UPS Agrees to Buy 46 Million Gallons of Renewable Diesel

Source: By DIANE CARDWELL, New York Times • Posted: Monday, August 3, 2015

Joe McGinn, a UPS driver, fills up his truck with liquid natural gas in Ontario. Credit J. Emilio Flores for The New York Times 

For years, companies that rely heavily on fuel have experimented with substitutes for conventional gasoline and diesel, including natural gas, electricity and biofuels.

Now, one company is moving beyond the test phase. On Wednesday, UPS announced that it will buy as much as 46 million gallons of renewable diesel over the next three years, helping the company reach a goal of displacing 12 percent of the petroleum-based fuels in its ground fleet by 2017.

The renewable fuels, from three suppliers, are chemically so close to their petroleum-based counterparts that they can replace them in engines and pipelines. They are made from an array of bio-based sources, including palm and waste oils, and animal fats.

“It’s actually as good or even better from a performance perspective as traditional diesel,” including easy starts in cold weather, said Mike Whitlatch, vice president for global energy and procurement at UPS.

The company hopes the agreements will help stimulate investment to develop the technologies and feedstocks needed to bring the cost of renewable diesel in line with conventional diesel.

Unlike ethanol or other biofuels, Mr. Whitlatch said, there are no limits on how much renewable diesel can be blended with conventional fuel, so building the market is “purely a function of how many bio-refineries are built and how much renewable diesel they can produce.”

The UPS deals follow recent announcements about the use of renewable fuels in aviation, an arena in which analysts expect to see demand grow.

Last month, United Airlines announced a $30 million investment in a large producer of aviation biofuels, and last week Red Rock Biofuels said it would produce about three million gallons of renewable jet fuel each year for FedEx, with delivery to begin in 2017 and run through 2024.

The market for renewable diesel is much smaller than for biofuel and ethanol — a little more than a billion gallons is produced each year, said Victor Oh, an analyst at Lux Research. But the market is growing faster, he said, and is expected to reach 1.6 billion gallons in the next three years, largely driven by demands for renewable jet fuel.

“It can drop in directly and can replace diesel completely without any kind of blend-wall, so that’s really one of its huge advantages, and one of the big interests in it,” Mr. Oh said.

On the ground, UPS plans to buy from Neste, a Finnish company that is the leading producer of renewable diesel; Renewable Energy Group, based in Ames, Iowa; and Solazyme, based in South San Francisco. Neste and REG produce renewable diesel from a variety of oils and fats, while Solazyme makes an algae-derived oil that is refined into renewable diesel.

The new agreements represent a 15-fold increase over its previous contracts, UPS said, and will allow the company to expand its use of renewable fuels across the United States and possibly in Europe.

The company has been using the fuel in trucks in Texas and Louisiana for more than a year, as it has moved toward its target of driving one billion miles with alternative fuel and advanced technology vehicles by the end of 2017. In the last year, it nearly doubled the number of natural gas vehicles in its fleet.

It also recently reached an agreement with Clean Energy Fuels, a company co-founded by T. Boone Pickens, to buy 1.5 million gallon-equivalents of renewable natural gas made from decomposing waste.