AFOA Biomass Based Diesel Market Trends
Agenda Production Trends Modest and steady growth in biodiesel Potential Growth in RD, timeline is uncertain Co-processing volume yet to materialize Market Trends Petroleum prices continue to push higher Feedstock prices lower amid robust supply RIN prices stuck in a bear market Industry Trends Expanding Markets Source: 2
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Gallons in Millions Growing global distillate market 800 700 Projected step change in demand due to IMO 2020 approximately 1-2 million barrels per day 600 500 400 300 200 100 - Historic Demand Expected Demand IMO Spec Increase For the World, 3% per year annual growth equals new sales opportunities for diesel of >12 billion gallons per year 1 1. As measured against 2017 projections moving forward 2. IMO spec change from sulfur specification of marine bunker fuel from 3.5% to 0.5% in 2020, with predictions of 0.8 to 2.0 million bbl/day increase in distillate demand Source: LMC International, Stillwater Associates 3
Biomass-based diesel market potential U.S. On-Road Diesel Fuel Market 40 B + Gal U.S. BBD 8.0 B Gal 2017 U.S. BBD 2.5 B Gal 220% Growth Opportunity EIA distillate fuel demand, 2016 Source: EMTS data, 2017 BBD gallons (D4 RD + Biodiesel RIN generation) 4
Millions of Gallons Steady growth in biodiesel continues 170 160 150 140 130 120 110 100 90 80 US Biodiesel Production Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 2016 2017 2018 Source: EIA (US B100 production only) 5
Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Millions of Gallons RD capacity increasing 60 50 Monthly RD (Imports + Domestic) DGD Expansion 40 30 20 10 0 D4 RD D5 RD Source: Based on EMTS RIN Generation 6
Gallons D5 co-processing remains a wild card 2,500,000 Monthly D5 RD Gallons 2,000,000 1,500,000 1,000,000 500,000 0 Source: EMTS 7
$ / Gallon NYMEX ULSD / B100 Prices / SBO $3.85 $3.35 $2.85 $2.35 $1.85 NYMEX HO $1.35 OPIS Spot SME Chicago OPIS Spot SME Gulf Coast SBO $/gal $0.85 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Source: 8
HOBO spread may outweigh RIN S&D $1.25 D4 RIN vs HOBO Spread $1.00 $0.75 $0.50 $0.25 2018 YTD Correlation: -0.95 $0.00 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 ($0.25) HOBO Calculation = (HO + $1 (7.5lbs x SBO)) D4 RIN HOBO Source: OPIS, CME 9
$ / RIN RIN price moving lower in 2018 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 D4 BBD D5 Advanced Biofuel D6 Conventional Source: OPIS 10
$ / RIN Historical RIN prices $1.60 $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 2013 2014 2015 2016 2017 2018 D4 BBD D5 Advanced Biofuel D6 Conventional Source: REG Analysis, OPIS 11
Gallons Growing demand in California due to LCFS 160,000,000 Biodiesel and Renewable Diesel Gallons Sold in California 140,000,000 120,000,000 100,000,000 80,000,000 60,000,000 Biodiesel RD 40,000,000 20,000,000 - Source: Source: California Air Resource Board (CARB) 12
Carbon Credit Value $/MT Carbon credit prices $200 $175 $150 $125 $100 $75 $50 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 CA LCFS OR CFP Source: OPIS 13
Millions of Gallons California demands growing amount of BBD 1,800 1,600 1,400 CARB estimates that biodiesel volumes will need to grow from 190MMG in 2017 to 500MMG by 2022. This represents a 290% growth. Renewable diesel usage is expected to grow from 335MMG in 2017 to a high of 1,200MMG by 2030. This represents a nearly 360% growth. 60.0% 50.0% 40.0% 1,200 1,000 30.0% 800 600 20.0% 400 10.0% 200-2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E 1 1 Renewable Diesel Biodiesel CARB RD Projections CARB Bio Projections Implied Blend Rate % 0.0% Projections based on base case from CARB LCFS Illustrative Compliance Scenario Calculator as of 3/6/18 Source: CARB LCFS Data, REG Analysis 14
Total Advanced RINs Advanced biofuel RIN generation 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: 2016 2017 2018 15
RINs How do Small Refiner Exemptions (SRE s) impact carry-out? 4,500,000,000 2018 Accumulated Advanced Biofuel RINs 4,000,000,000 3,500,000,000 3,000,000,000 2,500,000,000 2,000,000,000 1,500,000,000 1,000,000,000 500,000,000 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Accumulated Adv RINs 2018 Adv. RVO RVO less 8.5% SRE Source: EMTS, internal estimates 16
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Gallons Imports lower in 2018 400,000,000 40% 350,000,000 35% 300,000,000 30% 250,000,000 25% 200,000,000 20% 150,000,000 15% 100,000,000 10% 50,000,000 5% 0 0% Source: EMTS D4 Domestic D4 Imports Import % 17
Growing demand centers for BBD California Established LCFS Program 20% GHG reduction by 2030 Oregon Behind CA on LCFS Program 10% GHG reduction by 2025 Washington CFP in legislative stage 10% GHG reduction by 2029 - proposed British Columbia 10% GHG reduction by 2020 Working to extend LCFS to 2030 Alberta/Ontario RFS like programs; 2% & 4% BBD in ULSD Looking at options to extend Massachusetts Developing Renewable Energy Credit (REC) program to get more renewable into Heating Oil 18 Source:
Thousands of Gallons 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - World Demands Cleaner Fuel Solutions Biodiesel Mixture Excise Tax Credit (BTC) $1/gal. of biodiesel blended fuel, first enacted as part of the American Jobs Creation Act of 2004 Minnesota Implements B2 Blend Mandate Implementation of B2 blend requirement Iowa Tax Credit Income tax credit for blended fuel retailers Historic and Forecasted Global BBD Production RFS2 Enacted Policy mandating the use of BBD for obligated parties California LCFS Passed Implementation starting in 2010 BTC Reinstated RFS1 Implemented Policy mandating the use of biomass based diesel (BBD) for obligated parties EU Passes Renewable Energy Directive (RED) 20% of energy consumed in the EU is renewable by 2020 BTC Reinstated RFS2 Implementation IL Extends B11 Fuel Tax Exemption 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Historic BBD Production New York Bioheat Mandate New York City passes 2% Bioheat mandate BTC Reinstated BTC Reinstated BTC Reinstated IA Fuel Tax Differential B11 tax reduced by $0.03 Minnesota B10 Blend Mandate Implementation of B20 blend between April 1 and September 30 each year LMC Forecasted BBD Production CA Extends LCFS 10 year extension through 2030 IA Tax Credit Extension Extended production and retail tax credits Minnesota B20 Blend Mandate Implementation of B20 blend between April 1 and September 30 each year BTC Reinstated Implementation of RED II Renewables target increases from 20% to 35% Source: Source: LMC International, National Biodiesel Board 19
Bringing It All Together Source: 20
Questions? Thank You Jason Schwenneker 21
CME Soyoil and Palm Oil Prices ($/lb) Soybean Oil c/lb Crude Palm Oil c/lb Source: CME 22