Article: How COVID-19 Will Affect Global Biofuels Demand

April 07, 2020

Print This Article Share it With Friends

(IHS Markit/FO Licht) There is also early evidence that as restrictions have been lifted in China, more people there are preferring to travel by private cars or taxis rather than taking public transport—it is highly likely this will happen in Europe too.

...

For the EU-27, diesel demand in 2020 is seen contracting by 10%. The expected decline in diesel demand coincides with an increase in biodiesel blending in several member states in 2020, the year when the 10.0% cal. renewable energy target in land transport in the Renewable Energy Directive (RED) and the 6.0% greenhouse gas reduction target in the Fuel Quality Directive come into the force.

How do these two factors - the expected sharp downturn in economic activity over parts of 2020 and the mandated increases in biodiesel blending - translate into figures?

...

The current projections translate into a slight decline in 2020 biodiesel demand, or a loss of 2 mln tonnes when compared with demand under "normal circumstances". This may not sound impressive at first sight, but the devil is in the details of the EU biodiesel balance, and it can be expected that FAME from plant oils will suffer most from the demand-side contraction. Why is this the case?

First, refiners prefer to blend HVO over FAME on technical reasons (energy content, physical and chemical characteristics) and the higher blending limit. The EU-wide production capacity of the product rose in 2019, so almost 3.5 mln tonnes could be available for the market in 2020. It can be assumed that this tonnage will find its way to the market. Risk factors like coronavirus-induced production stops (see Neste's recent news on maintenance at Porvoo) or other disruptions of the supply chain outside and inside the bloc exist, but this also applies to other fuels and also to imports and not only to HVO.

Second, there is a strong preference for waste-based biodiesel (FAME and HVO) on the market, following the double counting provisions (DC) for that kind of renewable fuel fixed in the RED, its advantageous GHG emissions and the fact that the market share of crop-based product is capped in the RED and in member state legislations. Last but not least, high quotas in some member states make the use of DC biofuel necessary.

...

Third, imports of plant oil-based FAME will fall y/y, also due to the anti-subsidy duties imposed on Indonesian product and the higher mandate there, but continue to exist. Argentina has a tariff rate import quota of 1.2 mln tonnes per year, and Malaysia should have an exportable surplus in 2020. True, the coronavirus and the peso crisis in Argentina will push the volumes below the level which would have been normally expected, but there will be significant imports also in 2020.

Fourth, there was a built-up in biodiesel stocks in the EU in recent years. In 2018 and 2019, changes in tariffs lifted biodiesel imports to above 3 mln tonnes per annum. These stocks weigh on the market and may cut output once more.

...

The EU ethanol market will mostly likely be harder hit biodiesel as gasoline-powered passenger vehicles will bear the brunt of the slow-down in overall demand for transportation fuels. At the moment, we expect fuel ethanol consumption in 2020 to fall by around 12% to 4.43 mln cubic metres.

...

There is a wide range of estimates for the disinfectants market for none of which there is a tested data-base. At the lower end there are estimates of 20-30 ml of disinfectants demand per person and day for the most affected countries in the EU. This alone would translate into around 140-200 mln litres of additional demand per month. In some countries health authorities are calculating with 30 litres of disinfectants per person and year which would translate into around 600 mln litres of ethanol demand per month. Other estimates work with an additional 2020 ethanol demand for disinfectants in the order of almost 700 mln litres, which would also more than compensate for the loss in fuel consumption.

And while quite impressive one should not forget that considerable logistical and legal challenges will have to be overcome before this volume can be achieved.

...

Demand losses are also on the cards for the biofuel sector in the United States. Before corona started to bite in, nationwide biodiesel demand was set to rise by 1 mln tonnes on the back of a higher biodiesel mandate in the Renewable Fuel Standard, an increase in the GHG reduction target under California's Low Carbon Fuel Standard and the re-introduction of the Blender's Tax Credit for biodiesel in late 2019. How will the projected demand-side contraction in diesel demand (13%) impact the US biodiesel balance?

Assuming constant blending ratios, the 2020 biodiesel market is set for a small y/y increase to slightly above 9 mln tonnes. The coronavirus is seen costing almost 1 mln tonnes of "lost demand". Regarding the FAME vs HVO competition, the availability of HVO rises also here.

The outlook for the ethanol market is considerably gloomier. Gasoline consumption is expected to tank by about 20% in 2020 and by 50% in Q2. This is due to the composition of the passenger car fleet which is predominantly gasoline-powered. As ethanol is blended at a relatively fixed rate of 10% vol., it will see a similar decline.

...

At the same time, the (Brazilian) ethanol market will shrink for three reasons:

as in other countries, Brazil is likely to move into recession which will have direct bearing on the number of miles driven by passenger vehicles (which are exclusively powered by ethanol or gasoline/ethanol mixes).
the sharp price decline for gasoline will squeeze hydrous ethanol out of the market
the relatively higher sugar price will prompt Brazilian millers to produce more of the sweetener at the expense of ethanol. READ MORE

POET IDLES ETHANOL PLANTS; CORN FARMERS LOSE HOME FOR 110 MILLION BUSHELS (Successful Farming)

Biofuel plants slow production as fuel prices fall (Agri-Pulse)

BR Distribuidora asking for ANP to reduce biodiesel sales at next auction by at least 25% (Biofuels Digest)

UPDATE 1-Brazil gasoline, ethanol sales down 30-35% amid coronavirus -BR Distribuidora (Reuters)

Indonesia to discuss how to continue biodiesel program amid falling fuel prices (Reuters/Yahoo!)

Biodiesel demand in the EU to remain stable, says Lipidos Santiga (The Edge Markets)

Excerpt from The Edge Markets (June 11, 2020): Palm oil-derived biodiesel demand in the European Union (EU) is expected to remain stable this year, says a leading European vegetable oils firm.

Lipidos Santiga SA (Lipsa) said that on the whole, diesel usage in the EU has declined following the lockdowns instituted to halt the spread of COVID-19.

“The biodiesel sector can be happy that all trucks and public buses run on diesel because they helped maintain the usage of diesel during the lockdowns,” said Lipsa sales director José Angel Olivero Garcia.

“The collapse in gasoline and jet fuel has been much bigger,” added Garcia in a webinar organised by the Malaysia Palm Oil Council (MPOC) today.

...

As a result of the lockdowns and economic crisis in the EU, total diesel demand is expected to decline by 10% to 20% this year, he said.

“On the other hand, a positive is that biodiesel mandates are set to increase and the higher mandates will compensate the lower diesel use,” he added.

Meanwhile, in the food sector, Garcia noted that the lack of tourism in the region will hurt palm oil consumption.

...

“Shortly, palm oil will be a minor oil in Europe. Not only because of its declining use in food, but also because of it being phased out of biodiesel. If that happens, the consumption of palm oil will come down,” he said.

Under the EU’s Renewable Energy Directive II, the usage of palm oil-derived biofuels in the bloc will be gradually phased out starting in 2023 until 2030, due to alleged environmental concerns. READ MORE