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Biodiesel and renewable diesel is set to become increasingly
important in decarbonizing the diesel transportation sector as
intensifying focus on climate change and legislations toward
greenhouse gas (GHG) reduction bring new growth drivers to the
transportation and biofuels markets. Renewable diesel will drive
future growth, registering an annual upside of 13% over 2020-25. It
will take 20% of the combined market of biodiesel and renewable
diesel in 2025, up from the current level of 14%.
The stake of ethanol, which together with biodiesel, used to
dominate the biofuels market, will remain limited in importance due
to slow commercialization of cellulosic ethanol technology and the
rise of electric vehicles in the gasoline vehicle fleet.
Although renewable diesel emerged just less than 10 years ago,
it has become a strong competitor to biodiesel. Wide use of
recycled feedstock in renewable diesel production contributes to a
low carbon profile. Moreover, renewable diesel has superior
compatibility properties over biodiesel under various conditions
regarding infrastructure, engine specification and weather, making
it a preferred choice in the high-blend market.
Developed markets, in particular North America and Western
Europe, are shifting to renewable diesel due to ongoing
modifications to legislations toward GHG reduction, which require
greater amounts of low carbon fuel content in the transportation
sector. Developing markets, led by feedstock-rich regions such as
Southeast Asia and South America, continue to favor locally
produced biodiesel.
Renewable diesel capacities is going through a phase of rapid
expansion in the U.S., led by global refiners retrofitting existing
fossil fuel refineries to process renewable feedstock. Compared
with the biodiesel industry owned primarily by agriculture players,
new renewable diesel investments are on a much larger scale. These
facilities are built to meet fuel market participants' tightening
compliance obligations under the California Low Carbon Fuel
Standard (LCFS), which aims to gradually reduce the carbon
footprint of fuel blends sold in California. LCFS is extending in
the Pacific Coast - more regions including Oregon, Washington and
British Columbia will adopt similar legislation framework.
Renewable diesel investment also fit in with the global
decarbonization and energy transition strategy of refiners. By
2022, renewable diesel capacity in the U.S. will more than triple
the level in 2020.
The rise of renewable diesel will likely result in a diverging
trend in the U.S. biodiesel industry, which is expected to decline
due to competition from renewable diesel, particularly in the
feedstock market. The low carbon feedstock market is experiencing
surging demand and higher prices. Small-scale biodiesel facilities
utilizing recycled oils will likely be the first to run out of
business due to ongoing cost pressure. This will affect the
biodiesel catalyst providers, as well as the glycerin industry, a
byproduct of biodiesel production.
Among other major markets, Europe will also see renewable diesel
growing faster than biodiesel under REDII, but also potentially in
renewable jet fuel. In Southeast Asia and South America,
particularly Indonesia, Thailand, and Brazil, biodiesel will
continue to dominate and grow under higher biodiesel mandates.
Traditional exporters such as Argentina and Malaysia are facing
stagnant export markets due to more countries establishing trade
policies to protect the local biodiesel industry, as well as the
preference of low carbon feedstock in the buyer markets that have
established GHG reduction legislations.
Accelerated growth in renewable diesel will have a huge impact
outside of the oleochemical value chain as well, driving further
commercialization of major renewable diesel manufacturing
technologies that are adopted by refiners entering the space.
The manufacturing process of renewable diesel can also be
configured to produce other renewable products such as renewable
jet fuel, which is set to grow in the European market; as well as
renewable naphtha, the feedstock for emerging bio-attributed
plastics markets.
It will also open room for hydrogen investing, as the
hydrogenation process of renewable diesel production, particularly
in the large-scale refinery retrofitting plants, will require
higher amounts of hydrogen over the next few years.
Posted 30 April 2021 by Rita Wu, Director, Global Renewables and Nutrition Research, IHS Markit
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