NEW YORK, Sept 30 (Reuters) -

U.S. renewable diesel production capacity declined in July

by the most since the industry began its rapid expansion three

years ago, data from the Energy Information Administration

showed on Monday.

Capacity to produce biomass-based renewable diesel and other

biofuels, excluding biodiesel and ethanol, fell by about 299

million gallons per year from June to about 4.60 billion gallons

a year in July, the second time it has declined since the EIA

began keeping records in 2021.

The EIA did not immediately respond to a request seeking

more inputs on what the decline is based on.

Well-established oil refiners and startups have made large

bets on renewable diesel in recent years as government mandated

consumption targets and subsidies lowering costs of production

have encouraged investments in supply growth. However, output

from new plants is starting to outpace demand, leading to a glut

in the market.

Vertex Energy ( VTNR ), one of the newest entrants in the

U.S. renewable diesel industry, filed for Chapter 11 bankruptcy

protection last week, just months after it paused output of the

biofuel, citing macroeconomic weakness.

Demand for vegetable oils as feedstock for renewable diesel

production, which include canola oil, corn oil and soybean oil,

fell more than 5.6% from June to 1.168 billion pounds in July,

the EIA data showed.

Demand for the same feedstocks from facilities producing

biodiesel, which is blended into petroleum-based fuel to lower

emissions, rose 5.6% from June to 866 million pounds in July,

according to the data.

Demand for waste oils, fats and greases, such as tallow and

used cooking oil, rose to 1.43 billion pounds in July from 1.38

billion pounds in June, the data showed.

Those consumption levels indicate biofuel producers are

running their plants below capacity, said Zander Capozzola, vice

president of renewable fuels at AEGIS Hedging.

At current capacity, renewable diesel plants could burn

through at least 3.162 billion pounds of feedstocks per month,

while biodiesel producers would consume another 1.288 billion,

if they were running at full capacity, Capozzola said.