Canada’s canola production capacity is set to skyrocket

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Within a matter of weeks this spring, grain giants Richardson International Ltd., Cargill Ltd. and Viterra Inc. announced new or expanded crushing plants in Saskatchewan that could increase the nation’s canola production capacity to about 15.5 million tonnes a year – a surge from today’s 11 million.

Canola prices have reached unprecedented heights since 2020, driven largely by vigorous demand for traditional products such as animal feed and oil for human consumption. But grain-market watchers also credit the federal government’s Clean Fuel Standard, scheduled to take effect next year, which requires a reduction in the carbon content of gasoline, diesel and other fuels of between 12 and 14 per cent by 2030. Some hope to see more of Canada’s abundant canola harvest (the world’s largest, at 18.7 million tonnes last year) redirected to produce biofuels, which produce 80 per cent fewer greenhouse gases than conventional diesel, according to a federal estimate. That could help the country meet its greenhouse-gas emissions targets and foster increased self-reliance in liquid fuels, while assuaging long-standing nationalist anxieties about Canada’s putative tendency to send its bounteous raw resources for processing elsewhere.

Biofuels can be made from a wide variety of feedstocks, from slaughterhouse waste to wood residue to used cooking oils. But in Canada, canola oil is king. (While there’s no official data, estimates suggest that between 5 and 10 per cent of the canola harvest ends up in biofuels.) Ian Thomson, president of industry group Advanced Biofuels Canada, says that if the proposed fuel standard stimulates a doubling or tripling of domestic biofuel consumption, as many expect, canola would be the largest beneficiary.

“Other feedstocks would stay relatively static in their use, and it is canola that would really fill that gap,” he says.

When it comes to energy and other resources, Canada often stands accused of leaving the spoils of adding value to others. Traditional petroleum offers one example: Canada produces vast quantities of oil, largely from the Western Canadian Sedimentary Basin. Yet refining capacity peaked as long ago as the 1970s; Canada’s refineries collectively import nearly half of their crude oil. Regarding the oil sands, critics for years have decried Canada’s export of raw bitumen to American refiners.

The picture is perhaps more nuanced with canola. Slightly more than half of the annual harvest is processed domestically; Canada exports vast quantities of seeds overseas (China, Japan and the European Union being the biggest buyers). But domestic processors have expanded aggressively during the past decade, investing approximately $1-billion in new crush capacity – even before the latest announcements.

Chris Beckman, an oilseeds analyst with Agriculture and Agri-Food Canada, says the continuing expansion in crushing capacity will be transformative.

“We’ll be decreasing the amount of canola we export, and we’ll be crushing it instead,” he says. “So we’re switching our industry from being export-oriented to domestic use.”

As far as biofuels go, though, Canada depends heavily on American ethanol. Last year, 28 plants (primarily in Ontario and Quebec) produced a combined 2.5 billion litres of biofuels (mostly ethanol), but that’s not enough to satisfy domestic demand. Data from Statistics Canada show Canada was a net importer of biofuels between 2012 and 2019. Preliminary figures from the latest year show it imported more than $3.1-billion worth (primarily ethanol, which is made mostly from corn, sugar cane and sugar beets, but not canola), while exporting just $706-million.

Advanced Biofuels Canada says the U.S. outpaced Canada by implementing more stringent federal and state regulations, which gave fuel producers more confidence that demand for clean fuels would increase significantly, justifying aggressive investment.

Canada’s federal and provincial governments also encouraged biofuel consumption. But until now, their primary tactic has been to require that renewable fuels be blended into existing fossil fuels at prescribed levels (such as 5 per cent in gasoline and 2 per cent in diesel). These policies did significantly increase aggregate consumption of ethanol, biodiesel and hydrogenation-derived renewable diesel (produced by refining fats or vegetable oils) in Canada, yet to a notably lesser degree than what happened south of the border. (More stringent U.S. regulations led to high-blend biofuels like E15, comprised of 15-per-cent ethanol.)

“The States has been ahead because the regulations have been more stringent,” Mr. Thomson says. “And I think the Clean Fuel Regulation will bring Canada back into the game, if you will, because we’ve been sitting static for a decade.”

A centrepiece of efforts to reach greenhouse-gas emissions targets, the Clean Fuel Standard requires gradual reductions of carbon content in gasoline, diesel and other fuels. While fossil fuel suppliers have many options for complying, an obvious one is to blend biofuels into their products.

Published in December, draft regulations supporting the standard largely follow the example of California and British Columbia, which implemented similar measures more than a decade ago. Both jurisdictions enjoyed significant increases in domestic biofuel production, and some expect the same thing will happen here. Clean Energy Canada has predicted the proposed federal standard could lead to 30 new biofuel plants in Canada – double today’s number.

The Canadian Canola Growers Association predicts the proposed fuel standards could cause the volume of canola directed to biodiesel production to quadruple, to more than two million tonnes – about the volume of Canada’s annual canola exports to Japan, a major export destination.

“In the U.S., more than a third of the soybean oil produced there ends up in biofuel production,” says Chris Vervaet, executive director of the Canadian Oilseed Processors Association. “That gives you an indication that there’s so much more room for growth as it relates to canola oil used in biofuel production here in Canada.”

Among the three announcements, only Viterra and Cargill explicitly stated that some of the new production capacity would be directed to biofuel feedstocks. (Neither company granted an interview to The Globe and Mail.) Richardson, for its part, says it’s not chasing that market.

“The narrative in the media right now is leaning toward the Clean Fuel Standard” in explaining the new canola crushing plants, Kelcey Vossen, a spokesperson for Richardson International, wrote in an e-mail. But “there is sustainable demand in the human food sphere for vegetable oil, and our investments are focused on that.”

Mr. Thomson predicts some of the new crushing capacity will likely go to making biofuel ingredients. But he adds that expectations of a bonanza are misplaced, at least between now and mid-decade.

“The Clean Fuel Standard isn’t going to cause an immediate, hard ramp-up in demand,” he says. “It’s going to take some time.”

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