Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Biodiesel producers will use record volumes of soyoil in 2022
10 November 2021Dr. Christoph Berg
The global biodiesel output is forecast to rise sharply in 2022.
One of the key questions is how this new demand will be covered on
the feedstock side, and how these changes impact commodity
markets.
To be more specific: the market not only has to deal with
questions around economics but also with food security issues and
changes in well-established trade flows. E.g. which role will
virgin vegetable oils (VVO) play next year? What about non-crop
feedstock, which have become a key pillar of the global input
portfolio - can one expect other dynamics here than those in
VVO?
The projected increase in world biodiesel production next year
stems from two factors:
The expected recovery in road diesel demand in 2021 and 2022,
after the drop last year, when the COVID-19 pandemic hit the
market. The bulk of the biodiesel used worldwide is in road
applications (off-road: up to three million tonnes per annum or 6%
of the global total).
Renewable energy and decarbonization targets rise across the
globe on various reasons.
In 2022, biodiesel production is seen rising by more than 15% to
roughly 53 million tonnes, 7 million more than forecast for 2021,
against a much weaker plus this year and a drop in trouble-hit
2020.
The term biodiesel here refers to fatty acid methyl esters
(FAME) and renewable diesel (RD) produced in stand-alone or
co-processing units.
VVO output set to rebound - but will there be
enough?
Global productionof the major plant
oils in 2021/22 may rise y/y by almost 10 million tonnes
to roughly 215 million tonnes, after a slight drop in 2020/21,
market projections show. This sounds impressive at first, but the
additional output has to cover food and fuel needs.
One must not forget that demand for palm oil in India and China
Mainland is set to remain high (at 8-9 million tonnes annually and
roughly 7 million, respectively) in 2021/22. The same applies to
soybeans, where China Mainland's import requirement is estimated at
more than 100 million tonnes.
The outlook for the global productionof
crude palm oil (CPO) in the current cycle points to an
increase to slightly below 80 million tonnes, with Indonesia
contributing up to 2 million tonnes more and Malaysia 1
million.
The soyoil situation in the Americas is not
straightforward. True, a y/y increase in US soybean output from the
current harvest on the back of strong plantings is helpful. At the
same time, the season started with a weak carryover while demand
will expand. This means the US bean balance will recover only
slightly. Projections for 2022/23 plantings are for an
increase.
At the same time, available supplies in 2021/22 in Brazil (=from
the harvest starting early 2022) may grow only slightly. The bean
harvest may reach more than 140 million tonnes, but the outlook for
exports remains strong.
Bullish price signals come from rapeseed and
canola. Rapeseed production in the EU-27 in 2021/22
recovered from the low 2019/20 and 2020/21 results but remained
below the levels of around 20 million tonne seen earlier.
The outlook for urgently needed exportable supplies is
disastrous:
Dry weather conditions cut Canada's canola supplies sharpy, to
below 13 million tonnes, drastically reducing crush and seed
exports for the current cycle.
Australia may export more canola in 2021/22 but these
additional 0.5 million tonnes are not enough to change the bullish
picture here.
No relief comes Ukraine, following a drop in plantings
there.
Winter rapeseed plantings for the coming cycle in the EU are set
to rise, possibly by more than 5%, but remain below earlier
seasons. EU farmers seem to prefer other crops such as wheat which
may also have to do with regulation on plant protection.
Demand dynamics differ across the biodiesel feedstock
portfolio
The projected plus of more than seven million tonnes in
biodiesel output in 2022 will mainly be borne by VVO (+ five
million), including a strong increase in soyoil. VVO-based
biodiesel output is seen reaching around 37 million tonnes, which
translates into around 41 million of VVO including refining losses
and co-products.
Demand growth for VVO from the biodiesel sector will accelerate
sharply next year. While palm oil will remain the main VVO used for
biodiesel production, soyoil will see the strongest increase.
Moreover, demand for rapeseed oil should see a sharp rebound after
the drops in 2021 and 2020. Other VVOs such as sunflower oil or
coconut oil or other crop-based products like distillers corn oil
(DCO) will also see growth in demand. Jatropha oil plays no role
here.
In relative terms, biodiesel from non-crop feedstock will
continue to gain share. The non-crop feedstock section is a wide
category and includes various types of secondary and tertiary
biomass such as:
Waste streams from the food supply chain such as used cooking
oil (UCO) or animal fats/tallow,
By-products of crude VVO refining and cooking oil production
such as fatty acids, palm fatty acid distillates (PFAD), palm oil
mill effluent (POME) oil, soapstock, acid oils, and stearine, as
well as
Fatty feedstock from industrial application such as tall
oil.
All in all, more than 16 million tonnes or 31% of the 2022
biodiesel production may come from non-crop feedstock.
Feedstock use in terms of tonnage is hard to gauge as
input/output ratios can differ widely. Non-crop inputs like UCO or
animal fat usually have a much less advantageous conversion ratio
than VVOs.
Another point impacting the dynamic of the feedstock demand for
biodiesel are differences in the product yields in the FAME and RD
production processes. A risen share of RD in global biodiesel
production additionally boosts demand for fatty feedstock. The
delta in plant oil or waste feedstock demand therefore also stems
from the fact that the biodiesel yield in RD is significantly
weaker than for FAME. In other words: a relatively smaller portion
of the oil input ends up as RD than in FAME (FAME yield is about
90%, while that of RD is about 80%). In RD production, the
"remainder" of the output consists of products such as green
naphtha or substitutes for liquefied petroleum gas which are not
being considered here but are relevant on the markets for energy
and chemical products.
Shifts in the palm oil demand pattern
The global use of palm oil in biodiesel may exceed 16 million
tonnes, based on a biodiesel production of slightly below 15
million. The year 2022 may bring a y/y increase of more than one
million tonnes, with the bulk of that coming from Indonesia, and,
to a lesser extent, from Malaysia and Thailand. These increases
more than offset the expected decline in the EU.
The outlook for Indonesia is based on the current mandates (B-30
in road transport). I.e. the growth in road diesel demand
determines the y/y change. An earlier announced plan for an
increase to B-40 for which no binding time-frame exists would of
course boost demand. The projected delta in Indonesia's 2022
biodiesel production is also in line with Jakarta's plans to get
away from an economy focused on the export of raw materials.
The expected decline in EU palm oil biodiesel production (RD and
FAME) to less than 1.5 million tonnes stems from efforts to phase
out the use of the product as biofuel feedstock by 2030. Relevant
legislation here is a Delegated Act under the EU Renewable Energy
Directive II (RED II) which is challenged at the World Trade
Organisation by Southeast Asian exporters. Worth noting is that EU
member state legislation is partly stricter in this respect. There
also are efforts to cut/phase-put the use of palm oil at company
level from large biofuel suppliers (see e.g. announcements by Eni,
Neste, etc.).
This means that the global use of palm oil will more and more
shift to the Southeast Asian biodiesel suppliers which are fulfill
their local mandates and, occasionally, cover discretionary
blending demand. At the same time, the relevance of renewable
diesel in palm oil demand drops on a lack of sales opportunities on
both the EU and the US markets.
Summing up, we expect that 22% of the global palm oil production
will end in the biodiesel segment, up slightly on 2019-2021 and
against 13% ten years earlier.
Biodiesel producers in the Brazil, US boost soyoil
demand
Biodiesel production from soyoil will jump to more than 13
million tonnes (=14 million tonnes of oil or 70 million tonnes of
bean equivalents) in 2022, only slightly behind palm oil. This
means a more than two million tonne y/y increase, following growth
in Brazil and the US.
The biggest producer of soyoil-based biodiesel in 2022 will
remain the US. Big Oil targets to reduce carbon emissions and reap
gains from attractive markets for renewable fuels (e.g. the Low
Carbon Fuel Standard (LCFS) in California). Several companies
announced plans to invest in RD production capacity in recent
years. So even when assuming a higher use of UCO/yellow grease,
tallow or DCO next year, US biodiesel will eat into soyoil and bean
exports.
Growth prospects for soyoil production in Brazil are limited
amid a strong export outlook for beans. However, the federal
government plans to partly liberalize the strictly regulated
domestic biodiesel market. This eases the supply-side situation
here and allows some growth. Uncertainty factors here are:
The level of the mandate, following government interventions in
recent months to prevent road fuel prices from rising. Our outlook
is based on an average 12.5% vol. blend, up from 11% this year.
However, it is far below the 15% targeted for 2023.
The role of RD. State-controlled oil major Petrobras has
conducted test runs with co-processing liquid biomass feedstock and
targets sell into the mandate. An approval here would likely cut
demand for expensive VVO feedstock such as soyoil.
All in all, we forecast that 25% of the global soyoil production
will be consumed in the biodiesel segment, up from levels around
20% in 2019-2021 and 18% ten years earlier.
The developments in the US mean that more than two million
tonnes will be used in RD, partly replacing demand from soyoil
methyl ester (SME) producers, which is 18% of the expected total
for biodiesel and up sharply from marginal levels currently.
Downside risks for SME production and use in the EU exist in
near term in the context of deforestation concerns which could
result in policy interventions.
Rapeseed oil demand to rise from the 2021
low?
High prices due to a tight rapeseed balance and issues on the
input side (lack of catalysts) reduced EU-27 RME output in
2021.
A rebound is on the cards for 2022, but the pre-2020 levels may
not be reached again. However, this requires an easier balance for
rapeseed in the EU plus a sufficient supply of canola imports ex
Canada and Australia.
Rapeseed oil use in RD/co-processing exists, at least in Europe,
anecdotal evidence suggests, but the volumes here are still small
when compared with the bloc's RME production. However, this may
change once the phase-out of palm oil gains steam. Rapeseed use in
RD could become a serious problem for RME producers. This also
applies to the short-term. Replacing rapeseed oil is hard in times
when SME offers no real alternative, and palm oil is being phased
out.
At the global level, these data translate into around 17 million
tonnes of rapeseed/canola used in biodiesel in 2022, a three-year
high, but significantly below the levels seen pre-2020.
Feedstocks outside the VVO category
The COVID-19 pandemic reduced the availability of some non-crop
feedstock such as UCO in a couple of regions such as Europe or
North America, following closures of parts of the supply chain
(restaurants, hotels, cantinas etc.). Nevertheless, biodiesel
output from non-crop feedstock continued to rise.The incentives in
the US and the EU are very attractive for greenhouse gas efficient,
non-crop products.
Actually, the lower UCO collection in Europe and North America
was offset by increased efforts elsewhere such as in Asia (China
Mainland etc.). A significant share of the UCO collection was once
again directly converted into FAME and RD and not exported as
feedstock to Europe or the US. We therefore estimate that UCO-based
biodiesel production was virtually flat at 5.5-6.0 million tonnes
each in 2019 and 2020, with a growth towards 6.5 million on the
cards for this year and almost 8 million for next.
A growing market segment in the non-crop category will be
biodiesel made from POME. Biodiesel output here could easily reach
0.5 million tonnes this year and next, mainly in Southeast Asia,
China Mainland and the European Union.
RD producers are able to soak up a growing share of these
non-crop feedstocks. We estimate that more than 45% of the 2022
biodiesel output from non-crop feedstock is RD. This compares with
40% in 2021 and "only" 35% in 2013. The dynamic can be attributed
to the replacement of palm oil as input at some companies, and the
fact that RD producers in several markets are able to outbid FAME
suppliers when seeking the most-attractive feedstock.
The aforementioned share of 31% of non-crop product in global
biodiesel output expected for 2022 compares with 23% 10 years
earlier.
Tough times in the non-crop segment ahead
The direction is clear. Biodiesel suppliers worldwide seeking to
sell into the attractive markets in North America and Europe target
to reduce their carbon intensity and therefore need non-crop
feedstock with a low emission profile. The Far East has become the
place where local biofuel and overseas producers compete for UCO,
POME, tallow, etc.
However, as feedstock supplies are limited, alternatives - also
from the crop section - have to jump in. Palm oil and PFAD offer no
real solution, as their acceptance is shrinking in North America
and Europe. Rapeseed oil is too expensive, and sunflower oil is not
available for fuel at the moment. The only product that can fill
the gap is soyoil. This explains part of the 2022 dynamic.
However, Europe and North America are only part of the global
biofuels story.
At the same time, economies like Indonesia and Brazil target to
lower their fuel import bills and support their ag sectors.
So, the global biodiesel market is divided into regions where
GHG performance is key, and others, where fossil fuels consumption
has to be reduced.
This development is unlikely to change soon. So the main issues
will be:
How much non-crop feedstock is available for GHG driven
markets, and how will the split between RD and FAME evolve.
What will the boom for palm and soyoil mean for the fragile
equilibrium between the food and the fuel market.
Going beyond 2022, demand for liquid GHG efficient feedstock may
see another boost from several decarbonization programs, including
the yet-to-be discussed post-Renewable Fuel Standard in the US;
cap-and-trade systems like the LCFS at the state level; the
transposition of the RED II in the EU; and the planned Clean Fuel
Standard in Canada. At the same time, producers of sustainable
aviation fuel (SAF) will continue enter the market, which is
significantly ahead of the time when the planned SAF mandates in
the US or the EU may kick in.
An expansion of the feedstock portfolio, e.g. with renewable
fuels of non-biological origins or synthetic fuels, is possible and
likely to happen, but not at competitive cost and in the
short-term. This puts a lot of pressure on these markets.
Posted 10 November 2021 by Christoph Berg, Managing Director, F.O. Licht, IHS Markit
S&P Global's Investing in Energy team is advising energy-focused financial teams how best to navigate these markets… https://t.co/7Dqpe0eYxT
May 16
{"items" : [
{"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fbiodiesel-producers-will-use-record-volumes-of-soyoil-in-2022.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fbiodiesel-producers-will-use-record-volumes-of-soyoil-in-2022.html&text=Biodiesel+producers+will+use+record+volumes+of+soyoil+in+2022+%7c+IHS+Markit+","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fbiodiesel-producers-will-use-record-volumes-of-soyoil-in-2022.html","enabled":true},{"name":"email","url":"?subject=Biodiesel producers will use record volumes of soyoil in 2022 | IHS Markit &body=http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fbiodiesel-producers-will-use-record-volumes-of-soyoil-in-2022.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Biodiesel+producers+will+use+record+volumes+of+soyoil+in+2022+%7c+IHS+Markit+ http%3a%2f%2fihsmarkit.com%2fresearch-analysis%2fbiodiesel-producers-will-use-record-volumes-of-soyoil-in-2022.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"}
]}