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Oil Majors Accelerate Moves into Biofuels
This blog was coauthored by Sacha Alberici.
One of the most exciting news stories of 2022 in the biofuels field is the announcement that Chevron Corporation will acquire Renewable Energy Group (REG), the largest biodiesel producer in the US (annual production around 1.7 million tonnes) in a $3.14 billion cash deal. By purchasing REG, Chevron’s goal to grow renewable fuel production capacity to 5.1 million tonnes per year by 2030 would be greatly accelerated.
Oil Majors Building or Investing in Biofuel Plants
Not coincidentally, other global oil companies have also made moves into the biofuel industry. Royal Dutch Shell announced plans to build an 0.82 million tonnes-per-year advanced biofuel facility by 2024 in the Netherlands, producing sustainable aviation fuel (SAF) and hydrogenated vegetable oil (HVO) from waste and sustainable vegetable oils. Shell is also supporting SkyNRG and LanzaJet on their SAF production. ExxonMobil acquired a 49.9% stake in Norwegian biofuels producer Biojet AS, allowing ExxonMobil to take up to 0.4 million tonnes of biofuels per year after Biojet AS’s five planned facilities begin commercial production starting in 2025. BP acquired a 30% stake in Green Biofuels Ltd, reportedly the UK’s largest HVO supplier. The Polish oil refiner ORLEN has plans to construct an HVO plant with an annual production capacity of 0.3 million tonnes; it is expected to be operational by mid-2024.
The leading producer of biofuels is Neste, a Finish oil company that began HVO production in 2007. Neste produces 3 million tonnes of renewable fuel products annually. With its Singapore refinery expansion and an additional investment at the Rotterdam refinery, Neste’s annual renewable production capacity is expected to reach 4 million tonnes by the end of 2023, of which 1.5 million tonnes will be SAF.
Sustainable Waste Oils Are Limiting the Rapid Scale Up of Biofuel Production
In Europe, the Renewable Energy Directive has set limits on the use of food and feed crops for biofuels, and furthermore requires palm oil to be phased out entirely by 2030. This directive is driving increased demand for waste and residue feedstocks. For example, waste oils, such as used cooking oil (UCO) and animal fats, are increasingly targeted as feedstocks for biodiesel production, a trend that is expected to continue with growing demand for biofuels in the aviation and maritime sectors. This demand has driven up prices of UCO to around €1,500 /tonne ($1,600/tonne) compared with around €1,800/tonne ($1,942/tonne) for rapeseed oil. Given the overall limits to supply, as well as increased demand globally for UCO, it is difficult to see any material change to the market dynamics.
In this light, Guidehouse Insights expects to see more focus on projects that increase availability of sustainable feedstocks. Augmenting amounts of sustainable feedstocks can be achieved through targeting advanced technologies or investing in yield increase measures. One promising cutting-edge technology is gasification. It opens the possibility to utilize feedstocks that are far more abundant globally, including agricultural or forestry residues and municipal solid waste. Further efforts to commercialize this technology, and in tandem develop feedstock supply chains, is necessary to make this a reality.
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