Until fossil fuel alternatives are available at a larger scale, the use of biofuel blends in the shipping industry could become the norm in the following years, as the transition progresses. In its latest weekly report, shipbroker Gibson said that “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”.
The report continues, starting that “Increasingly, these required biofuels will be from second and third generation biofuels based on non-food crops, nonarable 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. 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”.
According to Gibson, “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. However, forecasted demand increases under their Announced Pledges Scenario (APS) and Net Zero Emissions by 2050 Scenario (NZE), where the speed and progress of the energy transition is assumed to move at an accelerated pace versus the current trajectory”.
“In all these cases, demand will be driven by the increased use of ethanol as a blending component in road fuel but growing EV uptake will reduce road vehicles share of total biofuel consumption from 50% in 2030 to 40% by 2050. Although, there are likely to be strong regional differences, with Europe and North America seeing declines at a much faster rate compared to developing regions such as Africa, Latin America, and Southeast Asia”, the shipbroker noted.
Gibson also noted that “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. In comparison to the amount of oil demand displaced by electric vehicle growth, the demand destruction caused by biofuels is likely to be relatively minor. Realistically, the volume of biofuel that would be required to replace road fuels would be too large to meet, given current and expected production capacities especially for feedstocks. 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”, the Gibson report concluded.