The biofuels market is actively developing against the backdrop of global trends to reduce carbon dioxide emissions and transition to more sustainable energy sources. Biofuels are becoming an increasingly attractive alternative to conventional petroleum products, especially in sectors such as transport and energy. For oil traders, this creates both challenges and opportunities that are important to consider in strategic planning and operations.
Types of biofuels
Biofuels can be broadly categorised into several types depending on the sources and methods of production:
- Bioethanol – produced from agricultural crops such as corn or sugarcane. It is most often used as an additive to petrol to reduce greenhouse gas emissions.
- Biodiesel – derived from vegetable oils and fats, it can be used pure or blended with traditional diesel fuel. Biodiesel is used in the automotive and transport industries.
- Biogas – is produced by the anaerobic fermentation of organic waste such as agricultural residues, food waste or manure. Biogas can be used to generate electricity and heat.
- Advanced biofuels (second and third generation) are more technologically sophisticated biofuels that are produced from non-edible crops, algae or agricultural waste. Their development is supported because of their lower impact on food security.
Biofuels market growth
The global biofuels market is projected to continue to show steady growth. This is due to several factors:
- Tightening environmental standards. Countries are introducing increasingly stringent regulations to reduce carbon dioxide emissions, which is fuelling the demand for cleaner fuels. The EU has a Renewable Energy Directive (RED II), which requires member states to increase the share of renewable sources in transport to 14% by 2030.
- Government support and subsidies. Many countries provide subsidies and tax incentives for producers and consumers of biofuels, making them more competitive with traditional petroleum products.
- Technological improvements. Improvements in biofuel production technologies can reduce the cost of biofuels and increase their efficiency. For example, second generation biofuels already allow the use of waste and non-food crops, which reduces pressure on agricultural resources.
Interaction between biofuels and petroleum products
Biofuels and petroleum products are not seen as fully competing energy sources. In many cases, biofuels are used as an additive to conventional fuels. Examples of such blends are:
- E10 and E85 are blends of petrol and bioethanol widely used in transport. Some countries have legislated minimum requirements for bioethanol content in petrol.
- B5 and B20 are blends of biodiesel and conventional diesel that also help to reduce CO2 emissions and improve the environmental performance of diesel vehicles.
For oil traders, this means that biofuels are becoming not just an alternative but a complement to their core business. Petroleum product supply and refining companies can integrate biofuels into their operational chains, increasing profits and responding to the growing demand for cleaner energy sources.
Challenges for oil traders
- Changing demand patterns. As the share of biofuels in the global fuel mix increases, traders must consider the changing demand for conventional petroleum products. For example, refineries may start producing less of certain fuels, which will change trade flows.
- Infrastructure issues. Storage and transport of biofuels may require adaptation of existing infrastructure. Biodiesel and bioethanol, for example, have different chemical properties than traditional fuels, which may require changes in logistics systems.
- Legislative constraints. Different countries have different certification and quality control requirements for biofuels. To successfully trade biofuels, traders need to be aware of local and international standards.
Opportunities for oil traders
- Business diversification. The inclusion of biofuels in the product range allows traders to diversify their sources of income. Biofuels can become a new market to compensate for the decline in demand for traditional petroleum products.
- Investment in innovation. By participating in the development of the biofuels market, oil traders can invest in new technologies such as producing biofuels from algae or organic waste. This not only expands business but also improves the company’s environmental reputation.
- Participation in government subsidies. Oil traders can benefit from government subsidies and incentives that support the production and consumption of biofuels.
Specifics of biofuel production: raw materials, process and world leaders
Biofuel production is a complex multi-stage process that involves the use of different types of raw materials and technologies. Biofuels are classified into several types depending on the generation (first, second, third) and type of feedstock. Here is how the production process is structured and which countries are the world leaders in biofuel production.
Feedstock for biofuel production
The biofuel production process begins with the selection of feedstock, which can vary depending on the type of biofuel:
- Bioethanol: Produced from plant crops such as corn, sugarcane, wheat and potatoes. These crops undergo a fermentation process during which sugars are converted into ethanol. The main feedstock for bioethanol is crops rich in carbohydrates.
- Biodiesel: Produced from vegetable oils (e.g. soya oil, palm oil, rapeseed oil) or animal fats. Biodiesel is produced by a transesterification process that converts fats and oils into fatty acid esters that can be used in internal combustion engines.
- Biogas: The main feedstock for biogas is organic waste such as agricultural residues, manure, food waste and animal waste. Biogas is produced through the process of anaerobic fermentation, where bacteria decompose organic matter in the absence of oxygen, releasing methane.
- Advanced biofuels (second and third generation): These biofuels are produced from non-edible crops, algae and organic waste, thus avoiding competition with the food sector. For example, second generation bioethanol is produced from lignocellulosic materials (wood waste, straw).
Biofuel production process
Biofuel production consists of several steps that vary depending on the type of feedstock used:
- Feedstock collection: The feedstock for biofuel production is collected or grown. These can be crops, vegetable oils, industrial and agricultural waste.
- Pre-processing: The feedstock is cleaned and prepared for further processing. For vegetable crops, this may include grinding and fermentation to convert carbohydrates into alcohols.
- Chemical processing: Depending on the type of biofuel, different processing methods are used. For bioethanol, this is the fermentation process, while for biodiesel it is transesterification, where vegetable oils or animal fats are treated with alcohol to produce fuel.
- Final purification and production: After chemical treatment, the resulting biofuel is purified and ready for use. In the case of bioethanol, the fuel is distilled to separate impurities.
- Transport and storage: The finished biofuel is transported to fuel terminals or to consumers. Specialised tanks and infrastructure may be required to store and transport biofuels.
World leaders in biofuels production
In the global biofuels market, there are several countries that are leaders in the production of different types of biofuels:
- USA: It is the largest producer of bioethanol in the world, with corn accounting for the bulk of production. In 2021, the U.S. produced about 15 billion gallons of bioethanol. The country is also actively producing biodiesel from soybean oil.
- Brazil: The second largest producer of bioethanol in the world, with sugarcane as its main feedstock. Brazil is also actively developing the RenovaBio programme, which encourages the use of biofuels and the reduction of carbon dioxide emissions.
- European Union: The EU is actively developing biodiesel production, with key producing countries such as Germany, France and Spain. Biodiesel is mainly produced from rapeseed oil, making Europe the largest producer of biodiesel in the world.
- Argentina: One of the world’s leading producers of biodiesel. Argentina produces significant amounts of biodiesel from soya oil and exports it to Europe and the US.
- Indonesia and Malaysia: These countries are the largest producers of palm oil, which is used to produce biodiesel. The governments of Indonesia and Malaysia are actively supporting the use of biodiesel in the domestic market.
- China: The country is actively investing in biofuel production, especially in the development of advanced biofuels from non-edible crops and algae. China is also actively developing infrastructure for biogas production from agricultural and industrial waste.
Biofuel production is a complex process that involves various feedstocks and requires specialised technologies. Leading countries in this field, such as the US, Brazil and EU countries, are demonstrating strong growth due to government support, investment in infrastructure and sustained demand for renewable fuels. It is important for oil traders to understand the specifics of biofuel production in order to effectively incorporate it into their business strategies and capitalise on the opportunities presented by this rapidly growing market.
Legislative framework in the EU, USA and other developed countries stimulating biofuel market development
Governments in many developed countries have introduced a number of legislative measures to encourage the production and use of biofuels as an alternative to conventional petroleum products. These measures are aimed at reducing carbon dioxide emissions, reducing dependence on fossil energy sources and developing sustainable and renewable fuel sources. Here are the main legislative initiatives in key regions:
1. European Union (EU)
- Renewable Energy Directive (RED II). In 2018, the EU adopted the updated RED II directive, which sets binding targets for Member States to increase the share of renewable energy in the transport sector. According to RED II, 14% of energy used in transport must come from renewable sources, including biofuels, by 2030.
- Fuel Quality Directive. This document regulates the reduction of greenhouse gas emissions over the life cycle of fuels. There are emission reduction standards for fuel producers, which incentivises a shift towards cleaner fuels such as biodiesel and bioethanol.
- Subsidies and tax incentives. EU countries have a system of subsidies for biofuel production as well as incentives for consumption. For example, France and Germany have tax incentives for companies that use or produce biofuels.
2. USA
- Renewable Fuel Standard (RFS). This federal law was passed in 2005 and updated in 2007. The RFS requires refiners to include a certain amount of biofuels in their overall production. The biofuel quotas increase each year, and by 2022, the RFS assumed 36 billion gallons of renewable fuels would be used.
- Subsidies and tax credits for bioethanol and biodiesel. There are various subsidy programmes in the US that are designed to support farmers and biofuel producers, as well as encourage the construction of new renewable fuels facilities. Tax incentives, such as the biodiesel production credit, also play a key role in the growth of the sector.
- California’s Low Carbon Fuel Standard (LCFS) programme. The state of California requires a gradual reduction in the carbon footprint of transport fuels, which is fuelling demand for biofuels, especially bioethanol and biodiesel.
3. Canada
- Federal Renewable Fuels Programme. Since 2010, Canada has set a mandatory standard for gasoline that requires at least 5% of its volume to be bioethanol and 2% for diesel to be biodiesel. This is fuelling the steady growth of biofuels production in the country.
- Clean Fuel Standard (CFS) Act. In 2022, Canada passed the CFS Act, which imposes limits on carbon emissions from transport and promotes the use of low-carbon fuels, including biofuels.
4. Australia
Mandatory biofuels programme. A number of states in Australia have programmes that require a certain percentage of bioethanol and biodiesel in local petrol and diesel markets. For example, Queensland has set minimum standards of 3 per cent for bioethanol and 0.5 per cent for biodiesel in diesel blends.
5. Brazil
RenovaBio programme. Brazil is a world leader in bioethanol production and the government is actively supporting the sector through the RenovaBio programme, which encourages increased biofuel production and use in transport. The country has mandated the use of a petrol blend with 27% bioethanol (E27), which significantly reduces greenhouse gas emissions.
How legislation incentivises the development of biofuels
- Setting mandatory quotas. Legislation such as RED II in the EU or RFS in the US sets mandatory biofuel quotas, which forces refiners and traders to include biofuels in their product portfolio.
- Financial incentives. Tax breaks, subsidies and grants for biofuel producers and consumers make biofuels more affordable and attractive from an economic point of view. This lowers the cost of biofuels compared to traditional petroleum products.
- Carbon Regulation. Carbon reduction programmes, such as the LCFS in California, create an additional market for low carbon fuels, including biofuels. This increases demand and encourages the development of new biofuels.
- Support for research and innovation. Legislation in a number of countries also supports research and innovation for next-generation biofuels, which helps reduce the cost of production and improve environmental efficiency.
- Mandatory certification. The introduction of mandatory certification of biofuels against sustainability and low-carbon standards ensures that biofuels meet stringent environmental requirements, fuelling demand for high quality products.
These measures create favourable conditions for the accelerated development of the biofuels market, providing oil traders with opportunities to adapt and grow in the new market environment.
You can read this article in other languages:
Русский, Español, 中文 (中国), العربية