How badly is COVID-19 slamming biofuels industry? 30% reduction of ethanol production capacity, nearly half offline in coming weeks?

So what actions ARE alleviating the pain?

“We expect that most ethanol producers will be able to utilize some of the small business loan and employee retention provisions that were included in the recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act,” said RFA’s Geoff Cooper. “This could help many producers retain their workers and manage through this crisis. But those provisions certainly do not cure the ills in the marketplace. The only thing that will truly help our industry get back on its feet again will be a swift economic recovery and a rapid recovery in gasoline consumption.”

“In these uncertain times, the CARES Act was an important step forward in giving American businesses and citizens – including biofuel producers – some much-needed relief to keep going,” said Growth Energy’s Emily Skor. “While the law did not include provisions specific to the biofuel industry, it did include funding for several priorities that may be helpful to rural communities, including $9 billion for USDA to provide assistance to farmers and those hurt by COVID and another $14 billion to refill existing authorities and provide price and demand support to farmers. That means there will be will continued focus on how the USDA’s Commodity Credit Corp. deploys those funds.”

NBB’s CEO, Donnell Rehagen, told The Digest, “We’ve encouraged our members to apply as soon as possible for the loans and grants made available by Congress in the CARES Act if they need them. We’ve also made certain that employees of biodiesel and renewable diesel production facilities and their suppliers are included on the Department of Homeland Security’s guidance for essential critical infrastructure workers. The list is advisory in nature but provides guidance to state and local jurisdictions that are implementing emergency stay-at-home directives. Individual companies will of course implement their own policies to protect the health and well-being of employees.”

What actions COULD alleviate the pain?

Growth Energy’s Skor told The Digest there are some key things to be done still, “We need proactive support from Washington to:

1. Restore certainty and stability around the Renewable Fuel Standard, starting with applying the 10th Circuit’s ruling on refinery exemptions nationally and to the pending 2019 refinery exemption requests.
2. Provide emergency assistance to ethanol producers;
3. Expand markets for higher biofuel blends;
4. Lift regulatory barriers to vital markets; and
5. Ensure that any boost in the energy economy is applied to biofuel plants so we will be able to remain operational through the worst of the crisis.”

“It is more critical than ever that EPA faithfully enforce the requirements of the Renewable Fuel Standard,” said RFA’s Geoff Cooper. “Our industry is counting on the RFS to serve as a floor for demand and a crucial backstop to prevent further demand destruction. Necessarily, that means EPA needs to abide by recent court decisions that would restore 500 MG of inappropriately waived requirements from 2016 and significantly curtail the issuance of small refinery exemptions moving forward.”

As for biodiesel producers, NBB’s Rehagen, told The Digest that “Biodiesel producers are enormously diverse, including geographic location, production capacity, feedstock availability and market demand. All of those factors affect our producers uniquely. The primary objective is to ensure that production can continue regardless of feedstock and market dynamics. Short of that, support for producers to ensure that they can maintain their highly skilled workforce and weather this economic turmoil as best as possible will be critical.”

“It is critical for biodiesel and renewable diesel producers for the IRS to process the retroactive 2018-2019 tax incentive applications as quickly as possible. It is our understanding that some of our producers have recently received these payments. That is really good news. These payments will provide critical cash flow for producers that would be extremely beneficial in this current time of uncertainty.”

“Protecting the RFS and sending a signal of certainty regarding small refinery exemptions is also an easy step the Trump administration could take. Biodiesel and renewable diesel demand are very sensitive to RFS instability. And since renewable volume obligations are tied to both gasoline and diesel demand, the loss of demand for gasoline we’re seeing right now could have an impact on biodiesel volumes later. The loss of demand could be as damaging as small refinery exemptions have been over the past several years.”

“Our industry has been identified as one of the essential industries to keep operational during this COVID-19 shut down phase. Keeping resources and demand flowing will be essential for our industry to keep pushing product to those who desperately need it. Keeping the supply of goods moving to consumers in this challenging time is critical and our industry is happy to provide the fuels that make that possible.”

Bottom Line

At Thursday’s Digest webinar, Mark Laurenzo, BD Manager at Iowa Economic Development Authority, noted that while Iowa ranks first in ethanol production in the U.S., many of them have pivoted to hand sanitizer to help out right now but they do expect plants to come back online after this is all over.

There may also be a lot more movement in supply chains to the U.S., said another webinar participant, Joel Stone from ConVergince LEC. People are taking second look at supply chains now due to coronavirus and bringing their supply chain to North America instead of China or Europe. He also predicted companies will be looking at upgrading ethanol to higher value products (for example through synthesis chemistry or shifting to produce plastics from ethanol, so there is more diversification and risk management).

Kate Lewis, USDA/BioPreferred said during the webinar that we are “not in the dark ages at all.” She noted that the USDA and the BioPreferred program continues as usual during these extraordinary times, with grants, loans, loan guarantees still going on for rurally located small business, etc. “We are still engaging with manufacturers and moving forward with what we can at this time.”

Chris Cassidy from the USDA/RBS said they too are “open for business and some projects are continuing in their bunkers, there is activity.” Chris noted they still have a crop to plant to harvest later in the year and there is broad relief to work with companies in the supply chain and a network to assist manufacturers to retool and handle new safety requirements which is a challenging part right now.

Yes, there is significant impact on airlines and it will impact the next several months, said Steve Csonka from CAAFI, but they are still in talks with airlines about offtake agreements, as they are in it for the long term. Airlines are certainly in a different mode, an emergency mode, but there is still a lot of activity that is progressing keeping Csonka optimistic about the long-term fate of biojet fuel.

To sum it up, we anticipate more news of biofuel facility closures, declined capacity due to lower demand, but hopefully not too much will change in terms of existing investments, deals already in progress, discussions moving forward. If even the aviation industry which is essentially at a stand-still globally is still talking about sustainable aviation jet fuel, there is hope. We also foresee some possible M&A activity, restructurings, and definitely an opportunity for a lot of innovation coming out of this – like the pivot from ethanol to hand sanitizer for some producers, or finding ways to diversify their business to weather this storm.