Bio Refinery Landscape – Significant Capacity Additions Despite Slowing Growth
After strong focus and commitments made to the biofuel sector during pre-Covid and Covid period, over the course of the last 12 months the industry has entered the period of re-adjustment. Last year Shell announced that they will be pausing construction/postponing the completion of their Rotterdam project that was supposed to bring around 820,000 t/y of biofuels production in the European market from 2026.
Recently the biggest biofuel producer Neste also postponed completion of the Rotterdam biorefinery capacity expansion project from 2026 to 2027 citing the adverse environment for the biofuels production.
Surprisingly another major biofuel producer Total also announced in March that they will be cutting the capacity of their Grandpuits conversion project from initial 400,000 t/y to 285,000 t/y. The production start is also expected to be delayed from 2025 to 2026, when the first phase of the project is expected to bring 210,000 t/y of biofuel capacity to the market.
Castellon BP biofuel refinery expansion project was also cancelled on top of already cancelled biofuel projects in the US and Germany and pausing BP Kwinana project as well, which is all in connection to realigning the company’s strategic focus.
Most recently Greenergy announced it will temporarily shut down its Immingham biodiesel plant.
During the post-Covid economic recovery, which was marked by both strong energy prices as well as firm feedstock prices caused by the inflationary pressures but also the changes in the trade flows due to the geopolitical tensions and wars, the pressure on margins for the biofuel sector have been significant. If we add to the picture the political and regulatory landscape and the Chinese biodiesel exports that added further pressure on European producers, it does not come as a surprise that some of the projects particularly in Europe started facing delays.
As a result of concerns regarding unfair competition from China, in February this year the European Commission introduced antidumping duties on Chinese biodiesel exports, that range from 10% to 35.6% and superseded the provisional duties imposed in August 2024. This obviously does not come as a surprise considering the number of projects being postponed in Europe over the last 12 months, as margins remained under pressure.
In the USA, World Energy Paramount, California expansion project (576,000 t/y) had a setback as one of the partners, Air Products, announced in February that they terminated an agreement to collaborate on the project. Although World Energy announced it remains committed to the expansion project, it is unclear if the partner withdrawal will influence the project completion to be delayed from its original target year in 2027.
In September last year, Fulcrum BioEnergy filed for Chapter 11 bankruptcy protection which practically cancelled a couple of projects planned in North America. Interestingly, despite general expectations that the current US administration will not be favouring renewable energy sources, the recently passed bill in the House of representatives included updates and extension of the 45Z clean fuel production tax credit.
Although the bill will be sent to the Senate for further considerations and most likely changes, before the final version of the bill is sent to President Trump for signing, the extension of the tax credit and proposed changes are certainly encouraging for the producers. However, in its current form the bill changes are expected to favour biofuel production from local crops, as the bill aims to exclude ILUC (Indirect Land Use Change) from being used to calculate the lifecycle GHG emissions.
Despite the above-mentioned project delays, as it currently stands biofuels (HVO&SAF) production is expected to expand significantly in the period between 2025 and 2027 almost doubling the biofuels production capacity if the currently scheduled projects are finalised within the timelines. The capacity in Europe is expected to grow by about 5 mt/y, while capacity in North America is expected to expand even more, with expectations of 7 mt/y of additional capacity.
Although it is worth noting that some of the projects may experience further delays and postponements, the significant capacity addition seems to be on its way. With the announced and planned conventional refinery closures both in Europe and North America this year and next, the additional biofuel refinery capacity is expected to compensate for about 1/3rd of the removed capacity, providing some additional support for the tanker fleets, particularly on the smaller/specialised tanker sizes.
The vast majority of biofuels are currently being used in road transportation. However, with the expectation of further electrification of the road transport, more demand for biofuels is expected to be coming from other transportation sectors such as Maritime and Aviation, particularly having in mind Fuel EU Maritime and ReFuelEU Aviation initiatives.
While the Fuel EU Maritime framework provides different ways for the Maritime industry participants to comply with the CO2 reduction requirements, thanks to the technical ability of the ships to burn various fuels, SAF at the moment seems to be the only available option for the aviation industry. SAF adoption is expected to be accelerated by the ReFuelEU Aviation, more importantly being an EU regulation, it applies directly to member states without a need to transpose it into the individual countries’ domestic legislation like RED III directive. The regulation imposes SAF blending obligations on aviation fuel suppliers, with the start target of 2% in 2025, progressively moving to 6% in 2030 and then to 26% in 2035. UK SAF mandates also align with the EU mandate. The SAF adoption will be further incentivised by including aviation into the EU ETS trading scheme and scrapping the free allowances from 2026 onwards.
Although lacking a federal government blending mandate, SAF production and consumption is expected to be further driven by afore mentioned extension of 45Z tax credits and different legislative incentives at individual state levels in the US. If we add to that the intentions from Japan and China but also other major Asian countries to increase SAF production and blending mandates, biofuels production and trade is expected to grow significantly. Without a doubt the industry is expected to continue to have its challenges. The prices of renewable fuels are still being at much higher levels than those of the conventional fuels, lack of legislative clarity in many countries and feedstock availability remains to hamper production plans and investments while implementation of the current regulations and penalty schemes will remain an operational challenge. Despite the ongoing challenges, biofuels are expected to remain a cornerstone transitional fuel particularly for the years to come, and shipping is expected to play its important logistical part in balancing supply and demand forces between various regions.