Reductions in incentives from the Dutch government to the marine biofuels sector will weigh on bio-bunker volumes at Rotterdam and could see sustainable aviation fuel production catch up with marine biofuel in 2024, the head of GoodFuels told S&P Global Commodity Insights.
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Register NowThe Dutch government has reduced the incentive -- hernieuwbare brandstofeenheden or HBE -- multiplier to 0.4 from 0.8 for marine biofuels from January 2024, meaning it will become more expensive to produce biofuel for the marine sector than previously. At the same time, the multiplier for aviation will remain steady at 1.2, which means a company gets triple the incentive to produce SAF, compared to bio-based bunker fuel, Johannes Schurmann, head of Dutch biofuels seller GoodFuels, said in an interview.
"Where this year we did not see a lot of SAF volumes in the Netherlands, we expect from next year that SAF volumes will be roughly as big as for shipping," he said.
As a result, bio-bunkering that until now was concentrated at the Dutch shipping hub of Rotterdam will go to other countries and there has been interest in Belgium and Gibraltar, he said. "We definitely foresee that in other regions in Europe, bio-bunkers will get started in the next years," Schurmann said.
Rotterdam's sales of bio-blended bunker fuels reached 183,499 mt between July and September, compared with fossil bunker sales of 2.26 million mt, according to data from the Port of Rotterdam.
The port of Rotterdam did not specify the blending ratios in its sales data.
Higher prices
Based on the current values, bio-tickets will boost the price of biofuels by around $250/mt, Schurmann said.
"While we were supplying a lot of biofuels for almost parity to fossil fuels to shipping companies in the last couple of years, next year that will really be a challenge," Schurmann said.
Data from Platts, part of S&P Global Commodity Insights, shows a noticeable premium in place. Platts started assessing Bio-Bunkers B30 Rotterdam FAME in October 2023, and assessed it at $693.25/mt Jan. 10, compared with $516.75/mt for delivered 0.5% sulfur fuel oil.
What might narrow the price gap and so help retain interest in biofuels is the inclusion of shipping in the European Union's Emissions Trading System, as of January 2024, Schurmann said.
To meet its climate goals, Brussels will require the operators of ships of 5,000 gross tons or more to pay for 100% of their greenhouse gas emissions during intra-EU voyage, and 50% emissions during trips from and to non-EU countries. The EU has agreed on a phase-in period to give the industry some preparation time, with the ETS covering 40% of emissions in 2024, 70% in 2025 and 100% from 2026 onwards.
This will close the gap a little and the premium for burning biofuel compared to a petroleum-based fuel is $90/mt, rather than $250/mt, once the ETS is factored in, Schurmann said.
Shipping companies are increasingly starting up programs to sell Scope 3 emissions to cargo owners and this is bullish for biofuels as higher costs of fuel can be passed directly onto customers, he said.
"We think that will drive the market for next year," he said.
The biggest driver for biofuels in the coming years will be the International Maritime Organization's carbon intensity regulator (CII), Schurmann said.
The International Maritime Organization (IMO) had approved interim guidance for biofuel use to meet the requirements of the CII, which came into effect Oct. 1. In its guidance, the IMO stated that biofuels would need to reduce well-to-wake GHG emissions by at least 65% versus marine gasoil to comply with the CII, translating to an emission intensity of up to 33 grams of CO2e/megajoule.
New feedstocks
The production of liquid biofuels from lignocellulosic biomass could prove a whole new resource, and means shipping, which can tolerate a greater range of specifications in its fuel than aviation, could significantly increase its potential feedstock base for biofuels, according to shipping sources.
However, the potential for successful deployment of technologies to produce liquid biofuel from lignocellulosic biomass and their cost reductions are surrounded by large uncertainties; chiefly, cost of production and commercial immaturity, according to a report by the Royal Society of Chemistry.
The quality of the bio-oil from these technologies is not yet good enough to be used as a drop-in in marine engines, Schurmann said. "Either the process needs to be improved or the bio-oil needs a form of upgrading (e.g. hydrotreatment) to become a drop-in fuel. We are currently participating in multiple projects to unlock these technologies," he said.
Analysts at S&P Global forecast global biomass-based diesel production to rise from around 1.1 million b/d in 2023 to around 1.3 million b/d in 2025, according to the Biofuels Market Outlook Jan. 5. This compares to demand for bunker fuel of 5.254 million b/d for 2023, according a Jan. 5 demand forecast from S&P Global.
Currently, most of the lignocellulosic feedstock is untapped and on paper calculations for a complete conversion of available volumes would show huge production potential, although numbers are unavailable, Swati Mathur, Consulting Associate Director at S&P Global, said.