Advanced BioFuels USA

by Solomon Lanitis, Chrysa Glystra and Wesley Swift (S&P Global Platts)  Ambitious emissions targets are driving governments across the globe to mandate greater use of biofuels in gasoline, and higher-ethanol blends of gasoline look set to make further inroads in the EU in the coming year.

Electric vehicles and hybrids have dominated headlines and are frequently portrayed as the answer to cutting road transport emissions. But even if all new cars purchased from now on were electric, it would still take several decades before the entire fleet was renewed. Although biofuels have attracted some controversy, they continue to be seen by many states as a more immediate solution for reducing vehicle greenhouse gas emissions.

In a number of European countries, consumption of gasoline blends with 5% and 10% ethanol is growing, as individual states gradually implement legislation to meet EU-wide targets. The Netherlands’ upcoming adoption of E10 in particular is seen as a potential tipping point for the region.

Meanwhile, across the Atlantic, the US is targeting a 15% blending level …. 

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Biofuel demand in Europe is driven by EU-wide targets under the Renewable Energy Directive and Fuel Quality Directive, but implemented differently in each member state. Some countries have blending mandates on a volume basis, others on an energy basis, and some have opted for a greenhouse gas reduction target.

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Some countries, like the Netherlands, also allow for waste-based biofuels to count double towards their obligation. From 2020, a revised Renewable Energy Directive will come into force, with a 32% target for renewable energy, and a 14% target for renewable energy in transport, by 2030.

Increased market penetration of E10, a gasoline blend with up to 10% ethanol, is seen as one of the key ways meet these ambitious targets in countries with a high gasoline consumption. France has been the greatest success story for E10 – every month sees new records of consumption, and E10 has already reached a market share of nearly 50%. 

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The consensus is that E10 can be used in around 90% of all petrol-driven cars used in Europe and in 99.7% of the petrol vehicles produced since 2010.

Logistical and infrastructural constraints will also be a factor across many countries, notably the UK, with many stations not yet positioned to introduce E10.

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This year ethanol prices have been particularly high and European fundamentals have so far been either finely balanced or on the tight side. But the contribution of producers using sugar beet as their feedstock varies every year depending on the yield of the crop and the sugar-ethanol parity, as they have the option to produce more of one or the other depending on price.

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Outside of the US Midwest, where the majority of the country’s ethanol plants are located, few retail gasoline outlets have pumps that can handle E15 fuel.

The US Department of Agriculture has in the past provided funds for the purchase of such gasoline pumps in an attempt to build the infrastructure the market needs. However, until such pumps become more common, it could be a while before E15 sales grow enough to see a substantial impact on the US ethanol market.

Resistance from refiners

Meanwhile, the US refining industry continues to lobby Congress to weaken or repeal the Renewable Fuel Standard, which mandates that refiners blend renewable fuels into petroleum-based fuel stocks.

Prior to the passage of the RFS by the federal government in the late 2000s, ethanol was primarily blended into gasoline as an octane booster. Its adoption for such use came after the US government banned MTBE use in US gasoline stocks due to concerns about its health impacts.

However, when gasoline prices spiked in the 2000s during concerns about whether the world had reached “peak oil,” the US government looked to renewable fuels as part of its strategy to reduce reliance on foreign oil. Hence the RFS, which raised the volumes of mandated renewable fuel blending each year.

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Ethanol’s generally lower prices in comparison with gasoline create an economic incentive for consumers to use more, albeit in exchange for substantially reduced mileage. READ MORE