With a growing focus on sustainability and the need to drive down emissions in order to limit global warming we are seeing a huge growth in renewables. One of the fuels that is getting increased exposure, largely because it is an environment-friendly fuel in road transportation, is the production and use of biofuels. The biofuels market is expected to be worth around US$ 307.01 billion by 2030 from US$ 141.32 billion in 2020, with a CAGR of 8.3% from 2021 to 2030 according to Precedence Research.
With a growing interest from producers and traders around biofuel and with our team already getting questions about how Techoil ETRM will handle these new fuels Inatech’s Senior Vice President, Alok Sharma has teamed up with Luis Nunes the managing director of Prio Energy, one of the largest biodiesel producers in Portugal, to provide insight in to this evolving market through a short webcast. A recording of the webcast can be viewed here.
Some highlights from this informative webcast are covered below:
Who is Prio Energy?
Prio Energy distributes and sells liquid fuels. In addition to operating a fuel storage terminal and a biodiesel plant in the Port of Aveiro, Prio Energy owns the largest private network of EV charging points in Portugal.
Prio Energy also has about 250 fuel stations across Portugal, supplying more than 2 million customers a month.
They have been producing and distributing biofuels for the last 15 years.
How has biofuel production evolved at Prio Energy
Prio Energy: Our biodiesel plant was originally built to process vegetable oils (rapeseed, soybean oil, palm oil and traditional vegetable oils). About six years ago, we decided to move into waste feedstocks and started using Used Cooking Oil (UCOs). Now around 80% of our feedstocks are UCOs.
As this market evolves so new types of feedstocks become available offering us an opportunity to expand the range of fuels produced. The challenge with these new feedstocks is they often require pre-treatment and the use of different technologies to process.
Are the newer waste feedstocks sustainable?
Prio Energy: I think we have a big challenge in the coming years. I think every kind of feedstock needs to play their role in decarbonization. Rapeseed, soybean oil do have an impact on the farming side. That’s why the European Renewable [Energy] Directive has put some caps on the use of these kinds of feedstocks. As of today, for instance, our use of rapeseed or soybean oil is very limited, and we are not using palm oil as of today. So, we are using UCOs and other feedstocks.
Overall, I think that the bio industry is going to move more towards these wastes. There can be issues with availability but they are sustainable.
How do these new feedstocks impact trading and risk management?
Prio Energy: These new feedstocks will certainly impact trading. For example, four years ago 7% max would be biodiesel and the rest would be diesel. So from the hedging and risk management perspective, your risk would be pretty much on the diesel side or gasoline side.
These days, the complexity is increasing big time. It’s not only 7% now. In Portugal, for instance, it is 11% and is going to increase every year. And the thing is, we don’t only have one or two products like diesel or gasoline. You have a wide range of Biofuels products including FAME 0 (Fatty Acid Methyl Ester) biodiesel, UCOME (used cooking oil methyl ester) biodiesel, ethanol and HVO Fuel (Hydrotreated Vegetable Oil Fuel) to name a few.
Some of these products have no clear pricing underlyings and no clear future instruments to cope with that. This clearly complicates hedging, risk management and trading.
What is your outlook in terms of growth in the biofuel segment over the next few years?
Prio Energy: First, it depends how you define biofuels. If biofuels includes biodiesel, HVO, all the renewable sources of the fuels, no doubt it is going to increase big time, because the 2030 European target is for 55% emission reductions. So there is no other way to do it. I think all the different sources have their own role to play in helping us meet this target.
Do you think trading technology needs to change as the products, risk, regulations, government incentives and emissions trading evolve?
Prio Energy: Yes, I think built-in flexibility is important to cope with more and more products and varying different blends, different feedstocks, changing regulations, caps etc.
I’m thinking about regulation as an example: there are caps and floors that are changing. So this year, I can use biodiesel from rapeseed; next year, I cannot use it any more. On the risk perspective, as an example, it is quite easy to assess the risk of biodiesel because there are good underlying prices, but if I need to assess HVO, it is not so easy, because there are no historical prices, so I cannot put it in a risk matrix, for instance.
So I think we need more flexibility on the systems and the software needs to be able to change faster.
Finally, as a provider of electrical charge points – how do you see the electricity versus biofuels discussion?
Prio Energy: I think decarbonization and achieving climate neutrality is key for all organizations, all the regulators, all the governments and this should be the goal for the sector. So we need to invest more and more in sustainable biofuels, electrical mobility, then green hydrogen and others.
We think that the liquid fuels sector has a role. In the road sector Prio Energy already offers eco diesel and zero diesel in its filling stations that are pretty much 15 and 100% biodiesel. And these products are possible due to more than 10 years in R&D.
We also offer eco bunkers. That is a 15% blend of biodiesel with marine gas oil.
And we also provide electrical charging points.
We think that for small light vehicles, the electrical solution is a good one. Then we have trucks, heavy cars, it’s not so easy. Here sustainable liquid fuels maybe the best solution. And they are fit for purpose.
And then of course, for maritime and the aviation sectors we think sustainable liquid fuels are fit for the purpose. Of course, it will take time, but I think there is space for the two approaches: for both electrical and fuels to help us achieve our emissions targets.
Access the complete webinar recording here.