The year 2020 was the slowest year in North American biodiesel plant mergers and acquisitions (M&A) in the past decade, according to Ocean Park Advisors’ Bruce Comer and Frank Kim, the authors of, “A Muted Year for Biofuels M&A Activity: 2020 Review and Outlook,” released in late January.

No operating biodiesel plants changed hands last year, according to the paper. The one nonoperating facility that did get acquired—the 50 MMgy Duonix plant in Beatrice, Nebraska, a joint venture between Flint Hills Resources and Benefuel—was bought by Marathon Petroleum to use not for biodiesel production but as a feedstock pretreatment facility for its renewable diesel (RD) manufacturing.

“With many companies deploying capital to RD projects, less impetus for biodiesel M&A existed,” the authors write.

While 2020 was slow in biodiesel M&A, what does the future hold?

In the short term, “pandemic relief and domestic support have eased near-term regulatory uncertainty,” the paper states. “The biodiesel [blenders tax credit] is in place and the Renewable Fuel Standard (RFS) has not faced serious challenge. However, dozens of retroactive small refinery exemptions (SREs) still await the outcome of litigation.”

The paper points to the recent Supreme Court decision to review the Tenth Circuit Court ruling that limited EPA’s latitude in granting SREs.

However, “The new Biden administration has indicated support for California’s Low Carbon Fuel Standard (LCFS) as a possible replacement for the RFS,” the authors write. “The RFS blending mandate for 2021 remains an unknown variable and was deferred to the new administration. The biofuels industry will look closely towards the Biden administration and new Congress to potentially set a new course for the RFS, tax and trade policy.”

Specific to biodiesel, the paper points out that “many producers collected windfalls in 2020 with the retroactive reinstatement of the [blenders tax credit]. However, the inverse relationship of renewable identification number (RIN) values and [blenders tax credit] availability has normalized margins.”

Unlike ethanol demand, which was much more heavily affected than biodiesel demand due to a significant drop in gasoline—and therefore ethanol—consumption as a result of lockdowns in 2020, biodiesel production and demand remained buoyant, pointing to resilience in the heavy-duty diesel markets, which, according to Comer and Kim, may continue into 2021.

“Feedstock values for biodiesel continued to strengthen from historic levels based on strong demand from the biofuels sector,” the paper states. “Increased competition for feedstocks from new RD projects is expected to continue pressuring the biodiesel industry. … Unless the RFS mandates grow, RD will compete with biodiesel for feedstocks and compliance credits.”

The biggest factor in biofuels over the next couple of years, according to OPA, will be the rapid expansion in renewable diesel investments. “If these announced expansions come to fruition, total biofuels capacity will far exceed mandates in the RFS, although aggressive carbon reduction goals in state policies (like the LCFS and others) could continue to grow market demand,” state the authors. “If much of the new RD capacity bears out, then we may see plants bidding up feedstock prices, compressing margins and positioning the most efficient to survive. As nationwide shutdowns continue into 2021 pressuring fuel demand and margins, and absent additional pandemic relief funding, the M&A scene may be set for a busy year ahead.”

For more information, or to access the entire paper, click here.