Morningstar: Global Biofuel Demand Surges Amid Energy Security Concerns

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August 06, 2026

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(Oil & Gas Journal) ... Global biofuel consumption is projected to grow 30% this year, with upside potential extending through 2030, according to Morningstar DBRS. That growth is being fueled by a combination of higher oil costs, geopolitical shocks, and new blending mandates.

Much of this momentum traces back to the conflict involving Iran and the resulting shipping constraints in key routes such as the Strait of Hormuz and the Red Sea. These disruptions have heightened energy security concerns and pushed governments to accelerate biofuel adoption. With oil prices running roughly 25% above 2025 levels year to date, the economic case for alternatives like ethanol, biodiesel, and renewable diesel has strengthened considerably, while new and expanded blending mandates are reinforcing demand growth, Morningstar said.

Still, biofuels remain a relatively small slice of total transport energy demand and are unlikely to materially displace crude-derived fuels in the near term. Their growth is also highly sensitive to oil prices and policy support, which raises questions about how sustainable the current expansion really is. Morningstar points to the industry's history of boom-and-bust cycles as a cautionary note—the early 2000s saw overexpansion followed by margin pressure and plant closures—and warns that growth could moderate if fossil fuel prices fall or government subsidies and mandates are scaled back.

Looking ahead, demand growth is expected to be led by emerging markets, particularly in the Asia Pacific, where rising fuel consumption and stronger policy support are driving expansion. While the US will remain the largest biofuel market overall, countries such as India, Brazil, and Indonesia are projected to account for much of the incremental demand growth through 2030.

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For large integrated oil companies, this expansion looks more like an opportunity than a threat, Morningstar said. The firm reports that ExxonMobil Corp., bp plc., Chevron Corp., Shell PLC, TotalEnergies SE, and Eni SPA collectively have more than 40 biofuel projects either operating or planned through 2030, with many centered on sustainable aviation fuel (SAF), renewable diesel, and hydrotreated vegetable oil.

Company strategies differ in focus: ExxonMobil is emphasizing waste-based renewable diesel, while Shell leads in sugarcane ethanol and holds the strongest SAF position among the majors. Chevron is consolidating its US renewables footprint through its Renewable Energy Group acquisition, and bp has broadened its platform through ethanol, renewable diesel, SAF development, and full ownership of its Brazilian joint venture, Bunge Bioenergia. READ MORE

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Excerpt from Valor International: For the industry, the issue is becoming a business decision rather than merely a sustainability concern

Geopolitical conflicts, market pressure to decarbonize, and falling costs for new technologies have accelerated the use of green fuels in road, maritime, and air transport. In road transportation, alternatives such as natural gas, biodiesel, and electrification are becoming increasingly attractive economically. In aviation, sustainable aviation fuel (SAF) is the industry’s bet for the future, and its use will become mandatory in Brazil next year. Meanwhile, even stricter global rules to reduce shipping emissions are under discussion.

For each of the three modes, Valor spoke with companies and analysts about the potential and challenges of replacing fossil fuels, which will be examined in a series of articles. Whether transportation is by land, air, or sea, experts note that the issue is increasingly moving beyond sustainability teams and becoming part of business strategies to reassess costs, mitigate risks, and meet regulatory and customer requirements.

In ground transportation, the focus of the first article in the series, freight carriers remain far from being able to replace diesel as their primary fuel. However, alternatives such as electric vehicles and natural-gas truck corridors are being adopted to reduce costs. Passenger transportation companies, meanwhile, have been using biofuels since mid-2005, and the model is expected to gain momentum under Brazil’s tax reform, which will reward emissions-reduction initiatives with tax credits.

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Operating costs are 10% to 20% lower when a vehicle runs on CNG. The savings are greater with biomethane when it is produced in-house. At JSL, discussions center on landfill logistics, with the biomethane produced at the sites used to fuel the trucks.

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Of the company’s current fleet of 500 vehicles, 40 run on natural gas. Two more trucks already on order will arrive in the second half of the year, and another batch is expected to be purchased by early 2027, according to Jomed Manager Carlos Ferreira. “The goal is to have at least 150 by 2030.”

“The war has signaled that this is the time to accelerate the energy transition by replacing diesel-powered trucks. The situation is forcing us to speed up a transition that had previously been expected to take place over three years.”

In addition to soaring oil prices, Ferreira cites customer demand as an incentive for the shift, as clients seek to incorporate emissions-reduction indicators into their own decarbonization targets.

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In 2025, the maximum biodiesel blend was raised to 15%, and studies are underway to increase the limit and develop vehicles capable of running on 100% biofuel.

Among the companies making progress in this area is Águia Branca. According to Renan Chieppe, vice president of its passenger transportation division, 21% of its fleet already uses Euro 6 technology under Proconve P8, reducing nitrogen oxide (NOx) emissions by up to 80% and particulate matter emissions by 50% compared with Euro 5. The entire fleet also runs on B15 diesel.

Pineschi says Brazil’s tax reform should also encourage biofuel use by granting credits to companies that reduce emissions. READ MORE

Excerpt from ResourceWise:

Biofuels Remain Structurally Low-Priced

This disconnect has left biofuels historically low-priced relative to other commodities, both spot and forward.

Compressed premiums have significantly reduced the cost of compliance, particularly in European mandate markets. As confidence in underlying energy pricing improves, the market appears increasingly primed for a recovery in liquidity heading into the summer.

A key variable remains regulatory clarity. Particularly, the delayed publication of Germany’s mandate continues to act as a bottleneck preventing demand from fully materializing.

Inventory Overhang and Shifting Feedstock Dynamics

On the ground, traders report a market still weighed down by elevated inventories. Many participants built positions last year in anticipation of stronger 2026 mandates, leaving the system long product in the near term.

In response, blenders are working through stocks of UCOME and Annex IX A FAME, capitalizing on the steep discount to HVO and leveraging remaining double-counting mechanisms. This dynamic is reinforcing demand for lower-cost biodiesel pathways while limiting near-term upside for HVO in certain segments.

At the same time, HVO producers are increasingly shifting toward Annex IX B feedstocks. Capacity utilization in this segment has risen markedly compared to last year. This is supported thanks to a tightening global supply picture.

Imports are becoming less competitive due to a combination of multiple factors:

Tariffs
Record US Renewable Volume Obligation (RVO)
Ongoing Shipping Disruptions from Eastern Biofuel-Producing Regions

Together, these pressures are tightening global supply availability and reinforcing stronger domestic utilization across key biofuel markets.

A Market Stabilizing But Not Settled

Taken together, the biofuels market is entering a period of relative calm. But it is important not to conflate this calmness with overall market stability. READ MORE