Viewpoint: Swedish mandate cut shifts HVO balance

Spanish Market: Biofuels
20/12/23

The Swedish government's decision to slash domestic road emissions reduction targets in a country that had been a trailblazer in renewable energy has upset conventional thinking on the short-term supply and demand outlook for hydrotreated vegetable oil (HVO) in Europe.

A sharp decline in demand for the drop-in biofuel in such a key market, coupled with expected growth in EU production capacity, is poised to shift the balance for what has so far been a relatively tightly supplied product.

Forward prices for HVO underscore the prevailing market view. European benchmark futures for free-on-board (fob) HVO produced from used cooking oil (UCO) — known as HVO Class II — changed hands at $875-950/t and $900-925/t over low-sulphur gasoil in the second and third quarters of this year respectively, significantly below average spot premiums of $1,255/t and $1,403/t in the same periods. A recent uptick in activity in the paper market anticipates a move to daily HVO price assessments in January.

Sweden's greenhouse gas (GHG) reduction targets were 7.8pc for gasoline and 30.5pc for diesel in 2023. The mandate will drop to 6pc for the 2024-26 period for both fuels as part of the government's attempts to address rising living costs, an issue it had campaigned on before the country's general elections in September last year.

Such a drastic cut could drive the share of HVO blended in Sweden's diesel pool below 1pc by volume, Swedish bioenergy association Svebio's programme director Tomas Ekbom told Argus earlier this year. Blending of HVO into diesel accounted for 24.7pc of the total pool in 2022 and 25.7pc in the first nine months of 2023, equivalent to 1.2mn m³ and around 1.04mn m³ respectively, according to government data provider Statistics Sweden.

Rising costs are a concern for other Nordic nations that have traditionally far surpassed renewables blending ambitions in wider Europe. Neighbouring Finland has proposed freezing its biofuel mandate for next year at 2023 levels, having previously cut 2022 and 2023 targets in response to rising fuel prices.

Silver lining

While such discussions are not isolated, EU member states are broadly making progress towards the bloc's increased emissions savings ambitions, notably under the revamped Renewable Energy Directive (RED III), which targets a 29pc share of renewables in final energy consumption in transport by 2030.

Some respite from the Swedish demand-side crunch should come from changes to Dutch legislation which would prompt additional biofuels blending, including of HVO, from next year. Elsewhere, Italy will increase incentives under its pure biofuels mandate, encouraging higher consumption of unblended biofuels such as HVO100.

Sales of pure HVO are expected to be allowed in Germany from next year, albeit not before April. And HVO demand is on the rise in Spain, where obligated parties seeking to meet GHG savings targets under the Fuel Quality Directive (FQD) have increasingly turned to drop-in fuels because of technical blend limitations for methyl ester biodiesels.

Supply-side gains

Longstanding policy positions have driven expectations for growth in renewable fuel demand in Europe, which in turn has underpinned investment in HVO, a biofuel not constrained by traditional blend wall limits. Based on latest project announcements, European HVO production capacity is set to rise by 34pc to 6.9mn t in 2024 and global capacity is due to increase by close to 20pc to around 24.7mn t.

Faced with a more challenging outlook on road fuel demand than jet fuel, some facilities could opt to maximise production of sustainable aviation fuel (SAF) in the form of synthetic paraffinic kerosene from hydrotreated esters and fatty acids (HEFA-SPK) over renewable diesel next year, in the run up to an EU-wide SAF mandate that is due to come into effect in 2025.

By Giulia Squadrin

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10/01/25

Mercosur-EU deal to open Brazil ethanol flows

Sao Paulo, 10 January (Argus) — A freshly inked EU-Mercosur trade agreement marks an important opportunity for Brazil's burgeoning ethanol market, but will likely not significantly impact the country's well established sugar trade. Announced in December, the landmark pact provides for the gradual exemption of tariffs on most exports from the four participating Mercosur countries to the 27 European countries that make up the EU. Goods considered sensitive, including sugar and ethanol, will be subject to a quota system with more limited benefits. Export quotas for specific products from each of the participating South American countries — founding members Argentina, Brazil, Paraguay and Uruguay — will be defined after the ratification of the agreement. For industrial ethanol originating in Mercosur and shipped to the EU, the agreement provides a maximum quota of 570,300 m³/yr (9,845 b/d), with tariffs gradually reduced to zero over the years. Non-industrial ethanol will have a quota of 253,400m³/yr, subject to a reduced tariff of €34-64/m³ ($34.82-65.55/m³), a third of current rates. The EU tariff on imported ethanol today ranges from €102/m³ for the denatured product — which includes chemical additives that make it unfit for consumption — to €192/m³ for the undenatured product. Quotas provided for in the agreement are more than enough to cover volumes Brazil exports to the EU. The South American country shipped 140,700 m³ of ethanol to countries in the European bloc in 2024, around 7pc of the 1.9mn m³ it exported in the year, according to trade ministry data. The terms of the agreement have caught the attention of market participants, who see an opportunity to revive trade flows to Europe, especially for industrial ethanol. EU countries soaked up around 30pc of Brazil's ethanol exports in 2022, but outflows have dropped significantly since. At the time, Brazil's ethanol gained a competitive edge during a period of rising energy prices in Europe amid the start of the Ukraine-Russia conflict and the aftershocks of the Covid-19 pandemic. The announcement of the agreement has put the EU back on the radar of Brazilian traders who stopped selling ethanol to Europe or those who are yet to enter the market. Slight impact for sugar The agreement is set to have less of an impact on Brazilian sugar exports, considering the approved quota and the volume normally exported to the EU. Mercosur will have a quota to send 180,000 metric tonnes (t)/yr of sugar to the European bloc with zero tariffs, while the excess volumes of raw sugar will face the current customs duty of €98/t. The tariff-free volume represents a small portion of the total sweetener normally shipped to the European bloc. Brazil's center-south — which includes the main producing states — alone exported 540,000t of sugar to the EU in January-November 2024, according to sugar and ethanol industry association Unica. Raw sugar accounted for around 87pc of that total. Shipments in 2024 were still below the 804,000 t/yr five-year average for Brazilian sugar exports to the EU. If volumes in the coming years remain close to historical levels, less than 25pc of the annual volume shipped from Brazil will benefit from the new import duties. The EU is expected to import 2.4mn t of sugar in the 2024-25 crop, which extends from October 2024 to September 2025. The volume makes the bloc the third largest importer in the world, only behind Indonesia and China, according to US Department of Agriculture data. The volume approved in the agreement with Mercosur would represent less than 5pc of the imports expected by the EU, which limits the potential competitiveness of Brazilian sugar in the European market. Negotiations on terms of the Mercosur-EU agreement have been concluded, but the pact will only enter into force after final signing and subsequent ratification. By Maria Lígia Barros and Maria Albuquerque Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Tidewater seeks Canadian import duties on US RD

08/01/25

Tidewater seeks Canadian import duties on US RD

Seattle, 8 January (Argus) — Canadian biofuels producer Tidewater Renewables is asking the federal government to impose countervailing and anti-dumping duties on renewable diesel (RD) imported from the US. Tidewater's complaint to the Canada Border Services Agency (CBSA) alleges the nation's renewable diesel market is being pressured by US producers who export volumes to Canada at artificially low prices because of US tax incentives — the now-retired blender's tax credit and pending Clean Fuel Production Credit. The complaint is also intended to alleviate pressure on emissions credits issued by British Columbia's low-carbon fuel standard (LCFS) and Canada's Clean Fuel Regulation, Tidewater said Monday in a statement. Tidewater said duties of C$0.50-0.80/liter (35-56¢/liter) could be imposed at the border on US renewable diesel if the complain it upheld, reflecting an estimated subsidy and dumping benefit to US producers of 40-60pc. CBSA is charged with investigating and verifying the complaints, while the Canadian International Trade Tribunal (CITT) is responsible for determining if those activities have harmed the Canadian industry. For a CBSA investigation to proceed, the complaint must have support from producers representing at least 25pc of Canadian output. Evidence of injury could then include lower prices and lost sales, reduced market share or decreased profits, among other factors. An affirmative finding by the CITT would grant the CBSA authority to impose import duties, in this case intended to offset the alleged unfair price advantage held by US exporters. Preliminary duties could be imposed as early as May, following a preliminary injury finding by the CITT. Final duties — dependent on the ruling by the CITT — could be imposed by September, Tidewater said. The company in December cited challenging economic conditions in its decision to re-evaluate its renewable diesel production from March-onward at its 3,000 b/d renewable diesel plant in British Columbia. Tidewater's profitability is dependent on sales of British Columbia LCFS credits, and its credit purchase and sales agreement with parent company Tidewater Midstream is due to end in March. By Jasmine Davis Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Indonesia necessitates UCO, Pome oil export approvals

08/01/25

Indonesia necessitates UCO, Pome oil export approvals

Singapore, 8 January (Argus) — Indonesian exporters of palm oil derivative products must now obtain approvals to ship them out of the country, according to a regulation released by the Indonesian ministry of trade today. The palm oil derivative products include used cooking oil (UCO) and palm oil residue palm oil mill effluent (Pome) oil. The regulation is to ensure adequate availability of feedstocks to support the rollout of Indonesia's B40 mandate, under which companies will have to supply 40pc biodiesel blends from the end of February . Export approvals will be valid for six months from the date of issuance, according to the regulation. Further export policies will be discussed and agreed upon in an upcoming co-ordination meeting between relevant ministries and non-ministerial government institutions which market participants said is likely to be held on 13 or 14 January. The service for applying for export approvals will be temporarily suspended until the meeting is held. During the meeting, a quota system for exports might also be discussed, said Indonesia-based market participants. An integrated team could also be formed to supervise exports, including bodies such as the Co-ordinating Ministry of Economic Affairs, Ministry of Trade, Industry, Agriculture, Finance and others. Indonesia-origin UCO prices in flexibag have been on an uptrend since the end of October 2024, rising to over 1½-year highs of $960/t on 20 December, according to Argus' assessments. They were slightly higher at $965/t on 7 January and remained at that level on 8 January. Argus assessed Pome oil fob Indonesia at a 29-month high of $1,010/t on 9 December, although prices have since softened slightly to $960/t on 8 January. Prices were driven up by escalating palm oil prices, and the country raising export levies on UCO and Pome oil to 6pc and 7.5pc of the monthly crude palm oil (CPO) reference price respectively in September last year. More recently, UCO sellers were short on stocks, and rushed to aggregate volumes to fulfill export obligations. Another round of export levy increases is looming, although market participants feel this might not be enough to fund B40 across all transport sectors as well. The country's ministry of energy and mineral resources said on 3 January that biodiesel producers and fuel retailers must supply 15.6mn kilolitres of biodiesel to fulfill the B40 mandate. By Sarah Giam Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

S Korea’s SK Energy supplies first SAF cargo to Europe

06/01/25

S Korea’s SK Energy supplies first SAF cargo to Europe

Singapore, 6 January (Argus) — South Korean refiner SK Energy has exported its first sustainable aviation fuel (SAF) cargo to Europe, describing itself as the first refinery in the country to do so. The cargo was exported four months after the refiner started commercial co-processing of SAF, SK Energy said today. SK Energy completed a dedicated SAF production line at its 840,000 b/d Ulsan refinery in September 2024. The refiner has established a production capacity of around 80,000 t/yr of SAF and around 20,000 t/yr of other low-carbon products such as bio-naphtha, using bio-feedstocks such as used cooking oil (UCO) and animal fats with traditional oil production processes. SK Energy works with its affiliate SK On Trading International to secure waste-based raw material as feedstock. It is one of three South Korean refineries which are producing SAF through co-processing, with the other two being S-Oil and Hyundai Oilbank. A fourth refiner GS Caltex has not announced plans to produce SAF, but is likely studying options including co-processing. It previously supplied around 5,000 kilolitres of SAF to Japan's Narita airport via Japanese trading firm Itochu on 13 September 2024. South Korea plans to require all international flights departing from its airports to use a mix of 1pc SAF from 2027 , with a target for the country to capture 30pc of the global blended SAF export market, it announced in August 2024. It remains unclear if co-processed SAF will be allowed to meet the country's mandate, but some South Korean refineries are optimistic. The country also said in August it planned to establish a national standard, certification and testing method for SAF beginning in December 2024, but no updates have surfaced as of 6 January 2025. By Deborah Sun Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Q&A: EU biomethane internal market challenged

02/01/25

Q&A: EU biomethane internal market challenged

London, 2 January (Argus) — The European Commission needs to provide clearer guidance on implementing existing rules for the cross-border trade of biomethane to foster a cohesive internal market as some EU member states are diverging from these standards, Vitol's Davide Rubini and Arthur Romano told Argus. Edited excerpts follow. What are the big changes happening in the regulation space of the European biomethane market that people need to watch out for? While no major new EU legislation is anticipated, the focus remains on the consistent implementation of existing rules, as some countries diverge from these standards. Key challenges include ensuring mass-balanced transport of biomethane within the grid, accurately accounting for cross-border emissions and integrating subsidised biomethane into compliance markets. The European Commission is urged to provide clearer guidance on these issues to foster a cohesive internal market, which is essential for advancing the EU's energy transition and sustainability objectives. Biomethane is a fairly mature energy carrier, yet it faces significant hurdles when it comes to cross-border trade within the EU. Currently, only a small fraction — 2-5pc — of biomethane is consumed outside of its country of production, highlighting the need for better regulatory alignment across member states. Would you be interested in seeing a longer-term target from the EU? The longer the visibility on targets and ambitions, the better it is for planning and investment. As the EU legislative cycle restarts with the new commission, the initial focus might be on the climate law and setting a new target for 2040. However, a review of the Renewable Energy Directive (RED) is unlikely for the next 3-4 years. With current targets set for 2030, just five years away, there's insufficient support for long-term investments. The EU's legislative cycle is fixed, so expectations for changes are low. Therefore, it's crucial that member states take initiative and extend their targets beyond 2030, potentially up to 2035, even if not mandated by the EU. Some member states might do so, recognising the need for longer-term targets to encourage the necessary capital expenditure for the energy transition. Do you see different interpretations in mass balancing, GHG accounting and subsidies? Interpretations of the rules around ‘mass-balancing', greenhouse gas (GHG) emissions accounting and the usability of subsidised biomethane [for different fuel blending mandates] vary across EU member states, leading to challenges in creating a cohesive internal market. When it comes to mass-balancing, the challenges arise in trying to apply mass balance rules for liquids, which often have a physically traceable flow, to gas molecules in the interconnected European grid. Once biomethane is injected, physical verification becomes impossible, necessitating different rules than those for liquids moving around in segregated batches. The EU mandates that sustainability verification of biomethane occurs at the production point and requires mechanisms to prevent double counting and verification of biomethane transactions. However, some member states resist adapting these rules for gases, insisting on physical traceability similar to that of liquids. This resistance may stem from protectionist motives or political agendas, but ultimately it results in non-adherence to EU rules and breaches of European legislation. The issue with GHG accounting often stems from member states' differing interpretations of the IPCC Guidelines for National Greenhouse Gas Inventories. Some states, like the Netherlands, argue that mass balance is an administrative method, which the guidelines supposedly exclude. Mass balancing involves rigorous verification by auditors and certifying bodies, ensuring a robust accounting system that is distinct from book and claim methods. This distinction is crucial because mass balance is based on verifying that traded molecules of biomethane are always accompanied by proofs of sustainability that are not a separately tradeable object. In fact, mass balancing provides a verifiable and accountable method that is perfectly aligned with UN guidelines and ensuring accurate GHG accounting. The issue related to the use of subsidised volumes of biomethane is highly political. Member states often argue that if they provide financial support — directly through subsidies or indirectly through suppliers' quotas — they should remain in control of the entire value chain. For example, if a member state gives feed-in tariffs to biomethane production, it may want to block exports of these volumes. Conversely, if a member state imposes a quota to gas suppliers, it may require this to be fulfilled with domestic biomethane production. No other commodity — not even football players — is subject to similar restrictions to export and/or imports only because subsidies are involved. This protectionist approach creates barriers to internal trade within the EU, hindering the development of a unified biomethane market and limiting the potential for growth and decarbonisation across the region. The Netherlands next year will implement two significant pieces of legislation — a green supply obligation for gas suppliers and a RED III transposition. The Dutch approach combines GHG accounting arguments with a rejection of EU mass-balance rules, essentially prohibiting biomethane imports unless physically segregated as bio-LNG or bio-CNG. This requirement contradicts EU law, as highlighted by the EU Commission's recent detailed opinion to the Netherlands . France's upcoming blending and green gas obligation, effective in 2026, mandates satisfaction through French production only. Similarly, the Czech Republic recently enacted a law prohibiting the export of some subsidised biomethane . Italy's transport system, while effective nationally, disregards EU mass balance rules. These cases indicate a deeper political disconnect and highlight the need for better alignment and communication within the EU. We know you've been getting a lot of questions around whether subsidised bio-LNG is eligible under FuelEU. What have your findings been? The eligibility of subsidised bio-LNG under FuelEU has been a topic of considerable enquiry. We've sought clarity from the European Commission, as this issue intersects multiple regulatory and legal frameworks. Initially, we interpreted EU law principles, which discourage double support, to mean that FuelEU, being a quota system, would qualify as a support scheme under Article 2's definition, equating quota systems with subsidies. However, a commission representative has publicly stated that FuelEU does not constitute a support scheme and thus is not subject to this interpretation. On this basis, FuelEU would not differentiate between subsidised and unsubsidised bio-LNG. A similar rationale applies to the Emissions Trading System, which, while not a quota obligation, has been deemed to not be a support scheme. Despite these clarifications, the use of subsidised biomethane across Europe remains an area requiring further elucidation from European institutions. It is not without risks, and stakeholders require more definitive guidance to navigate the regulatory landscape effectively. By Emma Tribe and Madeleine Jenkins Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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