billion gallons of B100, US producers would have to utilize 92.5% of the production capacity. In the past five years, utilization has peaked at 62%, in 2014.

It appears that domestic biodiesel producers may have a record-breaking year if the past trends repeat themselves this year.