28 December 2011 10:43 [Source: ICIS news]
By Ross Yeo and Sarah Trinder
LONDON (ICIS)--As with many chemicals, European biofuels face uncertain prospects in 2012. However, while traditional petrochemical markets are primarily being undermined by the shaky economy, biofuels are additionally affected by the ever-changing legislative environment surrounding them.
But mandated biofuel usage written into EU law has sometimes even offered some level of protection against the negative influences of the sickly economy.
The European Commission’s Renewable Energy Directive (RED) requires that by 2020 all transportation fuels in the EU must contain 10% biofuel. Individual EU states are free to incrementally build up to this target as they see fit, meaning that current mandated levels vary. Nevertheless, the fines incurred by fuel producers for not meeting local requirements offer some measure of demand stability. Of course, given that the mandates are dictated as percentages, declines in the consumption of the primary fuel – for example, gasoline or diesel – will also affect biofuel demand.
The mandated requirements apply to biofuels across the board, but there are numerous other legislative changes that are set to affect specific products in different ways.
Biofuels produced from a raw material that is not part of the food chain, known as second-generation biofuels, are set to count double when tallying up the biocontent of a fuel blend. This will include biodiesel, which is made from used cooking oil and methanol produced from crude glycerine, which is itself a by-product of biodiesel production.
Also affecting biomethanol is new legislation permitting levels of 3% in gasoline blends.
Robert Vriens, marketing advisor at biomethanol producer BioMCN, is confident that these changes add up to a positive future for the product, which has yet to enjoy widespread usage.
“We have orders already from major oil companies... for both MTBE [methyl tertiary butyl ether] production and direct blending. The more they use, the earlier they fulfil their quotas, so they can use more of their own products,” he said.
In the fuel ethanol market, the sustainability requirements spelled out in the RED still have the potential to effect changes in the market, despite its publication one year ago, because of the different times at which individual countries are adopting it into their own internal legislation. The UK has recently done so, and sources believe there is potential for the rules to benefit local British producers, as imports will be subject to retrospective audits and pre-approval – time-consuming procedures potentially disadvantaging non-European producers.
A more likely source of change for the ethanol market is an impending amendment to the import duty on E90 (a blend of 90% ethanol and 10% gasoline). E90 imports are currently subject to 6.5% duty, as it is classed as a chemical by some EU member states. However, the EU now plans to introduce legislation ensuring that E90 is subject to the same €102/cbm ($132/cbm) duty as regular denatured ethanol.
Combined with the expiry of the US’s Volumetric Ethanol Excise Tax Credit (VEETC), this will result in higher E90 prices, reducing its current appeal and perhaps increasing demand for domestically produced material.
The implementation of the E90 duty is not widely expected until January next year. However, sources note there will also be a 90-day buffer period in which E90 imports will continue to be taxed at 6.5%, meaning no real impact is likely until the second quarter.
The sustainability requirements of the RED could have a potentially greater consequence in the biodiesel market, which itself is composed of a range of products, each with its own market dynamics. The proportion of material that holds sustainability certification as required by the RED varies widely among these different products. Sustainable rapeseed oil methyl ester (ROME) is readily available, whereas supplies of certified palm methyl ester (PME) are very limited – and in the soybean methyl ester (SME) market, sustainable material is practically non-existent.
As compliance with the RED becomes more widespread and demand for sustainable material increases, this could bring about a shift in the relative market shares of these biodiesel products in 2012, with a potential decrease in SME consumption while ROME and fatty acid methyl ester (FAME) blends experience increasing popularity.
While many of these legislative changes appear likely to have a positive impact on biofuels, sources stress that these products are still vulnerable to an economic slowdown.
“Economics impacts everything. Ethanol prices have been dropping, and we hit new bottom recently. This is the first year there has been no increase in consumption – it’s stagnating. But I think it could recover next year,” said one biofuels analyst.
($1 = €0.77)
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