FEATURE: Thailand's biofuel subsidy navigates EV threat amid E20, feedstock, SAF transition

Thailand recently extending its biofuels mandate is expected to bolster current feedstock demand and fuel infrastructure while facilitating a long-term transition to sustainable aviation fuel, even as the country’s biofuels sector faces challenges from the increasing adoption of electric vehicles, according to market sources and traders.

The cabinet extended subsidies on biofuels by two years with the new sunset on Sept. 24, 2026. The subsidies seek to boost the use of E-20, E-85, B-10 and B-20 blends.

The country’s Oil Fuel Fund is used to subsidize prices of ethanol made from sugarcane and cassava, as well as biodiesel from palm oil, to promote their use, reduce dependence on fossil fuels and help farmers earn more through incentives like discounts at gas stations and reduced excise taxes.

This extension is vital for the ethanol industry that has struggled due to low demand and rising feedstock costs, market sources said.

The rise of EVs and low fuel prices have further diminished demand for ethanol-blended fuels, putting pressure on producers. This government's intervention is expected to stabilize the market and ensure the ethanol sector's sustainability.

However, the strategy's success hinges on the availability of domestic feedstocks. The biofuel industry faces weather-related challenges affecting crops like sugarcane and cassava.

“The drought and floods caused by El Niño have led to lower feedstock availability and higher prices, raising production costs compared to other major producers," an agricultural trader from Lat Krabang said.

“They are now higher compared to other major producers in the region like Vietnam, Pakistan and India where corn is used as feedstock," he added.

The domestic market views promoting biofuels as having multiple economic benefits. Subsidized fuel prices help farmers generate more income, they spend more on other things along with crop-based feedstock production, which in turn drives the economy and fuel demand.

However, stakeholders are urging the government to develop a market-based mechanism after the current subsidy period ends.

“We expect policies that create a balance between the price mechanism and the public and private sectors,” a local stakeholder said.

SAF prospects

Thailand has targeted SAF production starting in 2026, aiming for 8% by 2036, based on projections of available domestic feedstock from used cooking oil and molasses-derived ethanol. The government plans to adopt alcohol-to-jet SAF when the blend rate with jet fuel reaches 3%-8%.

The country's first SAF production facility, owned by Bangchak Group, is scheduled to be online in first-quarter 2025, with a capacity of 1 million liters/d, exclusively using UCO as feedstock.

According to the Energy Ministry, UCO supplies for SAF production meeting the International Civil Aviation Organization standards will amount around 58,000 mt, producing around 34 million liters SAF.

Market expectations suggest that long-term SAF production will depend on dual feedstock plants -- molasses-based and bagasse-based cellulosic ethanol -- necessitating subsidies to support feedstock production until then.

“A targeted ethanol subsidy will incentivize domestic feedstock producers to expand their operations and ensure a stable supply of both molasses-derived and cellulosic ethanol, as other options such as renewable drop-in diesel, is no longer commercialized in Thailand due to the removal of subsidies and high production costs,” said Wong Chok, a biofuels trader based in Singapore.

“Bangkok is unlikely to allow the imports of HVO as a supplement to its biodiesel market for the same reason that it does not permit biodiesel imports.”

Thailand’s Alternative Energy Development Plan focuses on reducing greenhouse gas emissions through a biofuels consumption target of 2.76 billion liters by 2037, of which 675 million liters would be met through consumption of SAF.

However, compared to the AEDP 2018 and the draft AEDP 2022, AEDP 2024 lowered the 2037 consumption targets to 1.185 billion liters of bioethanol and 900 million liters of biodiesel. The decrease in the AEDP 2024 on-road biofuel targets is due to the government’s increased focus on electric vehicles.

The rise of EVs has often been deemed as an existential threat to ethanol as the government has set ambitious goals to reach 30% of new car sales by 2030.

Ethanol relies heavily on a captive gasoline-vehicle fleet for its main use as a fuel blend. However, if EVs achieve high penetration by 2030, it would erode gasoline and ethanol demand as without the ability to export or find alternative markets, Thailand’s complete dependence on domestic ethanol production leaves it highly vulnerable to declining fuel use.

Platts, part of S&P Global Commodity Insights, assessed SAF production costs in Southeast Asia at $1,714.23/mt Sept. 30, up $6.62 from the previous assessment.