Global biofuels demand is set to expand by 28pc to 186bn l between 2021 and 2026, with fuel demand recovery from the Covid-19 pandemic expected to account for a fifth of this, the IEA said today in its Renewables 2021 outlook.
But demand must nearly double again to align with the IEA's net zero scenario, the organisation said. In the IEA's accelerated case, biofuels demand growth could more than double between 2021 and 2026, although this is dependent on policies that tackle cost, sustainability — including the availability of sustainable raw materials — and technical limitations.
Demand will rise despite increasing biofuels prices — although the latter will slow growth, the IEA said. The Paris-based energy watchdog saw demand in 2021 recovering from the lows of 2020. And it has assumed in its forecast that high feedstock prices, seen across the board in 2021, are temporary.
All Argus European biofuel and feedstock prices, as well as tickets — the cost of compliance in some European countries — have hit record highs this year, with some reaching repeated records over prolonged periods. The prompt outright Argus fatty acid methyl ester (Fame) 0 fob ARA range benchmark has averaged $1,507.58/t in 2021 to date, up by 83pc on the year and by 86pc on the same period in 2019.
Ethanol and renewable diesel, also known as hydrotreated vegetable oil (HVO), will drive the growth, according to the IEA. In volumetric terms, ethanol demand will grow ahead of HVO. Demand for HVO is concentrated in the US and Europe, owing to policy in those regions, the IEA said.
European demand weak on declining liquid fuels
The IEA projects growth of 13pc over 2021-26 in Europe, partly on falling demand for liquid fuels, as EU proposals and legislation make the case for electric vehicles.
The European Commission's Fit for 55 package proposes that all new cars and vans are zero-emissions from 2035, signalling the phasing out of the internal combustion engine.
Demand growth is primarily for HVO and ethanol, although there is scope for increased biodiesel production if it replaces imports, the IEA said. The watchdog sees the increasing targets set out for biofuels creating competition for compliant feedstocks. The potential for biofuels in the maritime sector was noted, but biofuels accounted for just 0.1pc of the fuel used globally in the shipping sector in 2019, according to the IEA.
Strengthening Asian production
Asia's biofuels production will surpass that of Europe's before 2026, owing to growing liquid fuel demand and export-driven output, the IEA said. Asian countries account for 27pc of new demand and 29pc of new supply in the IEA's forecast period, mostly down to Indonesian and Malaysian blending targets, as well as India's ethanol policies.
India is set to become the third-largest market globally for ethanol demand by 2026, after the US and Brazil, the IEA said. The country plans to reach 20pc ethanol blending by 2025.
The IEA also cites a key growth driver in the shape of Indonesia's planned B40 blending mandate, although Indonesia said today that this is likely to be delayed to 2025.
In the US, HVO and SAF make up 78pc of the IEA's projected growth for US biofuels demand. Domestic output of both meet most of this new demand in the IEA's forecast, and it also notes that there is little evidence of supply project cancellations, despite high raw material costs.
And in Brazil, although the IEA forecasts an increase in biofuels demand of 27pc to 2026, almost half of this is down to ethanol demand returning to 2019 levels. Brazil this week confirmed that its biodiesel blend mandate for 2022 would be set at 10pc — much lower than the 14pc rate previously set out in the country's timetable.
