Challenging Times for Biofuel Firms in South America
(Biofuels International) Slowing growth forecasts for South American economies look set to present a sustained challenge to biofuel investors and developers in the region, not least in Brazil where a weakening of Government resolve on biodiesel blending rates has angered producers.
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With the region having benefitted last year from rapid progress on Covid vaccinations and a sharp drop in new cases, the Bank’s downbeat forecast for the next two years is a contrasting reflection of a “sluggish labour market, a tightening of macroeconomic policies, and softer external demand”.
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On the natural impact front, for example, parts of Argentina, Brazil, Chile, and Paraguay have all recently experienced their ‘worst droughts in decades’, again according to GEP’s analysts. This is prompting a switch back to fossil fuels to produce electricity, much of which has typically been generated in the past from hydropower across these countries.
B10 downgrade
On the political front, meanwhile, the Brazilian Government’s decision in late November last year to reduce the country’s biodiesel blending rate to 10% (B10) for the whole of 2022, drew immediate protests from producer and industry bodies.
The Brazilian Union of Biodiesel and Biokerosene (Ubrabio) reacted sharply, commenting that the B10 downgrade, ordered by the country’s National Energy Policy Council (CNPE), placed Brazil’s entire biodiesel programme at risk.
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The move certainly appears to fly in the face of RenovaBio, the Brazilian Government’s high-profile initiative to help drive the country’s renewable energy growth towards a set of extremely ambitious 2030 targets.
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According to Ubrabio, there are currently 54 biodiesel plants in Brazil which are authorised by the National Agency of Petroleum, Natural Gas and Biofuels (ANP) to produce a total of 12.3 billion litres a year.
Unfortunately, Ubrabio’s estimate for biodiesel demand in 2022 sits at around 6.6 billion litres, all of which adds up to quite a demand/supply gap.
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Brazilian biodiesel producers are also coming to terms with a new direct sales and supply system which was introduced on January 1, 2022, replacing the country’s former auction process. Industry leaders wanted the switch-over delayed to address a lack of concrete rules for the direct system, alongside concerns over future manufacturing and fuel taxes.
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In Argentina, for example, 2021 saw the end-of-term conclusion of the country’s previous Biofuels Law and the introduction of a new law running though to December 2030, complete with a change in regulations which has given the Government the freedom to cut biodiesel blending to 3%, if necessary.
With B10 having previously operated in Argentina, albeit cut to B5 when the new law was enacted, the B3 “minimum option” was introduced to give the country’s Secretariat of Energy the authority to lower the blend rate if it believed that economic conditions required a reduction in fuel prices.
In relation to bioethanol, the new law mandates a blend rate of 12%, with output volume divided evenly between sugarcane and corn feedstocks.
However, the Energy Secretariat now has the authority to reduce the volume coming from corn ethanol by up to half, if necessary.
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In Colombia, meanwhile, producers have had to cope with a constantly changing range of ethanol blending rates over the past 12 months.
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Optimism remains
Nevertheless, there remains an upside to most stories, or at least an optimistic view to be considered, a point perfectly made by Erasmo Carlos Battistella, CEO of BSBIOS, when he addressed COP26 in Scotland in December 2021.
Speaking from the Brazil Pavilion at COP26, Battistella stressed the need for countries to invest in research and development to encourage biofuels as an immediate option for the global transition to a cleaner energy matrix. READ MORE
