In-brief analysis
October 7, 2024
In an intriguing twist on the energy landscape, biofuels are increasingly asserting themselves as a substantial component of total distillate fuel oil consumption across the United States. With the release of the September 2024 Short-Term Energy Outlook (STEO), fresh forecasts have emerged, aiming to more accurately delineate the consumption patterns of biofuels and the overarching demand for distillate fuel oil—a category that encompasses diesel, fuel oil, and heating oil alike.
This pivotal shift seeks to illuminate the extent to which biofuels are embedded within petroleum products, particularly focusing on distillate fuel. Such changes are primarily grounded in data series already featured in the Petroleum Supply Monthly (PSM) and the forecasting exercises undertaken in STEO. The newly minted data is accessible in STEO Table 4d.
What’s new in the September STEO?
The standout among the new offerings is the total distillate fuel oil consumption metric, which now incorporates distillate fuel oil product supplied (an established figure in PSM and STEO) alongside two additional series:
- Biodiesel product supplied
- Renewable diesel product supplied
How did we previously account for diesel consumption in STEO?
Until now, our reporting only highlighted distillate fuel oil product supplied (the consumption proxy) in STEO Table 4a. This figure accounted for biodiesel and renewable diesel volumes reported to the EIA as refiner and blender net inputs—essentially the total amounts of these fuels blended with petroleum distillate. This figure, however, lacked substantial volumes of biodiesel and renewable diesel, thus failing to truly encapsulate the entirety of fuel consumption within the distillate fuel oil sphere.
What are biomass-based diesel fuels?
Renewable diesel and biodiesel emerge as the two principal biomass-based diesel fuels, effectively serving as substitutes for conventional petroleum-based distillate.
Renewable diesel, chemically akin to its petroleum counterpart, is crafted from fats, oils, or greases, paving the way for use in diesel engines without any restrictions on concentration.
In contrast, while biodiesel is produced from the same feedstocks as renewable diesel, it is predominantly blended with petroleum distillate at ratios of 20% or less due to notable chemical disparities. Regardless, both variants contribute to similar end uses, successfully displacing volumes of conventional petroleum-based distillate.
Why are we publishing a new total distillate fuel oil series?
The impetus behind introducing a comprehensive total distillate fuel oil consumption series stems from the noteworthy and rising footprint of biofuels in the market. This uptick is particularly pronounced along the West Coast, fueled by state-level policies—chief among them California’s Low Carbon Fuel Standard—which synergize with federal clean-fuel initiatives like the Renewable Fuel Standard and biodiesel tax credit.
Our estimates indicate that, between 2016 and 2020, biofuels comprised roughly 4% of the total distillate fuel oil consumption. However, the tide began to turn when the prowess of renewable diesel production surged, elevating the biofuels share from 5% in 2021 to 7% by 2023.
Biodiesel product supplied has more than tripled, skyrocketing from a mere 70,000 barrels per day (b/d) in 2021 to an impressive 240,000 b/d this year, propelled by an influx of private investment that has amplified production capacity. Our projections anticipate that the biofuels share of total distillate fuel oil consumption will burgeon to 9% in 2024.
The new total distillate fuel oil consumption metric promises a clearer perspective on market realities as biofuels escalate their contributions to the distillate supply for end users. For instance, traditional indicators such as distillate fuel oil product supplied—which captures only a fraction of this growing influence—hint that overall consumption has yet to rebound to 2019 levels. In contrast, the total distillate fuel oil consumption series, with a more robust accounting of biofuels, reveals consumption having eclipsed 2019 levels as early as 2022.
Furthermore, several macroeconomic indicators—like U.S. real GDP, import dynamics, and trends in manufacturing, tracked by the Federal Reserve’s Industrial Production Index—exceeded their 2019 benchmarks by 2022, reinforcing the notion that total distillate fuel oil consumption serves as a more reliable measure of distillate activity.
In the first half of 2024, distillate fuel oil product supplied indicates a consumption decline of 5% against the five-year average (2019–23). Conversely, total distillate consumption demonstrates that consumption remained consistent with that same average. This disparity highlights the increasing share of biofuels in overall distillate market consumption.
In light of these dynamics, we have overhauled our forecasting methodology for distillate consumption, now taking greater account of how biofuels flow into the market. Our approach shifts to forecast total distillate fuel oil consumption through a lens of macroeconomic indicators. Subsequently, we derive the distillate fuel oil product supplied figure by subtracting our forecasts for renewable diesel and biodiesel from the overarching total.
Principal contributors: Jimmy Troderman, Alex de Keyserling