Dutch HVO buying rises on lower costs

Obligated parties in the Netherlands have ramped up hydrotreated vegetable oil (HVO) blending in recent weeks as the cost of the drop-in biofuel has fallen below that of renewable fuel tickets (HBEs). Blending has also been supported by the prospect of a retroactive increase in the 2024 domestic blending mandate.

Prompt prices for double-counting palm oil mill effluent (Pome) oil-based HVO — or HVO Class IV — that generates advanced HBE-G tickets has fallen more steeply than the other classes of HVO in recent months, driving demand for this class in particular. The relative physical blend cost of HVO Class IV dropped below market value of HBE-Gs in January and has remained so (see graph).

The spread between HVO Class IV and its biodiesel counterpart Pome OME also narrowed in the Amsterdam-Rotterdam-Antwerp (ARA) hub, from $1,051.68/t on 1 November to $257.78/t on 18 January, and has only marginally increased since then to $333.08/t on 1 March (see chart).

Buying interest has been piqued by plans from the Dutch government, announced last year, to increase the country's annual obligation — which stipulates a mandatory share of renewable energy in the transport sector — to 28.4pc for 2024, from 19.9pc. The proposal still requires approval from the Council of State, an independent adviser to the government and parliament, with a response expected this month. If approved, the amendment will be adopted retroactively from 1 January.

On the supply side, a decision in Sweden to cut domestic road emissions targets for 2024-26 has led to an increase in HVO entering ARA, weighing on prices since the start of the year.

Trade for HVO (Class IV) in ARA has exceeded other classes — spanning HVO produced from feed and food crops (Class I), used cooking oil (Class II) and tallow (Class III) — on Argus Open Markets (AOM) in 2024, with 8,000t of Class IV trade initiated since the beginning of the year.

By Thomas Hughes

HVO Class IV fob ARA vs Pome ome biodiesel fob ARA $/t

HVO Class IV vs Pome ome vs HBE G €/GJ