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Will biofuels emerge from the renewables shadows?

Despite ambitious transport fuel targets and strong growth in biofuel demand, bioenergy has failed to get the publicity it warrants

The International Energy Agency (IEA) labels bioenergy an industry blind spot, critical to the sector's evolution, but receiving less attention than it merits. The agency argues that the world's largest current source of renewable energy, and the one forecast to have the strongest five-year growth trend, deserves more prominence.

The breadth of the sector is one factor in its relative obscurity—from wood and charcoal in developing world heating, through wood pellets and chips and agricultural wastes in power generation, to biofuels in the transport sector. Advanced biofuels, from sources as diverse as used cooking oil and genetically modified algae, add to the complexity.

"Modern bioenergy is [an] overlooked giant," say the IEA's executive director Fatih Birol. "Its share in the world's total renewables consumption is about 50% today, …as much as hydro, wind, solar and all other renewables combined."

The low oil price environment, in particular for gasoline and diesel, has stymied growth in transport biofuels in recent years. But European biofuels demand economics are improving. The price differential between biofuel feedstocks, including soybean oil, and the benchmark heating oil futures contract that offers price direction across middle distillates, the so-called bean oil-heating oil (Boho) spread, turned negative-i.e. the biofuels feedstocks price was under the refined product price-in early September for the first time since November 2014.

The same refined products price rise has seen Brazilian ethanol demand jump this year, reaching a high in August of 1.81bn litres, up by 49% on the same month last year, according to consultancy Platts Analytics. This is the highest monthly demand figure since October 2015 and represented 29% of total Brazilian fuel consumption during August.

Corn for ethanol

Ethanol demand across the year to date is up 42% over the first eight months of 2017.

The US has blended corn-based biofuels into regular gasoline under the renewable fuels standard programme, born out of 2005 legislation. Almost 40% of the domestic corn crop now goes towards ethanol, according to the US Department of Agriculture, and almost 30% of domestic soy goes into biodiesel. Even so, biofuels currently make up just 11% of the US gasoline blend. Ethanol demand from the transport sector currently averages just over 1m barrels a day, against total gasoline demand of about 9.2m b/d.

“Modern bioenergy is [an] overlooked giant” Birol, IEA

US corn and soy farmers' reliance on biofuels for a substantial chunk of their crop's demand has pitted them against refiners, who incur considerable costs in meeting mandates. Political lobbies on both sides of the debate have inevitably mobilised. President Trump recently sided with the farm lobby's calls for maintaining strong domestic biofuels demand. This was partly to help offset the impact of a 15-percentage-point hike in Chinese tariffs on US ethanol imports to 45%—which in turn jeopardises China's own target of a 10% ethanol share in transport fuel demand by 2020, says Platts.

The EU has a similar target for 10% of transport fuel demand in each of its member states to be met by biofuels by 2020, but again politics is in play. Land use competition, deforestation and food poverty issues have turned public opinion against certain feedstocks, most notably Indonesian palm oil, which may see future incentives focus more on advanced biofuels. The European Parliament has already backed a resolution calling for an EU phase-out of vegetable-oil, including palm-oil, feedstocks by 2020.

Domestic European agricultural interests are also lobbying hard, with EU tariffs on ethanol imports from the US and Brazil, and local crops given guaranteed feedstock allocations in key refineries. Total recently allocated a quota of 50,000 tonnes for French rapeseed feedstock at its La Mede biorefinery-around 10% of the facility's total demand-despite it not being the plant's "most profitable" feedstock. The initial business case called entirely for palm oil imports, but the slate has been widened to include fuels derived from animal fats and used cooking oil. Public opinion, rather than economics, may well have driven the change.

Aviation fuel focus

Advanced biofuels can side-step many of the controversies that dog first-generation plant-derived fuels. But they lag well behind in terms of scale. ExxonMobil is among the more bullish that believe advanced biofuels can move relatively swiftly to large-scale commercial production. It's targeting 10,000 b/d of aviation biofuels production derived from algae from a flagship project-in partnership with US biotech firm Synthetic Genomics-in California by 2025.

And the company is ultimately aiming for "hundreds of thousands of barrels a day", according to Vijay Swarup, the firm's vice president for research and development. The algae could be grown on unproductive land using saltwater and avoiding vegetation clearance. Exxon predicts that even the hundreds-of-thousands-of-barrels-a-day target could require less than 1% of the land area currently used for soy and corn farming.

An aviation biofuels focus could make sense when another energy transition technology-electric vehicles-may erode overall transport fuel demand.

Other aviation biofuels options are also progressing. For example, Chicago-based LanzaTech, a developer of fuels from waste industrial gases, celebrated a milestone in September when it supplied a first batch of its jet fuel to a commercial airline flight. Again, though, the scale is small—LanzaTech's feasibility study into a 40-50m-gallon-a-year UK plant is backed by a government grant of a relatively modest £410,000. But the firm is targeting expansion to 125m gallons/year in the UK alone by 2025.

Norway, which is the first country to introduce a minimum biofuels component mandate into its jet fuel supply mix, is also starting small but aiming for swift growth. The initial threshold will be just 0.5% in 2020, rising steeply to 30% by 2030.


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