European crop-based biodiesel benchmarks traded below underlying gasoil prices for the first time as the US-Israel war on Iran and resulting supply disruptions in the Middle East have pushed conventional diesel values to multi-year highs.
Fame 0 trade was initiated on price discovery platform Argus Open Markets at a discount of $25-78/t to Ice gasoil, for loading between 9 and 30 April. Rapeseed OME traded at discounts between $5-35/t in the same period.
But it is difficult to increase purchases of crop-based Fame in the largest European markets because biodiesel blending for road fuel is restricted at 7pc of diesel under the EU's fuel quality directive. And biodiesel is one of the cheaper options for meeting increasingly higher biofuel mandates, and so many buyers already blend biodiesel at the maximum rate possible.
There are a few options for where biodiesel demand could crop up. Companies can agree to use B100, or pure biodiesel. This is limited by the size of the compatible vehicle fleet.
Some countries may not be hitting the 7pc blend wall, including non-EU European countries without biofuel mandates. These could voluntarily increase biodiesel blending — something also recently suggested by the European commission as a supply protection measure.
Countries outside of Europe could also start using biodiesel, although logistics and transport costs could erode much of the discount. Biodiesel is often blended at higher rates in warmer climates.
Biodiesel could go into industrial or power generation, although these sectors are typically less familiar with liquid biofuels than the transport sector.
Higher blends can also be used in marine bunker fuel, possibly the easiest pivot given the growing role of bio-bunkers following the expansion of the EU ETS to shipping and the implementation of FuelEU maritime. However, crop-based biodiesel is less appealing in the maritime sector, because it does not qualify for FuelEU maritime compliance — FuelEU requires that biofuels be made from wastes or residues. But crop biodiesel can still be zero-rated in the EU ETS.
When including ETS costs, waste-based biodiesel has been cheaper than marine gasoil for several weeks already, but buying has not significantly increased. Some say shipowners and buyers are hesitant to make significant changes to their procurement strategy based on an acute price spread, or are wary of using biodiesel in their engines.
