In this episode of Global LPG Conversations, Kristen Mueller, Argus Principal for LPG Consulting, and David Appleton, Argus’ vice-president of LPG discuss:
- Updated forecast for bioLPG supply out to 2030
- Different production pathways
- Policies supporting further market development
David: Welcome back to "Global LPG Conversations," Argus' podcast in which we explore developments in the world of LPG. My name is David Appleton. I'm vice president at Argus Media. And today we're going to look at a topic we've covered before, which is BioLPG. And we had a great interview with Matt Scotland, the editor of Argus LPG World at the end of June, where we caught up on, basically, the state of BioLPG markets and some of the elements of that that we've covered in LPG world. And today we have Kristen Miller, who is a principal for our consulting team. And she's gonna focus today on the outlook for BioLPG markets and basically where we think, as it stands, they're gonna go over the next five or 10 years. So welcome to the podcast, Kristen.
Kristen: Thank you very much for having me.
David: Okay. So, the first question, a simple one. Why are people excited about BioLPG?
Kristen: BioLPG offers an opportunity to carbonize LPG, which is already a fuel with significant carbon and admission advantages. It's also what they call a dropping fuel. So, it can replace LPG on like-for-like basis, or be blended with conventional LPG to give it sort of a green boost. And that makes it really easy to use. You know, you can use all the same storage, distribution, infrastructure, etc. And so, it's really easy for distributors and end users.
David: I see. Yeah, that makes sense. And when we're thinking about what's driving the BioLPG market and what it's going to in the coming years, what are you focused on?
Kristen: So, kind of depends on the different sources of supply. And we usually think of three sources of supply. So, first, when we think about BioLPG produce from hydroprocessing, things like vegetable oils, other oils, fats, greases, and this is where almost all BioLPG currently comes from. And that process is undertaken to produce hydrotreated vegetable oil, HVO, and sustainable aviation fuels. And so, there has been and continues to be a lot of investments and announcements of further investments in that area. And we can speak about, you know, what's striving that, but these plants produce a small amount of BioLPG as part of the hydroprocessing. We typically assume about 4%, but the range may be more like 3% to 10%.
So, second source of BioLPG is BioLPG from other processes. Here, the others covers a quite wide range of potential feedstocks and processes. They can produce BioLPG. I'd suggest to listeners if they're interested, you know, in those processes, then they should read the BioLPG white paper that we've got coming out shortly for a nice looking diagram, which lays out all the options. It definitely warrants a diagram.
And then lastly, and this isn't an LPG product, we think about renewable DME. And I know you and Matt talked about that, and we're just increasingly discussing it alongside BioLPG. And that's because our DME can be blended into LPG or even BioLPG up to about 20%. And it adds a renewable component into the fuel. And so, you know, if your listeners wanna learn a bit more about that, you can listen to the podcast you did with Matt, but our DME molecule is really similar to LPG, so they can be blended, as I said, up to about 20% without requiring any extensive changes to distribution, infrastructure, equipment.
David: Okay. So, we've got these kind of three different sources of supply. And the reality is, as you mentioned, that hydroprocessing is the main route to BioLPG at the moment. Why is this?
Kristen: So, there's broad political support for biofuel, such as biodiesel, sustainable aviation fuel, SAF, which are produced via hydroprocessing. Not dissimilar to how a refinery refines crude oil to produce jet gasoline components and diesel, primarily, with LPG as a byproduct, the hydro processor also produces BioLPG as a byproduct. And so, all these policies you hear about which support further uptake of things like sustainable aviation fuel also support BioLPG.
David: Right. I see. That makes sense. And can you give some examples of those policies and which regions are those in?
Kristen: Sure. I mean, there's a ton of interest in this area and there's a lot going on. Our consulting team has been doing it. It's a lot of work for clients in the wider biofuel space for the last several years. And many countries have policies which support biofuels, but, as an example, the EU has proposed that the share of sustainable aviation fuel and the volume of total aviation fuel sold in the EU increased from 2% in 2025 to over 60% in 2050, as part of its recently passed Inflation Reduction Act in the U.S. There's also incentives for SAF production with tax credits and project funding. And the aim there is to get about 9 million tons a year of SAF production by the end of the decade. In Asia as well, there's been a real mix of government policy to increase biofuel use as well as corporate support, really from the region's main airlines. So, there's a lot going on all around the world in terms of this.
David: Sure. But as you said, the hydroprocessing really creates BioLPG as a by-product, I guess much like in the conventional side of LPG, but I guess unlike in the conventional side where we have in principle, a bit of an oversupply and lots of products swishing around the world, that's not the case for BioLPG right now. So, are there other more direct routes being utilized to kind of make up that gap?
Kristen: Yeah. There's definitely interest in that as well. And there's, you know, many potential options for more direct production routes, but at present, there's only one being utilized to produce more significant volume. So you've got Polish producer, Ekobenz, who I know has been sort of covered extensively by Argus elsewhere. They began to produce BioLPG from bioethanol and they began shipping product in the middle of 2021. So, you know, still quite new and production's still limited. So, the BioLPG is a fraction of their total advanced biofuels production of 22,000 tons per year, but it is a step in the right direction. And I know, you know, in your conversation with Matt, you mentioned other projects that are probably of interest such as synthetic LPG that's being developed in Japan. And, so, I think, you know, there is quite a lot going on in that space, even though it isn't quite as well developed as the hydroprocessing route.
David: Sure. And then this really comes to kind of why we're talking again today because you published...or we published from Argus Consulting a white paper on BioLPG, I think 6 or 12 months ago it was announced. And that included the forecast output for 2034 supply. Sorry, it was in November '21, unless I'm mistaken. And we have an upcoming white paper, which basically revises that. So can you tell us what's changed in terms of the difference since November?
Kristen: Of course. So, forecasting a market, which is so young is certainly tricky. And so, we start by looking at what projects are currently operating or under construction, which are going to supply BioLPG. And that gives us our historic and our near-term forecast. And at this point, maybe that gives us out to sort of 2023. For this, we really rely on our colleagues, you know, who I, you know, said have been doing so much work in the biofuels market every day. You know, they're really up to date on all the new projects and what's coming online when, and, you know, they're also really helpful for the medium-term forecast. So, when we think of sort of the immediate years after 2023, 2024, 2025, they track all the project announcements, and we know that not all announced projects will get built or not, you know, maybe not necessarily built on the timetable originally imagined.
And so we use our judgment, sort of decide which projects to include, when to include them, maybe exclude some of them. And as we've got sort of the most insight over the next couple years, you know, again, sort of out to 2025, we, you know, have sort of what we consider a fairly concrete forecast out to that period. And then we use that period to inform our view slightly farther out. So, you know, out to about 2030, and your growth has been really strong over the last several years between, you know, 10 and 25% per year, you know, sort of that slow-down during COVID, you know, seems to be resolved. And we had quite strong growth, you know, over 2022, so far.
And we do forecast that continue. And that's really based on the wider policy environment, you know, particularly decarbonization agenda, COP 26, you know, it convinces us that there are really strong policy drivers and incentives to keep the market developing at a rapid clip. And so, our forecast to 2030 has shifted upwards since our last white paper. And we're now forecasting a market size of over 2 million tons of BioLPG per year by 2030, sorry. But that's just the BioLPG from the hydroprocessing route.
David: Okay. I see. So, I mean, the hydroprocessing route, which you've mentioned is a key one. So, just to be clear, why do you focus on that?
Kristen: So, we've chosen to focus on the hydroprocessing route for this update as it's, you know, the most established. It's certainly, internally, and for our clients, you know, we are keeping a close eye on the other route to BioLPG and RDME, but we need there to be a reason for people to call us up.
David: Yeah. Okay. That makes sense. And I mean, as this market's moving so fast, I assume we can expect regular updates from Argus Consulting on this.
Kristen: Yeah. So, you know, we're certainly expecting to keep updates regularly through things like podcasts and white paper. We're planning to cover RDME in a white paper soon. So, this is me making that promise. But subscribers to our LPG Analytics service also get more in-depth updates and their short-term market update reports. It's also covered in both the statistical review of flow LPG, which we do on behalf of the World LPG Association, as well as the European liquid gases statistical report that we do on behalf of Liquid Gas Europe. Both of those are coming out in about the next six weeks. So, we're definitely looking for ways to get more coverage out there. You know, we really understand it's an important topic, one which is rapidly developing. And so, we wanna make sure that our clients or listeners or readers, you know, have access to the most up-to-date information that we can provide.
David: Right. Okay.
Kristen: And now, can I turn the tables on you and ask a question?
David: Okay. There's some trepidation. I can answer, possibly.
Kristen: Great. So, I know you're involved in a very important question of furthering price transparency for BioLPG. Can you update us on what's happening in terms of developing a robust price?
David: Yeah, sure. So, it's quite an interesting one now, in [inaudible 00:11:17] markets, such as BioLPG, they don't necessarily function the same way that we would assess something like conventional LPG for which we have multiple bids offers and deals every day, and exchange listed financial derivatives. So, kind of, like, a higher liquidity and a large basis under which we can come up with a price. And something we're saying like BioLPG, which is largely traded under term contracts under PNC conditions. What we can look at doing is try and understand the value versus other competing fuels, other competing feedstocks.
In the case of bio propane or bio butane, the obvious place to start there would be against NAPSA [SP]. We do already publish a bio NAPSA price, which launched on the 4th of March this year. So, that's been going for a few months. And then potentially the next stage is to use that price as a basis to value LPG because in principle, somebody who is cracking bio NAPSA and values the sustainable zero carbon element of that will then value it in a similar fashion for propane and butane as well. That bio NAPSA price itself is connected to class two HVO, so that's from used cooking oil, and all of those methodologies are available on our website. So you can see how that's done.
Now, going forward, it's possible that there will emerge some kind of spot market where we can look at actual deals done, but I think that's probably quite far into the future as it stands. So, we'll probably start with something calculated, and then go from there going forward. So, this is something we are all, obviously, from our side in the indexation part of Argus, we are very much focused on keeping up with developments with that too then. Correct. Does that answer your question?
Kristen: No, that's excellent. And I will definitely be stealing some of that for the white paper.
David: Great. So, yeah, I think that's been good to cover the bio side of things today. So, just again, to our listeners, we looked at some of the project developments with Matt Scotland, LPG World in June. So, that podcast should still be available on Spotify, or wherever you get your podcast. So, do listen to that as well as he goes into some of the details on what he's seen so far. Okay. Thanks, Kristen.
Kristen: Thanks, David.