European ethanol spot prices will remain at a steep premium to Eurobob oxy grade gasoline in 2022 amid continued tight supply and rising consumption of higher ethanol blends in Germany, France and the UK.
The Argus T2 prompt physical assessment for 50-60pc greenhouse gas (GHG) savings ethanol has hit records several times in the Amsterdam-Rotterdam-Antwerp (ARA) region since the end of September, albeit with some respite more recently. This highlights a broader outlook of demand outpacing supply. The assessment averaged €1,304.50/m³ in November — peaking at €1,505/m³ — far above the average of €652/m³ during the same month of 2020 as fuel suppliers struggled to source product.
Record prices on the Dutch TTF gas market have led to high operational costs at key ethanol plants and this, along with elevated feedstock costs, may force producers to cut production in 2022.
At the same time, the roll out of E10 gasoline — a blend that contains up to 10pc ethanol content — as the standard gasoline grade in the UK, the third-largest market in Europe, has increased demand. E5 is now only available as a protection grade at UK filling stations, encouraging significant uptake of the higher ethanol blend. Larger uptake of E10 in Germany and E85 — a gasoline blend that contains up to 85pc ethanol content used in flexi-fuel vehicles — in France has driven ethanol demand in Europe's two other largest markets. Meanwhile, Sweden introduced E10 in August, adding to demand.
The restart of UK producer Vivergo's 330,000 t/yr ethanol plant in Hull, northeast England, made possible by the introduction and rapid uptake of E10, is scheduled for the first quarter of 2022 and will help to ease supply tightness. But the plant, which has been mothballed since September 2018, will not return to full capacity immediately after its restart.
France's ethanol blend rate was above 7.8pc in October — an all-time high — after hitting 7.6pc in September. Prior to that, it had accounted for a 7.45-7.55pc share since September 2020. E10 took a 53pc share of French gasoline demand in October, while E85 accounted for a 4.3pc share, both records. German ethanol consumption hit a multi-year high in August, again because of stronger demand for E10. An increased discount of E10 to E5 in Germany, which was the first EU country to introduce the higher blend, has prompted drivers to opt for E10 after uptake was laboured by driver concerns about damaging vehicle engines.
In 2022 there will be higher biofuel blending mandates in the three major EU markets, with uptake of gasoline blends with a higher share of ethanol content likely to rise further. More suppliers will opt to meet a greater share of their obligations through ethanol blending because of elevated prices for biodiesel.
Europe is typically a net importer of ethanol, with arrivals from outside the EU most regularly from North and South America. This sort of external sourcing will be needed to make up a shortfall in regional supply. Imports of undenatured ethanol — typically used for road fuel blending — from outside the EU have fallen in 2021, to 63,000 t/month in the January-November period from 68,000 t/month in all of 2020, according to Eurostat data. This has further exacerbated the tight supply situation and has helped push prices to new highs.
The economics of bringing ethanol into the EU from the US and Brazil remain workable with prompt prices as high as they are. But large imports from Brazil are unlikely, as the majority of ethanol produced there is used domestically and extreme weather conditions in 2021 look set to cut Brazil's centre-south 2021-22 ethanol output by 8.7pc from the prior season, according to industry association Unica.
