Key takeaways

• In 2021, Oregon’s share of US renewable diesel consumption was less than 1%, while California accounted for 81% of the total consumption.
• One of the main reasons attributed to the lower consumption of renewable diesel in Oregon is the limited supply of the fuel due to lack of storage and transportation capacity
• Oregon also doesn’t have any renewable diesel production capacity and has a smaller market size than California.
• Despite Oregon having higher credit prices than California a lot of logistic infrastructure development is needed for enable influx of renewable diesel.

Rise of renewable diesel as an alternative diesel fuel

Renewable diesel (RD) has been witnessing a surge in demand in the US as an alternative to diesel fuel due to its ability to be used as a drop-in biofuel unlike biodiesel.  In 2021, US consumed 1.16 billion gallons of renewable diesel of which Oregon accounts for less than 1% (9.7 million gallons) of consumption. Oregon’s consumption is significantly contrasting to California’s consumption at 941 million gallons in 2021, being the largest consumer of renewable diesel, accounting for ~81% share of overall renewable diesel consumption in the US. It is also worth noting that the lower renewable diesel adoption in Oregon is also evident when we look at the blend rates in the two states – Oregon had a blend rate of 1.2% whereas California had a much higher blend rate of 25% renewable diesel in diesel pool in 2021. The blending of renewable diesel reached 3.8% in Oregon in Q3 2022 while it was ten times (38%) in California.

Fig 1. California and Oregon quarterly renewable diesel consumption (Source: CARB and DEQ)

Fig 2. California and Oregon quarterly renewable diesel consumption share in diesel pool (Source: CARB and DEQ)

Oregon CFP giving a premium over California LCFS

The higher utilization of renewable diesel in California can be largely attributed to the state’s pioneering initiatives like Low Carbon Fuel Standard and Advanced Clean Cars II (ACC II) to decarbonize it’s most emission intensive sector. Oregon has also adopted Clean Fuels Program and ACC II but still lagging in adoption of renewable diesel despite a spurring demand for alternative diesel fuels. The supply-demand imbalance in Oregon can also been seen in the fall of credit bank in Oregon CFP due to higher deficit generation and lower credit generation, while the credit bank in California LCFS is surging to new records. The rise in California’s credit bank has led credit prices to fall in California LCFS to half of the Oregon CFP credit price, enabling Oregon market to provide a premium for the clean fuels supplied over the California market. This premium is cut short due to the presence of Cap-and-Trade program in California but sufficient to bring new investment in Oregon fueling infrastructure.

Reasons behind low RD use in Oregon

There are several reasons for lower RD consumption in Oregon, major ones are as follows:

• Limited storage and transportation capacity

One of the main reasons attributed to the lower consumption of renewable diesel in Oregon is the limited supply of the fuel due to lack of storage and transportation capacity. Federal and state labelling requirements require petroleum diesel and renewable diesel to be stored separately creating a need for construction for separate storage tanks or conversion of petroleum infrastructure. Considering limited storage capacity, there is also a constraint on the amount of renewable diesel that can be imported. On the other hand California has a well-developed infrastructure for renewable diesel storage which helps California receive sufficient imports of renewable diesel, Neste is currently the largest renewable diesel supplier to California.

• Limited production capacity

Oregon doesn’t have any renewable diesel production capacity and have to rely on imports. California also has nearly 184 MGPY of RD in production capacity which is 7% of US total capacity.  Active renewable diesel plants in California include paramount renewable diesel refinery (3k bpd), Chevron refinery (2k bpd), kern oil refinery, Marathon Martinez refinery (23K bpd) and Phillips 66 refinery (12k bpd). Besides these various other refineries are planning expansion over the next two years in California.

• Smaller market size

Oregon diesel consumption is almost one fourth of that in California, which makes it a smaller market in comparison and one of the reasons for more renewable diesel to be directed in California.

Conclusion

In conclusion, renewable diesel is gaining popularity as an alternative to diesel fuel in the US, but Oregon’s consumption of the fuel is significantly lower compared to California, which accounts for the majority of the country’s consumption. One of the main reasons for this is the lack of storage, transportation, and production capacity for renewable diesel in Oregon, coupled with its smaller market size. Although Oregon has higher credit prices than California, it needs significant infrastructure development to enable the influx of renewable diesel. Therefore, to increase the adoption of renewable diesel, Oregon needs to invest in its infrastructure and create favorable policies to incentivize renewable diesel production and consumption.