Biofuels policies: EU & US cool while Indonesia boosts

In early September, the European Union (EU) fixed a 6% limit on the use of crop-based biofuels in ground transport; cutting back the previous requirement that at least 10% of energy for road and rail transport should come from renewable sources by 2020. This caps the potential for increased demand. In the longer-term, analysts say that this may reduce the EU’s imports of biodiesel. The USDA’s outlook for EU biodiesel consumption is +1.1% from 11.9 bill liters in 2013F to 12bil liters in 2014F, with imports forecast +5.9% from 1.7bil to 1.8bil liters respectively.   USDA estimates EU biodiesel refining capacity at 24.5 bill liters in 2011, with utilization only at 45% (AmResearch, 19 Sep 2013). The EU states agreed to impose punitive duties on biodiesel imported from Argentina and Indonesia; provisional tariffs were in place in May and by end November, duties of EUR217-246 / USD296-336 and EUR122-179/USD166-245 per tonne apply respectively. Both will challenge the duties (reuters.com, 23 Oct 2013).

“The negative development in EU is expected to be mitigated by positive developments in Indonesia. Recall that Indonesia raised the blending rate for biodiesel to 10% from 7.5% this month. B10 will be imposed on industrial users this month while B20 will take effect for power plants starting from January 2014.  In line with this development, Biofuels Digest reported that PERTAMINA will hold a tender this week to buy 6.6 bill litres of palm-based biodiesel for its requirements in the coming two years. National production is roughly 5.6 bill litres annually from 25 different producers” (AmResearch, 19 Sep 2013). 

Reuters reports (11 Oct 2013): “In a leaked proposal that would significantly scale back biofuel blending requirements next year, the U.S. Environmental Protection Agency (EPA) says the blend wall - the 10% threshold of ethanol-mixed gasoline that is at the crux of the lobbying war - is an "important reality." The agency's rationale for a cut in the volume of ethanol that must be blended echoes an argument the oil industry has been making for months: the U.S. fuel chain cannot absorb more ethanol. Few retailers are able to sell ethanol blends beyond the 10% maximum, or willing to take the legal risk that comes with it, they argue. The words will cut deep for proponents of biofuels. They have argued for years that the blend wall is largely a fiction constructed by an oil industry that doesn't want to cede any more share of a shrinking U.S. gasoline market.” The volume of corn-based ethanol will be reduced by 800 mill gallons to about 13 bill gallons versus the law’s required 14.4 bill gallons for 2014F. The EPA proposal has to be approved by the White House Office of Management and Budget.  This would not be positive for biofuels and it could result in excess supplies of corn; the USDA expected about 33.8% of US corn to be used for ethanol in 2013F/2014F (AmResearch, 14 Oct 2013).

Could this presage a lower blending of soybean oil in US biodiesel? Could there be a similar “blend wall” in biodiesel to impinge on higher blend rates in palm producing countries? Their political-economic situations are likely different enough from the US for a strong implementation push. In which case, a question remains: when will the legal risks of higher blends by covered?

Source: Khor Report's Palm Oil Nov/Dec 2013, Issue 5 (released)