Increased biodiesel blending to offset high crude oil prices unlikely: trade

Despite crude oil nearing the $100 per barrel mark, it remains unlikely that we'll see increased biodiesel blending

The likelihood of increased biodiesel blending in the face of high crude oil prices remains low, sources told Fastmarkets EnergyCensus this week, as the price of crude nears the $100 per barrel mark.

The dynamic is in contrast to the last time crude rose above the $100/b level, when relatively competitive biofuels meant blenders maximized their use of alternative fuels in a bid to minimize mineral oils.

On Tuesday, Brent crude futures exceeded the $97 per barrel mark as tensions between Russia and Ukraine mounted, reaching their highest level since 2014, before easing slightly to $96.45 per barrel on Wednesday.

While industry sources feel the inevitability of $100 oil is fast approaching in line with growing geopolitical tensions, sustained high biodiesel prices will continue to make increased usage of the greener fuels unlikely.

“Biodiesel is so expensive – if you look at it on the wholesale market biodiesel is nearly $1,800 per ton,” RAC fuel spokesperson Simon Williams told Fastmarkets EnergyCensus, adding that while prices are slightly weaker than they have been, “the price is still very high.”

“As biodiesel products are so costly, it’s unlikely that blending more biodiesel will help ease the problem of high oil prices,” he said, pointing to the biocomponent of diesel, which is “more expensive than ethanol is to petrol but ethanol is still 10%, while biodiesel is only 7%.”

“If you look at it in terms of the fossil fuel component for diesel that’s at 45p per litre, and that’s 93% of the product,” Williams said, adding that “only 7% is the bio component, which represents 13.65p. If it were any more than 7%, it would be quite detrimental.”

Higher fossil fuel prices could benefit countries where discretionary blending takes place, one UK source said, adding that in most countries, “people only use biofuels because they have to,” so some biofuel usage increase could potentially be recorded in Asia, particularly in Indonesia.

“That said, palm oil remains expensive, and biodiesel and oil are two very different commodities, they don’t interact with each other generally,” he added.

Meanwhile, higher fossil fuel prices could be of benefit to biodiesels in the US, which according to senior analyst at Fastmarkets The Jacobsen, Bob Lane, makes using biofuels more attractive.

“Lower fossil fuel prices (and higher feedstock cost) rely on Renewable Identification Numbers (RINS) to incentivize biodiesel production and as fossil fuel prices climb (or feedstock values fall) biodiesel production can lean less on RINs for an incentive to produce,” Lane said.

On Tuesday, values for rapeseed methyl-ester FOB Rotterdam sat at a $995/mt premium to the ICE gasoil contract, up almost $90 from a week ago, while used cooking oil methyl-ester (UCOME) rose by around $65/mt week-on-week to $1,140/mt.

Fatty acid methyl ester (FAME) meanwhile rose to $874/mt, its highest value since December of 2021.

“Until recently the biofuel industry has been benefiting from high oil prices as their process is costly,” one UK market source told EnergyCensus, adding that this “helps to position the sector as a cheaper alternative.”

“Nobody likes a more expensive alternative that underperforms in the majority of the rolling stock, but we’re stuck with it for now due to regulations,” the source said.

“In theory, the high costs should drive companies to look for alternative feedstocks and technologies to produce biofuels,” the source said.

“Vehicle manufacturers should have more focus on efficiency and for consumers to change their behavior to keep spending under control,” they continued, arguing that in reality it is more a question of damage control than cost reduction.

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