Biofuels Market Highlights

Past Highlights

• Palm/Seed Spreads Close as Protectionism Reshapes Trade Outlook

  Published September 6, 2024, in Prima CarbonZero's International Vegetable Oils Report

  Palm/Seed Spreads Close as Protectionism Reshapes Trade Outlook

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  Protectionism has been back steering direction in vegetable oil markets. With China's announcement of a tit-for-tat anti-dumping investigation into its imports of Canadian canola in response to Canada's 100% tariff on Chinese electric vehicles, rapeseed and soy markets have been reflecting the prospect of softer demand and freed-up supply. This has allowed palm to return to near parity with bean oil after soybean oil’s pre-Labor Day holiday rally fizzled out. This rally itself had been tied to expectations of possible US trade action against imports of Chinese UCO, which would put much more emphasis on bean oil as an energy feedstock. Without any change in the US renewable energy feedstock import landscape beyond rumors so far, crushers have been left looking at a weak pricing landscape defined by strong new crop prospects, weak trend exports of beans to China, and poor biofuel producer margins thanks to weak biofuel ticket prices.

   As US soybean farmers have already been finding out, there is no single replacement buyer that can replace lost Chinese seed import business if exporting governments are engaged in tariff spats with a Chinese government determined to retaliate. YtD, China has taken 74% of total Canadian canola exports, equivalent to 2.73mn t of physical shipments. Anti-dumping investigations will now leave this industry prone to immediate uncertainty given China's past history of de facto tariff-related trade actions against oilseed imports through mechanisms such as toughened quality inspections while the government conducts its WTO anti-dumping investigation. There is a recent precedent here in China's 2019 action against Canadian exporters Richardson and Viterra on alleged seed quality grounds. Restrictions were lifted in 2022. During that time, Canadian seed exports slumped from $2.8bn in 2018 to $800mn in 2019, $1.4bn in 2020, and $1.8bn in 2021. Exports to other, smaller markets, such as the EU, offered only a partial offset.

  Canada’s Canola Council itself has acknowledged the investigation is directly tied to Canada’s EV tariffs and, therefore, politically rather than economically motivated. This reduces the chances that Canadian farmers will find Chinese support for "rules-based trade” due to the investigation. Given Canada's lack of room to maneuver on Chinese EV tariffs under US pressure to match its Chinese EV tariffs, reduced Canadian canola exports to China look likely in the short to medium term.           

  Our weekly International Vegetable Oils report is available. Read it on Prima CarbonZero.

• SAF Sector Receives Federal Funding as Industry Hangs on for Credit Guidance

  Published 8/22/24 in Prima CarbonZero's International Ethanol Report

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  The wide-ranging support provided for the US biofuels sector by the Inflation Reduction Act (IRA) is continuing to roll out, with infrastructure funding falling into place and further guidance on the sustainable aviation fuel (SAF) blender’s tax credit (BTC) having been delivered, but clarity on the forthcoming Clean Fuel Production Credit (CFPC) is still missing from the equation.

  The IRA provides $500mn of biofuels infrastructure funding over 10 years, and a large share of that was last week granted to SAF projects. The Federal Aviation Authority on 16 August – exactly two years on from the passage of the IRA – awarded a combined $244.5mn to projects focused on the production, blending, transportation, and storage of SAF and to research aimed at identifying the industry's supply-chain needs. Awards were made to a total of 22 projects, breaking out into 15 aimed at production, blending, and storage and seven studying infrastructure requirements.

  While the federal government is rolling on with the ambitious SAF Grand Challenge plan aimed at US output of 3bn gal/yr by 2030 and 35bn gal/yr by 2050, questions remain about the specifics of support for producers. The Treasury, in late April, delivered a version of the GREET model that could be used to assess fuels’ eligibility for the SAF BTC. But the BTC expires at the end of this year, leaving current and would-be producers with little forward view in the absence of guidance on the credit that will replace it in January.

  Full article available to read in Prima CarbonZero's International Ethanol Report. 

• T1 Ends Summer Softer, Spain Comes into Focus

  Published August 30, 2024 in Prima CarbonZero's Daily Low Carbon Markets Report

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  Early Spanish UCO September trade indications appear

  In the Spanish UCO market, early indications for September trade also started to emerge. Sources pegged some trades for UCO Ex-works Spain at €910/t and at €920/t as well for product with 3% FFA content. Comments, however, were heard that prices for now remain in a wide range, with some levels for product heard at a much higher level of €980/t.

  POME offers spike while demand still lags

  Market participants in Southeast Asia said the POME market is sitting still at the moment, with prices not yet stepping higher into the higher levels the market expects to find after the increased levy on the waste oil is applied by the Indonesian government. But while mid-market prices are still seen at $780/t for the product on a FOB basis, participants told PRIMA they didn’t think anyone would trade at this level, and any trades would immediately get defaulted. The same source explained that mostly only small players would agree to sell at this level, and once the new levy kicks in, they would also simply “just default” the trade.

  US fats and greases see steady week’s end

  The tone in the US waste feedstock markets remained quiet at the end of the trading week, without indications of major price changes to levels across the board by sources. The sense in the market remains that many are already with well-covered positions for the next month, with nearby demand lacking for now and October offers being "rejected by many buyers", as one source noted earlier in the week.

  Daily prices and market comments are available to view, read, download, and API data feed via Prima CarbonZero.

   

• Brazil Launches R$2trn Energy Transition Investment Drive

  Published 8/22/24 in Prima CarbonZero's Green Diesel South America Report

  Brazil Launches R$2trn Energy Transition Investment Drive

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  Brazil's President Luiz Inácio Lula da Silva launched on Monday the country's National Energy Transition Policy (PNTE), approved at a meeting of the National Energy Policy Council (CNPE). The Brazilian government estimates the country could receive R$2trn in investments in the so-called green economy over ten years. The PNTE will promote the articulation and coordination of the energy transition in Brazil, creating synergy between government policies, such as the National Climate Change Policy and the Ecological Transformation Plan.

  “Brazil will be a leading player in the world’s new economy, the green economy. Wind, solar, hydro, nuclear, biomass, biodiesel, ethanol, green diesel, carbon capture and storage, sustainable aviation fuel, and green hydrogen. It is the rebirth of Brazilian industry on a sustainable basis. It is adding value to Brazilian products produced with clean and renewable energy. It is an opportunity to boost the use of our local content," says Brazil's Minister of Mines and Energy, Alexandre Silveira.

  Silveira reported that the New PAC already has R$700bn in planned investments in energy transition and recalled that President Lula sanctioned the legal framework for green hydrogen this month.

  Full article available to read in Prima CarbonZero's Green Diesel South America Report.

• Positive US Soybean Outlook Softens Prices and Impacts Hoarding SA Sellers

  Published 8/16/24 in Prima CarbonZero's International Vegetable Oils Report

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  Soybeans are a key raw material for Argentina, Brazil, Bolivia, and Paraguay, so the collapse in the price of the oilseed is severely affecting the current financial balances of these countries. Earlier this week, the commodity price suffered another major setback, given that the USDA confirmed forecasts of high soybean production volumes in the US and prices at the CBOT, which had already been falling, deepened their declines, with the September contract breaking the $360/t mark. This is because the US crop has been perfect in terms of weather, favoring a performance that could become a record. These factors add to others that were already affecting the price of soybeans, including the Chinese slowdown, high stocks, and prospects for good output. This caused soybean futures to fall to their lowest levels since September 2020.

  This means Latin American soybean exporters are facing a double crossroads. On the one hand, there is an improvement in supply from the US, and on the other hand, a deterioration in demand from China. Ultimately, these two circumstances have a direct impact on the price of the oilseed. Soybeans reached a high of $650/t in 2012. Around that time, and adjusted for US inflation, soybeans reached levels that would be equivalent to $900/t today.

  "The USDA report brought bad news for Argentinian farmers, as projections for the US soybean harvest were improved to a level that would be a historic record," a source told PRIMA. 

  Full article available to read in Prima CarbonZero's International Vegetable Oil Report.    

• Chinese Government Hints at Biodiesel Mandate

  Published 8/14/24 in Prima CarbonZero's Green Diesel Europe Report

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  The Chinese government released a public statement this week that detailed various development and standard checks into the potential launch of a national biodiesel mandate. This comes shortly after the EU revealed its provisional anti-dumping duties against Chinese renewable fuel exporters, which marked a major blow for the majority of Chinese producers and traders that were supplying the trading bloc.

  According to the statement released, the scope and main technical content of the progressions towards a mandate look at China's diesel fuel standards and the application of biodiesel, as well as the development of mandatory national standards. It considers factors such as the terminology and definitions, classification and labeling, requirements and test methods, inspection rules and signs, packaging, transport and storage, and safety of bio-based blended automotive diesel blended from biodiesel and petroleum diesel. No details on when the policy would be enforced have been revealed.

  A China-based procurement agent for a major European biodiesel producer informed PRIMA that the latest announcement was an optimistic sign that the government's previous discretionary developments were now transitioning into a policy-driven system.

  Full article available to read in Prima CarbonZero's Green Diesel Europe Report.   

• European Waste-based Biodiesel Margins See Slight Improvement

  Published 8/14/24 in Prima CarbonZero's Green Diesel Europe Report

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  The European waste-based market for biofuels and feedstocks seems to finally be adjusting to the news of the anti-dumping duties applied on imports of biofuel from China in a way that is beneficial to the European industry. Still, some recent news across the Atlantic is still making the US market a more attractive exporting prospect for feedstock sellers.

  The California Air Resources Board, which administers the state’s low-carbon fuels standard (LCFS) program announced this week major proposals related to its LCFS-rulemaking process, including a near-term increase in carbon intensity reduction stringency to 9% in 2025, compared to the 5% YoY increase laid out in the initial amendment’s documents, as well as a 20% cap on crop-based feedstocks in the program as a sign of incentivizing the adoption of more waste-based options. This led to an immediate market reaction, which saw credit prices rise by an impressive $10/t CO2e in a day to levels of around $57-59/t CO2e. Higher prices would mean better incentives for producers, although it still remains to be seen whether the market will manage to sustain any momentum prior to official adjustments kicking in early 2025. Sources have hinted that the market still has “lots of credits to come in 2024”.

  In Europe, UCOME FOB ARA with 0cfpp was last seen at $1,328/t, which is an increase of $22/t from last week’s $1,306/t. Since the start of the year, the market has always been between $1,215/t and $1,456/t but mostly trading in a tighter range between $1,263/t and $1,413/t. The current price level sits right in the middle of the two, and if the current upward trend started last week is indicative of a more positive outlook once again, the price could easily climb back to the levels higher than $1,350/t seen throughout July.

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  Full article available to read in Prima CarbonZero's Green Diesel Europe Report 

• Macro Pressure Hits Muted Markets Ahead of Expected Policy Uplifts

  Published 8/7/24 in Prima CarbonZero's Green Diesel Europe Report

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  The quiet summer tone has persisted in the European UCO markets, leaving liquidity subdued and overall activity “thin” and with “nothing happening”, in the words of market participants. Price ranges in the imported T1 market have remained mostly steady, with only marginal changes indicated, as firm trades for products have remained absent in the wake of a deteriorating global macro environment.

  Physical UCOME prices have remained on the downturn since the end of last month, with sources calling the drop in prices “fierce” and completely counter to the expectations many had less than a few weeks ago for an upward correction following the EU’s actions on anti-dumping duties. Margins for producers remain strained while prices for UCO in the inland ARA market already seem to have corrected lower due to the wider pressure and faltering gasoil levels, based on bids for products heard to be lowering by as much as €20-30/t based on specs and relative to just a week ago.

  Stakeholders in Europe, however, remain optimistically eying the potential policy-related uplifts come next year. Much of this optimism lies in the developments related to the anti-dumping action, as well as in the EU's upcoming progressive SAF mandate which will kick in at least 2%. While "worsened” market conditions have already forced some to rethink short-term renewable capacity plans, European HVO and SAF capacity has been on the rise since the start of the year. The latest boost of confidence has been Gunvor's decision to take a 50% stake in VARO's expected massive 350,000t/yr SAF/HVO site in Rotterdam. The facility is aiming to meet up to 7% of the EU's 2030 SAF mandate, with Gunvor's decision to join at such a high stake highlighting a recent trend of commodity giants betting on biofuel-related investments ahead of demand for low-carbon energy surging. 

• DOE Provides More Clarity on US HEFA Industry

  Published 8/6/2024 in Prima CarbonZero's Green Diesel North America Report

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  The Department of Energy (DOE) released its long-awaited report at the end of July that examined the US sustainable aviation fuel (SAF) industry and variables to consider in meeting near and long-term production targets. The discussions and findings provided supportive clarity for a better understanding of the HEFA subsegment of green jet fuel buildouts.

  The report highlighted the constraints of HEFA overlapping with renewable diesel hydrocarbon fractions. Despite giving producers flexibility in the products they can produce, it will require additional capital expense, increased operating costs, additional hydrogen and higher-severity operations, and reduced carbon yield to the desired product. With the US government setting SAF production as a priority, renewable diesel and biofuels for the marine sectors are still crucial for decarbonizing wider transport.

  Despite this, HEFA is expected to primarily contribute to the 2030 goal, with smaller contributions from waste, forest and agricultural residues within Fischer-Tropsch pathways and alcohol-to-jet (ATJ) pathways. HEFA will use fats, oils and greases as raw material inputs, with the pathway taken as a preference for the 3bn gal/yr 2030 goal due to industry calls to immediately focus on commercially ready or nearly commercially ready conversion technologies and feedstocks. With projects like US gasification and Fischer-Tropsch firm Fulcrum Bioenergy hitting a range of financial hurdles in its more novel production process, the push for transitional HEFA production is dubbed a safer bet despite less feedstock elasticity.

  The availability of domestic feedstock, with the supply expected to remain flat in the near future, is a major obstacle in expanding HEFA production, with HEFA alone said to potentially not be sufficient in meeting the 2030 SAF production targets due to current feedstock limitations and competition from other renewable fuel production. Domestic HEFA feedstock production totaled around 22.9mn t in 2022, while consumption was pinned at 26.6mn t, highlighting imported product. The renewable fuels industry consumed 11.7mn t, with the remaining 14.9mn t being consumed by the food industry.

  Operating capacity for biodiesel and renewable diesel as of December 2022 was 2.1bn gal/yr and 2.6bn gal/yr, respectively, with combined lipid feedstock requirements to facilitate these facilities at full capacity hitting roughly 18mn t.

  

  Taking an optimistic construction timeline, it should take 2-3 years to build and start up a production facility, although as of 2024, there are only 6 years until the decade ends, where demonstration plants must be built in the next 3-4 years to not risk falling short on the production goals. Such demonstration plants can then be assessed in regards to pathway-specific challenges or constraints before deciding which are to be rapidly built out to a commercial scale. Producers and investors will likely be watching the US election later this year to see if there are any swift challenges to green legislation and subsidies that impact decision-making.

  Nonetheless, the financing risks that such investors or capital providers must accept can include supply chain slowdowns, uncertain policies, technological uncertainties, and end-product market variability affected by public and political trends. Given the risk-averse nature of banks and the lack of commercial data for novel SAF technologies, such SAF projects may face higher financing expenses and uncertain availability of financing.

  Total HEFA capacity in construction or planned stages is expected to reach around 6bn gal/yr by 2025, which, if completed, will contribute to both SAF and renewable diesel production targets. Renewable diesel was still dubbed as a major competitor within the report, which forces producers to decide which fuel to prioritize. The report highlights that the process yields, production cost, and policy presently in place slightly favors renewable diesel production.

  Multiple industries including renewable fuels are said to already utilise the entire 23mn t of domestic HEFA feedstock produced annually. Factors such as land use, trade, and infrastructure constraints have meant it is not anticipated that the US' production of HEFA will increase significantly.

  

  Soybean oil, given its more abundant availability, makes up the vast majority of active HEFA production, although this would not be exportable to the EU-mandated market from 2025 due to the government’s ban on crop-based renewable fuels. The report refers to the HEFA SAF industry as being severely feedstock constrained and may have to depend on imported feedstock in the near term while pushing for innovations in alternative hydro-treatable feeds such as algae and oilseed cover crops in the long term.

  While HEFA feedstock prices were relatively flat from 2012 to 2020, increased renewable fuel production, particularly observed within renewable diesel capacity, has significantly increased the prices of HEFA feedstocks. Soybean oil and fats, oils, and grease prices are said to be potentially moderate depending on market conditions. Pretreatment installations are advocated to make it possible to use cheaper, lower-quality raw materials, reduce production costs, and add flexibility in processing a wide variety of oil-based feedstocks. The HEFA feedstock supply, including local production and imports, is forecast to increase 14%, or 4.1mn t, from current levels through 2030-32, largely due to an increase in soybean production and the output of fats, oils, and greases. Other feeds are projected to remain flat.

  Rising feedstock costs and potential supply shortages in both feedstocks and finished products have meant industry stakeholders have raised concerns about the elevated selling price of SAF in the market. Such stakeholders described the slow development of the SAF industry, which has inevitably kept prices inflated.

  Techno-economic and life cycle analyses were conducted to evaluate the economics of producing SAF and renewable diesel via the HEFA pathway – with the minimum fuel selling prices of HEFA estimated in the report to range from $1.84 to $9.40/gal per gasoline-equivalent. Pricing variables included plant configuration, capital costs, plant capacity, hydrogen sourcing, and feedstock type, price, and carbon intensity score. Feedstock costs were classed as the most significant component of the minimum fuel selling prices for HEFA, putting volatile feed prices as the most significant factor in impacting the financial risk of the process.

  Capital costs were not said to impact the minimum fuel selling prices significantly in contrast to feedstocks, meaning capital cost reductions through various methods ultimately have a minimal cost impact. A promising finding was that total revenues for several cases when GHG emission reductions qualified for incentives were greater than production costs, showing profitability potential assuming the jet fuel price is $2.50/gal.

  The top five states for producing animal fats were listed as Nebraska, Texas, Kansas, Iowa, and North Carolina. Waste greases were otherwise processed at various locations across the country. Vegetable oil production facilities are mostly located in Iowa, Illinois, and the North and East regions – such as Indiana, Kentucky, Maryland, Ohio, Pennsylvania, and Virginia. HEFA faces additional logistics costs and increased CI scores of its end-product consumption when transported across long distances to fuel facilities in the West, which becomes more burdensome for key states such as California, given its low-carbon fuel standards.

  The report also mentioned that despite co-processing renewable streams with fossil fuels being capped at a maximum of 5% of HEFA feedstocks, the potential for this route to speed up SAF production while minimizing capital expenditures has meant that the American Society for Testing and Materials (ASTM) is currently considering increasing the HEFA co-processing limit to 30% to improve the cost efficiency of using refinery equipment, in addition to other incentives. There has been the fractionation co-processing approval in 2023, which enabled the blending of up to 24% previously hydro processed biomass intermediate streams with a petroleum stream, generating jet fuel blends containing up to 10% renewable hydrocarbons.

  Infrastructure challenges are also of concern, given national pipelines for transporting jet fuel are capacity-constrained when annual jet fuel consumption is 22bn gal. If annual jet fuel demand rises to 35bn gal by 2050, fuel logistics may become a bottleneck, constraining the growth of the aviation industry. This again pushes for constructing biorefineries or renewable fuel plants near existing airports for refueling – although state credits and attracting overseas mandate-driven markets are seeing many producers become more dispersed, with product trading flows increasing in length and complexity. This is also more complex for HEFA since they are commonly repurposed fossil fuel sites.

  Many facilities face barriers due to the likes of permitting processes, causing sites to be canceled and relocated due to being lengthy, high-risk, and time-consuming processes. Based on stakeholder interviews, a push for process simplification would be ideal for speeding up the deployment of SAF facilities, such as the permitting process is simplified and community engagement is enhanced. Financing will not be closed until all permits have been obtained, which are required to produce the fuel, as well as transport it to blending facilities and airport refueling locations. 

  HEFA facilities, in some cases, have been found to emit air pollutants such as volatile organic compounds, nitrogen oxides, sulfur oxides, carbon monoxide, and particulate matter – all of which are governed by federal and local air regulations. Specific emissions controls may need to be implemented to comply with clean air regulations.

• New Indexes Showcase US Bio-Bunkering Opportunity

  Published 9/7/2024 from Prima BioBunkering Report
  

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  Most global biodiesel bunkering activity remains concentrated in two countries: the Netherlands and Singapore. Impending regulatory and discretionary drivers are, however, are leading more shippers and fuel suppliers to assess the options for bio-bunkering outside the established bio-bunkering hubs. Responding to market requests, 12 US bio-bunkering indexes are now live on PRIMA Carbon Zero, offering a glimpse into the potential competitiveness of US bio-bunkering as interest spreads.

  The US bio-bunkering series covers the three ports that market participants are currently considering for bio-bunkering: Los Angeles, Houston and New York. In each case, PRIMA’s oversight of regional biodiesel, ticketing systems and operational costs are considered, along with Engine’s oversight of conventional fuel transactions.

  In New York and Houston, both crop and non-crop feedstock options are available. Inputs are also adjusted for the effect of the US Renewable Identification Numbers (RINs). These RIN credits are traded between producers to achieve compliance with the US Renewable Fuel Standard (RFS) but become redundant in the event that fuel is used outside of the US mainland, making them incompatible with ocean-going vessel usage.

  In Los Angeles, indexes consider UCOME as per existing supplier evaluations. In addition to RINs, Los Angeles prices also address the impact of Low Carbon Fuel Standard (LCFS) tickets. Similar to RINs, LCFS tickets also cannot be used to meet the associated compliance measure, meaning their value must also be added back into the biofuel input costs to understand the existing bio-bunkering cost fundamentals. 

  Due to the “stacking” effect of ticket systems in Los Angeles, the opportunity costs associated with directing biofuels into ocean-going vessels are magnified. This makes bio-bunkering in Los Angeles approximately 6% and 8% higher than in New York and Houston, respectively. Between the Gulf and Pacific Coast, the differences are narrower, with marginally higher conventional fuel and biofuel costs in New York leading to just a small premium over Houston.

  While bio-bunkering activity outside the scope of California’s HVO mandate on harbor craft vessels remains limited, small signs of activity are beginning to emerge. A US port last month agreed to support the trial of bio-bunkers on cruise lines calling on the port. Speaking to PRIMA, a prominent shipping company further suggested their US bio-bunkering demand could reach 8,000t/yr (2.4mn gal/yr) alone. 

  July 2024 - B30 VLSFO (non-crop), $/ tonne of bio blend 

  

  SOURCE: PRIMA MARKETS-ENGINE