Integrated Supply Chain Strategies for the Renewable Fuels Sector
The renewable fuels sector is on the brink of remarkable growth, with projections indicating more than a doubling in capacity from 2020 to 2025. Several major projects are set to come into production by 2025, potentially leading to a five to seven percent increase in soybean oil demand, a dominant feedstock in North America. As the renewable fuels sector is poised for explosive growth, it’s crucial for companies to navigate the unique challenges presented by agricultural feedstocks. This article delves into the intricacies of supply chain management in the renewable fuels sector and offers actionable insights to develop a resilient feedstock supply chain strategy.
What Are Current Bio-Feedstock Challenges and Opportunities?
- Year-Round vs. Seasonal Availability: Oil companies are accustomed to feedstocks available throughout the year, while agricultural feedstocks, harvested once or twice annually, pose challenges.
- Demand for Extensive Storage: Agricultural feedstocks require substantial storage infrastructure due to extended storage periods, unlike petroleum-based supply chains.
- Stringent Environmental Controls: Environmental controls, such as moisture and temperature management, are crucial for agricultural feedstock storage, adding complexity.
- Optimization Opportunities: Agricultural feedstocks can be engineered to improve yield, quality, and cost-effectiveness, a capability not present in the petroleum industry.
- Crop Hybridization and Genetic Engineering: Similar to the food industry, genetic engineering and crop hybridization can provide a competitive advantage in a market with tightening margins.
- Production Variability: Weather-related variations in production lead to short-term and long-term challenges in terms of price and availability for agricultural feedstocks.
- Competition Between Food and Feed Uses: The dual use of crops for food and feed further complicates pricing and availability dynamics.
- Low Correlation with Soybean Oil: The correlation between soybean oil and renewable diesel markets is low, making effective hedging and margin management challenging.
How Can Companies Develop a Resilient Feedstock Supply Chain Strategy?
- Learn from Early Movers: Leading companies like Valero, BP, Marathon, Chevron, Cargill and ADM have already begun addressing feedstock challenges through partnerships and acquisitions. Collaborating with agri-business firms and renewable fuels experts can help navigate the complexities of the RD sector.
- Develop a Holistic Strategy: To build a robust feedstock supply chain strategy, companies should evaluate every aspect of the renewable diesel supply chain, from seed to environmental regulations. A detailed analysis, customized to your unique assets and capabilities, is essential to capture value effectively.
- Follow a Proven Development Process: We have developed a structured approach to help companies design a resilient supply chain strategy that can withstand market fluctuations and disruptions, ensuring the long-term viability and profitability of RD projects. Read the full article to learn about our proven development process.
How Can A&M Help
As the renewable diesel sector continues to expand, it's imperative for companies to proactively tackle the unique challenges posed by agricultural feedstocks. By developing a comprehensive supply chain strategy, businesses can position themselves for success in this evolving industry.
For expert guidance and support in crafting your resilient feedstock supply chain strategy, reach out to our team today.
