Viewpoint: Biodiesel prices may have found a new floor

Spanish Market: Biofuels
30/12/21

Northwest European (NWE) biodiesel feedstock supply looks likely to remain tight in 2022, which should continue to support prices after repeated record highs in 2021. But demand levels are closely linked to the vagaries of Covid-19 restrictions.

The emergence of the new Omicron Covid-19 variant weighed on the wider crude complex and a fall in the gasoil price pulled biodiesel outright values lower, but premiums were broadly unaffected by the variant's discovery. Any potential downward effect would be delayed by the lack of stocks and low spot availability, market participants said, while rising blending targets in EU member states offer support.

While demand may be uncertain, feedstocks availability looks set to remain tight, with Canada's 2021-22 canola exports projected to halve on the year. High logistics costs and domestic limitations could hamper used cooking oil (UCO) exports from Asia-Pacific, while any restrictions on the hospitality sector in northwest Europe will affect domestic UCO collections.

Demand outstripped supply to support the prompt outright Argus fob ARA range fatty acid methyl ester (Fame) 0 benchmark at an average $1,522.99/t between 4 January and 29 December 2021, 81pc higher on the year and 86pc up on 2019 levels. Rapeseed oil methyl ester (RME) prices soared beyond this, to outright highs of $2,718/t in early November, with the added factor of seasonal demand for the winter grade.

But production margins are robust and could encourage output, as prices for finished biodiesel rapidly outpace feedstock costs. While prompt rapeseed oil (RSO) prices overtook those for RME at several points in April and May, the RME/RSO spread averaged $635.58/t in the fourth quarter to 29 December — a more than five-fold increase on the average spread for the January-September period. The used cooking oil methyl ester (Ucome)/UCO spread averaged $643.29/t from 1 October to 29 December, 74pc higher on the average than for the first three quarters of 2020.

Rising physical blend costs are aligned with the increased cost for biofuels tickets — or the cost of compliance — in key regional markets. German, Dutch and UK ticket prices hit recurring records in 2021 and the cost of compliance will further increase in 2022. Beyond biodiesel blending and ticket purchases, options for participants are limited, further supporting biodiesel prices. Hydrotreated vegetable oil (HVO) is in short supply, and costs have increased sharply in tandem with other biofuels in 2021.

Biodiesel prices moved to new highs in 2021

Prices reached records across all northwest European biodiesel grades in 2021, as several long-term and temporary factors combined to form a perfect storm.

Key vegetable oil feedstocks hit record values throughout the year, driven by strong demand — including keen Chinese purchasing — and thin supply. UCO values also hit fresh highs, with supply limited by restaurant closures caused by pandemic restrictions. A steep rise in freight rates, particularly from Asia-Pacific to Europe, added to costs.

Imports of finished product remained low, curbed partly by protectionist quotas like Argentina's 1.2mn t/yr cap on biodiesel exports to the EU. Imports to the EU from outside the bloc were just under 2mn t in the January-September period, lower by 19pc on the year and by 32pc on the same period of 2019. This made it difficult for participants to build up stocks, and a backwardated structure across biodiesel forward prices disincentivised storage for most of the year.

Force majeures issued in August by German chemicals firm BASF and in September by German chemical manufacturer Evonik — together encompassing around 80pc of Europe's catalyst supply — temporarily restrained European biodiesel production.

This tightly-supplied market was further exacerbated by low water levels on the river Rhine in October and November, forcing barges to short-load at 40-60pc of full capacity, and aggravating barge congestion in the Amsterdam-Rotterdam-Antwerp (ARA) hub. Demand for winter grades RME and Fame-10 — which is based mostly on rapeseed — picked up as these logistics issues hit key producing country Germany.

By Georgia Gratton

Argus fob ARA RME v fob NL RSO $/t

Fob ARA biodiesel outright prices $/t

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16/05/24

Low-carbon methanol costly EU bunker option

New York, 16 May (Argus) — Ship owners are ordering new vessels equipped with methanol-burning capabilities, largely in response to tightening carbon emissions regulations in Europe. But despite the greenhouse gas (GHG) emissions savings that low-carbon methanol provides, it cannot currently compete on price with grey methanol or conventional marine fuels. Ship owners operate 33 methanol-fueled vessels today and have another 29 on order through the end of the year, according to vessel classification society DNV. All 62 vessels are oil and chemical tankers. DNV expects a total of 281 methanol-fueled vessels by 2028, of which 165 will be container ships, 19 bulk carrier and 14 car carrier vessels. Argus Consulting expects an even bigger build-out, with more than 300 methanol-fueled vessels by 2028. A methanol configured dual-fuel vessel has the option to burn conventional marine fuel or any type of methanol: grey or low-carbon. Grey methanol is made from natural gas or coal. Low-carbon methanol includes biomethanol, made of sustainable biomass, and e-methanol, produced by combining green hydrogen and captured carbon dioxide. The fuel-switching capabilities of the dual-fuel vessels provide ship owners with a natural price hedge. When methanol prices are lower than conventional bunkers the ship owner can burn methanol, and vice versa. Methanol, with its zero-sulphur emissions, is advantageous in emission control areas (ECAs), such as the US and Canadian territorial waters. In ECAs, the marine fuel sulphur content is capped at 0.1pc, and ship owners can burn methanol instead of 0.1pc sulphur maximum marine gasoil (MGO). In the US Gulf coast, the grey methanol discount to MGO was $23/t MGO-equivalent average in the first half of May. The grey methanol discount averaged $162/t MGOe for all of 2023. Starting this year, ship owners travelling within, in and out of European territorial waters are required to pay for 40pc of their CO2 emissions through the EU emissions trading system. Next year, ship owners will be required to pay for 70pc of their CO2 emissions. Separately, ship owners will have to reduce their vessels' lifecycle GHG intensities, starting in 2025 with a 2pc reduction and gradually increasing to 80pc by 2050, from a 2020 baseline. The penalty for exceeding the GHG emission intensity is set by the EU at €2,400/t ($2,596/t) of very low-sulplhur fuel oil equivalent. Even though these regulations apply to EU territorial waters, they affect ship owners travelling between the US and Europe. Despite the lack of sulphur emissions, grey methanol generates CO2. With CO2 marine fuel shipping regulations tightening, ship owners have turned their sights to low-carbon methanol. But US Gulf coast low-carbon methanol was priced at $2,317/t MGOe in the first half of May, nearly triple the outright price of MGO at $785/t. Factoring in the cost of 70pc of CO2 emissions and the GHG intensity penalty, the US Gulf coast MGO would rise to about $857/t. At this MGO level, the US Gulf coast low-carbon methanol would be 2.7 times the price of MGO. By comparison, grey methanol with added CO2 emissions cost would be around $962/t, or 1.1 times the price of MGO. To mitigate the high low-carbon methanol costs, some ship owners have been eyeing long-term agreements with suppliers to lock in product availabilities and cheaper prices available on the spot market. Danish container ship owner Maersk has lead the way, entering in low-carbon methanol production agreements in the US with Proman, Orsted, Carbon Sink, and SunGaas Renewables. These are slated to come on line in 2025-27. Global upcoming low-carbon methanol projects are expected to produce 16mn t by 2027, according to industry trade association the Methanol Institute, up from two years ago when the institute was tracking projects with total capacity of 8mn t by 2027. By Stefka Wechsler Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Biomethanol market slows, but shipowners eye offtakes

16/05/24

Biomethanol market slows, but shipowners eye offtakes

London, 16 May (Argus) — The UK's biomethanol consumption fell by 37pc last year as competition from alternative renewable fuel compliance options weighed on demand. The UK consumed 40mn litres of biomethanol in 2023, down from 63mn l in 2022, 53mn l in 2021 and 48mn l in 2020, according to provisional data from the country's Department for Transport. Biomethanol is used as a blending component for gasoline in the UK. Market participants attribute the decline in demand to ample supply of competitively priced alternatives to meet the UK's mandate for the use of renewable fuels in the transport sector. Fob ARA range biodiesel prices fell to a 19-month low towards the end of 2023 , following an unusually large influx of supply to Europe from China since the start of the year. EU biodiesel imports from China reached a record 1.06mn t in 2023 , up from 557,000t in 2022, according to GTT data. The increase in imports contributed to lower renewable fuel ticket prices in key European markets, including the UK. Companies supplying biofuels for transport in the UK can generate renewable transport fuel certificates (RTFCs), which are tradeable and can help obligated parties meet the UK's renewables' mandate. The Argus UK non-crop RTFC reduction obligation price averaged 21.79 pence/RTFC in 2023, compared with 36.35p in 2022. The price has averaged 16.79p so far this year, compared with 26.40p and 37.39p in the same period in 2023 and 2022, respectively. The drop in demand for biomethanol from the UK transport sector is weighing on domestic prices. The Argus cif UK biomethanol price has averaged $1,081.43/t so far in May, having been on a consistent downward trend since late October when the price peaked at $1,205/t. The price averaged $1,212.75/t in May 2023. The slowdown in demand has put biomethanol production margins under pressure, prompting some producers to cut output. Silver lining Demand for renewable methanol, in the form of both biomethanol and e-methanol, could be supported by growing interest from the maritime sector in the coming years as shipowners seek to reduce their emssions. The EU's FuelEU maritime regulation is due to come into effect at the start of next year. It aims to reduce the greenhouse gas (GHG) intensity of marine fuels by 2pc in 2025 and by 80pc by 2050. Shipping companies can choose from a wide range of alternative marine fuels to reduce their emissions, but several are betting on methanol and renewable methanol. Danish shipping giant Maersk has ordered 24 methanol-powered container ships for delivery and commissioning during 2024-25, and Japanese classification society ClassNK said in a recent report that it expects a total of 77 methanol-ready ships to be ordered by 2026, up from 27 methanol newbuilds expected to be ordered this year. Offtake agreements for renewable methanol are also on the rise. Maersk has signed several letters of intent for the procurement of biometanol and e-methanol from producers such as Equinor , Proman and OCI Global . The company also said it has secured an agreement with Danish shipping and logistics company Goldwind for the offtake of 500,000 t/yr from 2024. Meanwhile, Singaporean container shipping group X-Press Feeders said last year that it will offtake biomethanol from OCI's Texas plant starting this year. Another spanner in the works? Although the outlook on renewable methanol demand from the shipping sector appears bright, the recognition of biomethane and biomethane-based fuels produced through mass balancing in non-EU grids is uncertain. More than 40 energy companies and institutes have sent joint letters to the European Commission asking for these products to be included in the Union Database , which aims to prevent the relabelling of biofuels' sustainability declaration. The UDB was launched in January 2024 for liquid fuels and will include gaseous fuels in November, but the commission plans to exclude automatic certification of biomethane and biomethane-based fuels if it is transported through gas grids outside of the EU. The measure "is likely to reduce the availability and increase the cost of low- and zero-carbon bunker fuels for shipping" and may also impact hydrogen and hydrogen-derived fuels, one of the letters sent to the commission said. By Evelina Lungu Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Nayara Energy to set up two ethanol plants in India

16/05/24

Nayara Energy to set up two ethanol plants in India

Mumbai, 16 May (Argus) — Indian private-sector refiner Nayara Energy plans to invest 6bn rupees ($71.9mn) to set up two Indian ethanol plants, each with a production capacity of 200 kilolitre (kl)/d. Nayara has already identified and purchased land in south India's Naidupeta town, Andhra Pradesh state and central India's Balaghat city, Madhya Pradesh state for the proposed plants. The plants will be commissioned by 2026 and will use broken rice and maize as feedstock. The company aims to gradually increase the number of plants to five, with a combined ethanol production capacity of around 1,000 kl/d. "The establishment of ethanol facilities will significantly enhance Nayara Energy's ethanol supply reliability, playing a crucial role in meeting the Indian government's 20pc blending target by the end of fiscal year 2025-2026," Nayara Energy's chief executive officer Alessandro des Dorides said. India achieved 12pc ethanol blending with petrol during November 2023-March 2024, according to the oil ministry. Nayara Energy is also considering a significant expansion of its 400,000 b/d Vadinar refinery, and proposed doubling primary capacity to 800,000 b/d. The Vadinar expansion project would essentially mean building a new refinery at the existing site, Indian oil ministry secretary Pankaj Jain said in February, according to Russian state-owned news agency Tass. Russian state-controlled Rosneft has a 49pc shareholding in Nayara. By Roshni Devi Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Australia to explore biofuels mandate, incentives

15/05/24

Australia to explore biofuels mandate, incentives

Sydney, 15 May (Argus) — Australia's federal budget is funding mandate studies and pursuing certification schemes, given the increasing likelihood biofuels will play a significant role in the nation's energy transition. The federal government has pledged A$18.5mn ($12.3mn) in the four years from 2024-25 to develop a certification scheme for low-carbon liquid fuels, including SAF and renewable diesel, by expanding its guarantee of origin programme for long-term demand by the industry . An extra A$1.5mn over two years from 2024-25 will go to analysis of the regulatory impact of the costs and benefits of introducing mandates for low-carbon liquid fuels, while the government has promised consultation on possible production incentives for domestic project developers. Money from the A$1.7bn Future Made in Australia innovation fund will also be made available for liquid fuels research, to be administered by the Australian Renewable Energy Agency to commercialise net zero technology. "The package of announcements is dealing with crucial areas essential for deployment, including certification to ensure Australia develops a sustainable liquid fuels industry, resourcing to support key demand side interventions such as a low carbon fuels standard and consultation on additional supply-side measures such as production credits," Bioenergy Australia chief executive Shahana McKenzie said on 15 May. The funding pales in comparison to the $9bn hydrogen investment promised by the government, although much of that is deferred to the decade from the 2027-28 fiscal year. About 45pc of Australia's energy use is supplied by liquid fuels but the nations lags behind many countries on decarbonising its transport sector. Australia's Commonwealth Scientific and Industrial Research Organisation forecasts demand for jet fuel will grow 75pc by 2050. But no domestic production facility has yet reached a financial close, despite major airlines committing to increasing their SAF use. Domestic feedstocks including agricultural residues could meet 60pc of Australian jet fuel demand initially, growing to 90pc by 2050, Bioenergy Australia has said, while pursuing renewable fuels could cut the country's dependence on oil product imports from 90pc to 61pc by 2040. By Tom Major Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Falling D4 RIN values alter RD strategy

14/05/24

Falling D4 RIN values alter RD strategy

Houston, 14 May (Argus) — Soaring US renewable diesel production is cutting renewable fuel credit prices and pressuring biofuel production margins, potentially curbing industry growth. Renewable diesel (RD) production in North America last year jumped by 36pc to a record 3.45bn USG, and output this year is expected to climb by another 28pc to 4.43bn USG, according to Argus estimates. Rising production has cut the value of biomass-based diesel D4 credits, or renewable identification numbers (RINs), by 75pc over the past year, as credit generation from renewable diesel production has outpaced the the US Environmental Protection Agency's (EPA) biofuel blending targets. D4 RINs credits reflect compliance costs of biofuel that has been blended with diesel, used by fuel suppliers in accordance with the EPA's annual Renewable Fuel Standard (RFS) mandates. They also act as an incentive for renewable fuel production, as producers can sell RINs once their biofuels are blended with conventional road fuels. Lower prices on D4 RINs generate less revenue for the biofuels industry and also reduce compliance costs for obligated parties. Some refiners have shifted their strategic focus to compensate for lower RIN values, with some cutting back on renewable fuels production. Vertex Energy plans to idle renewable diesel production at its Mobile, Alabama, facility as the company anticipates generating wider margins by returning a converted hydrocracker back to fossil fuel production. Vertex remains open to restarting its renewable diesel production if market conditions improve. CVR Energy is considering changing feedstocks to improve its renewable diesel margins, possibly substituting corn oil for soybean oil. Chevron has shared similar sentiments, saying feedstock flexibility can be a major advantage across its operations. The company recently closed two biodiesel facilities in the US midcontinent as attention shifts to more profitable renewable diesel in the long term. Valero is nearly finished converting its renewable diesel unit to sustainable aviation fuel (SAF) at its Diamond Green Diesel joint venture facility in Port Arthur, Texas. The venture with Darling Ingredients is the largest producer of renewable diesel in North America and a major contributor to the increase in supply over the past two years. Valero views the D4 RIN market as in persistent oversupply due to the growth of renewable diesel, but the company remains optimistic due to other clean fuels incentives, including state-level low carbon fuel standard (LCFS) programs that provide incentives for reducing the carbon intensity of transportation fuels. "The long-term outlook of RD is still positive, because you look at the number of LCFS programs that are still being contemplated by legislation this year," Valero executive vice president Gary Simmons said. More renewable diesel capacity is expected to come online by the end of this year. Marathon Petroleum's Martinez, California, refinery is undergoing a full conversion from conventional petroleum refining to renewable fuels and is currently running at 50pc of capacity. Phillips 66 has taken a similar approach with the conversion of their Rodeo, California, plant, with 30,000 b/d of renewable diesel online. With EPA biofuel blending targets fixed through 2025, an aggregate decrease in renewable diesel production and subsequent lower generation of D4 RINs could counter the weakened RIN prices that are contributing to the industry's depressed production margins. By Matthew Cope Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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