Liquid biofuels are expected to have an important role to play in shipping and aviation sectors - Gibson
Liquid biofuels are expected to have an important role to play in meeting future fuel requirements as the energy transition progresses and petroleum demand begins to come under pressure.
Increasingly, these required biofuels will be from second and third generation biofuels based on non-food crops, non- arable land, and waste products, whilst fourth generation biofuels will expand the possibilities even further through production optimization improving yields, reducing production emissions and improved chemical performance through genetic engineering, according to Gibson Shipbrokers weekly report.
The EU Fit for 55 package of policies makes it clear that future biofuel supply must be at least from second generation blends not competing with food supply. In terms of potential growth areas, the most promising sectors in terms of demand are likely to be the shipping and aviation sectors, given the specific fuel requirements of those sectors with respect to logistics and practicality. In contrast, road fuel demand most likely will be supplanted by electric vehicles (EVs).
In its World Energy Outlook (WEO), the IEA is forecasting liquid biofuel demand to grow from 2.2 million boepd in 2021 to 3.4 million boepd in 2030 and 5.3 million boepd by 2050 under the IEA Stated Policies Scenario (STEPS), which reflects current policy frameworks.
For the shipping and aviation sectors, biofuel demand growth is likely to be much stronger, as clear technical synergies exist for adding biofuel blends to traditional marine and aviation fuels to improve their environmental profiles without making substantial modifications to ship and aircraft engines or their fuel systems.
Numerous trials have been taken place and are ongoing to find the optimal blend of biofuels with preliminary evidence indicating Co2 reductions in the region of 5-25% depending on blend. However, current high biofuel prices and limited supply could limit the extent of their uptake beyond larger players. "In terms of how much oil demand biofuels could displace, this is subject to multiple factors including regulations, pricing subsidies and feedstock production levels, given the challenges posed by climate change and elevated input costs such as chemicals and fertilizers", - stated in Gibson's report.
The biggest beneficiary in the shipping sector could be the chemical and specialized tanker fleet as well as Handies and MRs who are already key shippers of liquid biofuel and feedstocks such as ethanol, HVO and FAME and as such as likely to see the amount of these and new generation biofuel cargoes increase as more refinery complexes convert to biofuel plants which in turn should positively impact smaller tanker demand and earnings. However, the extent of this will depend on the decarbonization trajectory with respect to overall oil demand and the speed of biofuel uptake, Gibson's Shipbrokers conclude.
