NWE HVO, SAF at records on feedstocks prices, demand

Values for drop-in renewable fuels hydrotreated vegetable oil (HVO) and sustainable aviation fuel (SAF), or biojet, have hit record levels in northwest Europe, thanks to tight supply and rising prices of renewable feedstocks at a time of growing demand for transport fuels.

The fob ARA range outright price for Class I HVO, which is produced from food and feed crops, hit an all-time high of $1,819.17/t on 28 May, up by around $138/t during the month. Class II HVO, which is produced from used cooking oil (UCO) and palm oil mill effluent (POME), rose to $2,203.78/t in the final trading session of the month; and Class III HVO, produced from category-three tallow, hit a record $2,081.99/t. Both were up by $202/t from the start of the May.

HVO prices have been supported by higher demand, with record prices for conventional biodiesel grades narrowing the spread between Class I HVO and Argus benchmark biodiesel grade rapeseed oil methyl ester (RME) to a record low in recent weeks.

HVO values typically follow increases in biodiesel grades prices. HVO is a drop-in fuel, meaning it can be used in existing engines and infrastructures without any modification, that is instrumental in meeting Europe's rising blending targets. It allows to avoid the so-called B7 diesel blend wall, a limit that only allows for a 7pc biodiesel share in conventional road fuels.

HVO values have also been rising with gains in biofuels ticket prices in key markets, which usually cap HVO prices.

Conventional biodiesel and HVO values have been bolstered by tight supply and record prices of renewable feedstocks, especially for UCO. The cif ARA UCO outright price hit a record $1,360/t in the last week of May with demand rising at a time of limited domestic supply and a closed arbitrage on the Asia-ARA route caused by high flexitanks freight rates.

High UCO costs have also contributed to sharp gains in SAF prices in recent weeks. The outright biojet value rose by nearly $510/t in May to a record $2,675/t fob ARA range outright in the final session of the month. With SAF trade nearly absent early in the year because of reduced jet demand caused by travel restrictions, prices have remained largely unchanged since January. But interest for SAF has been picking up in northwest Europe and price indications have emerged at significantly higher levels, supported by a sustained increase in crude and gasoil prices in recent months and by the tight UCO supply.

Demand for HVO and SAF is likely to rise further in the coming years. The EU's Renewable Energy Directive (RED II) will mandate higher emissions reductions targets, and the European Commissions is likely to propose a EU-wide SAF blending mandate this year.

By Giulia Squadrin