Feedstock Provide Crunch Provides To European Biofuels Volatility
JJ Gouin/iStock through Getty Pictures
By Paul Wightman
At a Look
- The Renewable Power Directive (RED III) raises the general renewable vitality goal to 42.5% by 2030, up from 32% below RED II
- Larger feedstock volumes are seemingly wanted for sectors like aviation, the place demand seems set to rise
A provide scarcity in feedstocks used to supply cleaner street, rail and air transportation gas may very well be exacerbated within the European Union (EU), one of many world’s largest markets for biofuels, by rising demand stoked largely by stricter environmental insurance policies within the area.
The mandated demand for renewables below the most recent iteration of the Renewable Power Directive (RED III) necessitates the manufacturing of superior merchandise resembling renewable diesel, as this up to date directive allows suppliers to mix past the present B7 limits*. An identical state of affairs is going on for sustainable aviation gas, the place a rising share of jet gas gross sales should be made out of renewable sources. This continued enhance in demand for renewables throughout all transport sectors, spearheaded by biofuels, is making a feedstock provide crunch.
As hydrotreating biofuel producers look to collect the supplies wanted to fulfill this demand, many are chasing high-cost waste and residue feedstocks in comparison with the cheaper crop-based options. This provide tightness is most evident within the extra superior transport fuels, resembling sustainable aviation gas or renewable diesel, as producers flip to most of the similar feedstocks. Costs for these feedstocks have risen sharply up to now couple of years or so, based on business analysts.
The uncertainty over feedstock provide, which is more likely to put additional stress on biofuel revenue margins, mixed with objectives to decarbonize are elevating worth volatility, might result in probably greater volumes in Soybean Oil futures and choices at CME Group and different associated merchandise.
The newest Argus Media report exhibits that complete European biofuel consumption is predicted to succeed in round 30.6 billion liters in 2025, up 10% from 2024. RED III, the cornerstone of the EU’s environmental insurance policies for biofuels, units a renewable vitality goal of 42% by 2030. For the primary time, there’s a particular mix goal for Renewable Fuels from Non-Organic Origin (RFNBO), which incorporates using renewable hydrogen and e-fuels. Within the transportation sector, it units a goal of 29% for renewable vitality and a 14.5% discount in greenhouse gasoline (GHG) depth. The general vitality goal below RED III has elevated from 32% to 42.5% in contrast with RED II, however the goal date for implementation has remained at 2030.
Soybean Oil Futures: A Go-To Hub for Bio Markets
There are a selection of feedstocks used within the European biofuels markets, however none of them supply the identical diploma of depth of buying and selling e-book and liquidity as CME Group futures and choices on Soybean Oil, merchants say. Corporations producing biofuels from various streams resembling wastes or animal fat depend on extremely liquid Soybean Oil futures to cross-hedge their worth publicity – the value of Used Cooking Oil Methyl Esther (UCOME), which is made out of waste feedstocks, is very correlated with the value of Soybean Oil futures, that are primarily based on an underlying main vegetable oil feedstock. Used cooking oil is the main waste feed by way of commerce and standardization, that means it has turn out to be a well-liked feedstock alternative for biofuel producers.
The common every day quantity of the Soybean Oil futures contract within the 12 months to September 2025 was over 180,000 contracts per day, up round 9.5% from a 12 months earlier. Open curiosity, a key measure of the buying and selling curiosity in a market, can be at multi-year highs. There may be additionally an energetic choices market, the place round 15% of the equal every day futures volumes are traded.
Moreover, the alternate has seen an increase within the volumes traded from companies exterior of the U.S. market. The newest alternate knowledge exhibits that the full share of companies primarily based in Europe buying and selling Soybean Oil futures has reached round 25%, with Asian companies accounting for round 10%. The proportion of European companies has elevated from round 20% in 2024 alongside comparable good points for Asia.
Feedstock Tightness by 2028?
The feedstock markets seem primed for a interval of structural transformation as increasing mandates and stricter sustainability standards drive a shift towards domestically produced and waste feedstocks. On the similar time, some crop-based feedstocks are being phased out, inserting additional emphasis on rapeseed oil, used cooking oil and different waste feedstocks to fulfill the increasing wants from the aviation and maritime sectors.
Renewable diesel demand can be rising from the heavy-duty automobile (HDV) sector on the again of an bold biofuels mixing program. It seems as if the feedstock markets might expertise additional durations of tightness, creating greater ranges of worth volatility, which can should be managed through the monetary markets, analysts have urged.
The chart beneath illustrates the supply of standard and superior waste oils (UCO, tallow, and so on.) and compares it to the worldwide demand from all the related sectors. Primarily based on the info, Argus Media expects used cooking oil availability to tighten as consumption in Asia’s home markets continues to develop. With none new feedstock sources or a large uplift in UCO collections, tightness is predicted by 2028-2030.
The New Decarbonization Push
ReFuelEU Aviation and ReFuelEU Maritime are the 2 newest EU directives to help additional decarbonization of each the aviation and maritime sectors. The demand from each sectors seems to be gathering tempo, albeit from a low base. Regulators have put greater mixing mandates in place for these sectors, which ought to see a lot greater utilization of biofuels going ahead. At present, the availability of merchandise like sustainable aviation gas is small, at about 2% of the full jet gas market, however that is anticipated to ramp up shortly to succeed in an estimated 70% by 2050. This, mixed with renewable diesel, is predicted to position vital stress on the feedstock availability.
Argus Media estimates that Europe’s renewable diesel and sustainable aviation gas capability will attain 6.3 million metric tons (MMT) in 2025, with an extra 0.7 MMT below building. Sustainable aviation gas capability in Europe is predicted to succeed in 2.4 MMT in 2025, up 17% from 2024. Renewable diesel capability is about to succeed in round 4.5 MMT in 2025, a 16% enhance on the 2024 volumes. Nonetheless, demand for each merchandise can be set to extend, with Argus suggesting this might attain round 6.3 MMT in 2025.
That is all anticipated to tighten the feedstock markets, with Argus Media estimates exhibiting that standard and waste-oil feedstock availability in 2030 might attain round 43 MMT. This provide will seemingly be surpassed by the demand for renewable diesel, sustainable aviation gas and biodiesel demand in the identical 12 months.
Sustainable Aviation Demand to Enhance Curiosity in Ethanol
Ethanol stays a key biofuel feedstock within the European markets. The mixing mandates laid out by every member authorities have been rising since 2009 via the introduction of the totally different iterations of the Renewable Power Directive. The present mixing price of 10%, primarily based on limits as a result of engine specs, stays the benchmark for European gasoline throughout a lot of northwest Europe.
The principal manufacturing pathway for sustainable aviation gas includes the hydroprocessing of esters and fatty acids (HEFA), that are blended with standard jet gas and match nicely with the demand for waste oils and animal fat. It is a well-established manufacturing pathway that enhances newer applied sciences resembling alcohol-to-jet (ATJ), which is more likely to contain greater volumes of ethanol within the coming years as demand for extra sustainable fuels for aviation will increase.
The expertise to transform ethanol to jet gas stays comparatively new. That is anticipated to turn out to be extra widespread within the run-up to 2030 and past, and there are presently 15 manufacturing amenities introduced as of 2025.
Wanting Forward
A extra environmentally acutely aware strategy to bioenergy provide is more likely to place additional pressures on the lower-carbon and higher-greenhouse-gas feedstock provide chains. Larger volumes of waste feedstocks, greases and animal fat from areas like Southeast Asia, the Center East and the U.S. are already being launched into the biofuels provide chain in higher portions, changing palm and soybean oil. This has seen aggressive pressures positioned on the home EU biofuels business, with various provides being extra available from exterior the EU-27 member states.
The introduction of extra superior biofuels, via present laws, is more likely to have a major affect throughout the biofuels markets as blenders hunt for the feedstocks with the bottom carbon depth to fulfill ever stringent mandates. Sustainable aviation fuels and various marine fuels are anticipated to be huge customers of superior feedstocks within the coming years because the mixing mandates enhance from the present ranges. It stays to be seen what affect this can have on costs, however a interval of volatility forward seems ever extra seemingly, making danger administration an essential consideration within the years forward.
*Biodiesel is presently restricted by the B7 blendwall that means that the general mix contains 7% biofuels.
Editor’s Be aware: The abstract bullets for this text have been chosen by In search of Alpha editors.
