A Chinese engineering company has signed a tentative deal to build at least one production plant for renewable diesel and aviation biofuel in Malaysia that if realised would likely compete for feedstocks that have long been sourced by Europe-based producers such as Neste and TotalEnergies.
The deal, which was reported on Monday, involves China’s state-owned Shanxi Construction Investment Group investing in a hydrotreated vegetable oil (HVO) in Malaysia’s southern state of Johor, according to a Reuters report that cited Malaysia’s Commodities Ministry.
The ministry was reported as saying that each HVO plant is expected to be worth around $700 million in foreign investment, with an eye to supplying European and US markets for biojet.
These markets are expected to grow their SAF demand sharply this decade in view of a likely binding blending mandate and corporate targets in reducing emissions from flying.
The project is described as producing ‘second generation’ biofuels and is based on palm oil, but to supply the European market it would have to source palm oil wastes – which in Europe can qualify as residues for advanced biofuels.
The use of crude palm oil is soon be capped and then banned under rules for road-based biofuels, because of the commodity’s widely-cited role as a major driver of deforestation in tropical countries, and CPO isn’t permitted under the European Commission’s ‘ReFuel’ aviation biofuel initiative that excludes crop-based feedstocks.
In the US, residues-based biojet is only likely to earn the higher range of tax credits and other revenues – such as compliance credits at state and potentially federal level – if it can show large GHG reductions compared with fossil diesel based on low lifecycle emissions.
Green groups have long been sceptical about the environmental credentials of using palm oil-based residues in HVO and biojet, pointing out the difficulties in tracing the origins of these feedstocks, and the incentives that revenues from renewable fuels markets could have in the production of crude palm oil.
According to the report, the MoU is between the Malaysian Palm Oil Board, Pengerang Maritime Industries, Shanxi Construction, and the Institute of Coal Chemistry, Chinese Academy of Sciences.
Although China’s involvement in SAF is only at a nascent stage, the country’s biggest energy company Sinopec in August said it would aim to produce 100,000 mt of biojet by 2025.
That figure is just a small fraction compared with the 10 million tonnes of global demand that could emerge by 2030, but if other Chinese companies get involved in SAF then the country is likely to compete for domestic feedstocks and elsewhere in Asia that have long been sourced by Europe-based producers of FAME biodiesel and HVO.
Finland-based Neste is currently building a plant in Singapore that could produce up to 1.5 million tonnes of SAF by 2024, while energy major Shell said last month it is considering whether to construct a 550,000 mt/year HVO/SAF facility in the same country as they eye expected growth from Asian as well as European and North American airlines.
Malaysia is a major hub for the processing of used cooking oil and palm residues that are collected domestically and in other Asian countries, and its ports are the second-biggest origin for wastes that are used in the UK, Europe’s largest consumer of waste-based biofuel.