INSIGHT: Scale, technology and feedstocks among the challenges for growing biofuels sector

LONDON (ICIS)–It seems beyond question at this point in the market’s development that biofuels will be a significant factor in the the evolution of the transportation and petrochemical sectors, but the space remains in flux, with the winners and losers yet to be declared.

Materials such as sustainable aviation fuels (SAF) present some of the most achievable pathways to reducing the CO2 footprint of difficult to decarbonise sectors like aviation, while materials such as bio-naphtha have potential for the petrochemicals sector as well as transportation.

Limited time remains for governments to shift course on energy, production and economic growth to meet the net-zero targets policymakers have set for the coming decades.

A factor that could stand to drive wider deployment of biofuels could be its relative maturity compared to other emissions-reduction technologies, particularly for heavy industry, with around half of the innovations that are likely to contribute to those goal currently not yet in existence or in the development phase, according to the IEA.

Many biofuels production technologies are much more established, and some feedstocks such as waste cooking oil already have international trade networks, with material from China, Argentina and Brazil flowing into Europe.

The choice of technology, as much as the choice of biofuel, is likely to be a significant determinant of success. Some forms, such as SAF and biodiesel, can be synthesised using a wide variety of technologies, from isomerisation to pyrolysis, while others such as bio-gasoline, have a much more limited range of technological options at present.

	LPG	Naphtha	Gasoline	Jet	Diesel
Hydrogenation/Isomerisation	x	x		x	x
FT/Hydroprocessing				x	x
Alcohol			x	x	x
Co processing	x	x		x	x
Pyrolysis/Hydroprocessing				x	x
Power to Liquids (CO2 Feed)				x	x

The sector remains policy-driven, although consumer interest in alternative-fuel transportation is growing and that balance may shift over the next decade.

In the short-term, the momentum of the space is also dependent on government targets, meaning that some momentum has been lost during the pandemic.

DEMAND AND GROWTH
Biofuels demand dropped 8% in 2020 year on year to 150bn litres, according to the International Energy Agency (IEA), with Brazilian and  US ethanol production experiencing the most significant contraction. However this was slightly less than the overall drop in gasoline and diesel consumption at almost 9%.

The coronavirus pandemic has sharpened government attention on more immediate issues than transport sector reform, with Indonesia and Malaysia pushing back biodiesel blending mandates temporarily and Thailand postponing its ethanol-blending mandate indefinitely.

Output is expected to return to 2019 levels at least this year, the agency added, but the rebound will be uneven, with biodiesel and hydrogenated vegetable oil (HVO) fuels coming back strongly but US and Brazil ethanol sectors remaining subdued.

A factor in this is because ethanol and biodiesel are constrained by total demand (which remains subdued) due to blending limits, while HVO is a substitute for fossil diesel.

HVO could be a significant driver in biofuels becoming more mainstream, according to Michael Connolly, senior analyst on the ICIS global refining team.

“I think the big change in the market is HVO, because all these other fuels to date are limited by the blending percentage that can go into the finished product, whereas HVO can be 100% of the product. And so that opens up room for biofuels to expand,” he said.

That in combination with all the regulations/incentives, we’re seeing encouraging biofuels is really what’s driving a big change in the market. Then you will get  co products on the side like the  bio-naphthas and LPGs which the petchems firms are going to lap up,” he added.

SCALING
A key issue determining the winning technologies is that of which feedstocks can best scale to mature-scale market conditions.

Whereas the conventional oil and gas sector was always characterised by a near-endless pool of resources, with continuing to discover and exploit them the key technological challenge.

Now the biofuels market is growing, and an increasing number of idled or unprofitable refineries are being retrofitted to produce more material, but these new capacities will need to be fed.

Total’s La Mede, France, facility is producing up to 500,000 tonnes of biofuel per year, utilising animal fats, used cooking oil and vegetable oils.

The company’s Grandpuits refinery is expected to produce up to 170,000 tonnes/year of SAF, 120,000 tonnes/year of renewable diesel and 50,000 tonnes/year of bio-baphtha for plastics, also based on used cooking and vegetable oil.

As these feedstocks are often themselves by-products, either from the service sector, food production or agriculture, they are dependent on factors such a consumer demand, yields and weather.

The coronavirus pandemic saw a sharp drop in restaurant demand, meaning that waste oil from that sector became harder to find.

Players in the space are largely dealing with this by having supply contracts locked down ahead of time, according to Connolly.

“There’s a big feedstock market at the moment but it will become feedstock limited so what you see is all the players who are joining into the market have feedstock arrangements already, they are making agreements either with companies producing used cooking oil, or agro companies that are making vegetable oils or animal fats to secure feedstock supply,” he added.

As the sector continues to expand, which it will need to do to meet projected demand, sourcing sufficient feedstocks and successfully hedging against volatility, which is likely to remain more intrinsic to the supply side of the sector than with conventional fuels, will become a greater challenge, to be mitigated with innovation and the growing maturity of supply chains across the globe.

Insight article by Tom Brown.