European demand for hydrotreated vegetable oil (HVO), or renewable diesel, will be supported in 2025 by a combination of higher mandates for the use of renewables in transport, and by changes to EU member state regulations on the carryover of renewable fuels tickets, like in Germany and the Netherlands.
European HVO production could grow by more than 400,000t in 2025, if announced projects are completed in time. Most new plants have the flexibility to switch to sustainable aviation fuel (SAF) production, in the form of hydrotreated esters and fatty acids synthesised paraffinic kerosene (HEFA-SPK).
But those seeking to import HVO into the EU will face barriers. Definitive EU anti-dumping duties (ADDs) on Chinese biodiesel and HVO will be imposed by mid-February, and anti-dumping and anti-subsidy duties are already in place for HVO and biodiesel of US and Canadian origin.
Flows of US-origin HVO to the UK are unimpeded as transposed EU duties were removed in 2022.
A clean slate...
Against a headwind of gradually shrinking diesel demand, national transport renewables mandates are increasing. These ambitions rise again under the next iteration of the EU's Renewable Energy Directive (RED III), for which member states face a May 2025 transposition deadline.
Optimism in the biofuels markets will be tempered by experiences in 2024. The low value of renewable fuel tickets — tradeable credits generated primarily by the sale of biofuel-blended fuels — in major European demand centres has weighed on supplier appetite for physical biofuels.
This includes the relatively expensive HVO that can be blended in much greater volumes than cheaper fatty acid methyl esters (Fame). A portion of these tradeable tickets can usually be carried over from one obligation year to the next — as was done from 2023-24 — extending pressure on physical biofuel demand.
But Germany has approved a law removing the option for companies to carry over excess 2024 greenhouse gas (GHG) certificates through both 2025 and 2026, aimed at resetting the outlook for physical renewables demand. Obligated parties will need start from scratch to meet their annual GHG savings targets — at 10.6pc for 2025 and 12.1pc for 2026 — resulting in greater demand for physical biofuels including HVO.
In the Netherlands, the tickets carryover will be reduced from 25pc to 10pc for companies with an annual blending obligation.
...follows volatility
Prompt HVO assessments firmed significantly late in 2024 — albeit from long-term lows — driven by short-term demand in the Netherlands at a time of tight regional supply.
HVO (Class II) fob ARA range, a European benchmark based on HVO produced from used cooking oil (UCO), peaked at $1,500/m³ as a premium to escalated gasoil by 14 November — or a 122pc increase from the start of October — equating to $2,652.91/t on an outright basis.
Assessments then fell back to a $860/m³ premium a week later, when the market rebalanced as suppliers looked to reroute prompt volumes.
Before the rise, prices had hovered around historically soft levels for a sustained period. Sweden's decision to slash its GHG emissions mandate for the 2024-26 period due to fuel price concerns, and the low ticket prices have kept a lid on values.
The HVO (Class II) outright price averaged around $1,625/t over 1 January-31 October 2024, down by around $580/t compared with the same period of 2023.
While fundamentals now point to growth in European HVO use, the futures curve is backwardated. Those in the market may yet take a position that aligns with this viewpoint, but recent volatility has stunted forward trade.
