Feedstock limitations and burgeoning demand to keep bio-LNG premiums versus NWE elevated

Limitations of feedstock availability coupled with growing demand are expected to keep bio-LNG premiums in Rotterdam elevated versus their fossil fuel counterpart in Northwest Europe, sources said.

Platts, part of S&P Global Commodity Insights, assessed the first Rotterdam bio-LNG assessment at $24.43/MMBtu.

This was a $12.258/MMBtu premium to the DES Northwest European marker or a 38 Eur/MWh premium to the Dutch TTF gas hub.

Traders have shared that Bio-LNG with 89% savings can trade around EUR70/MWh, while savings of around 200% can trade upwards of Eur200/MWh.

That was around $22.188/MMBtu for bio-LNG with 89% GHG savings or around $63.393/MMBtu for 200% savings.

In comparison, the Platts DES Northwest European LNG marker for December was assessed at $12.173/MMBtu on Nov. 1.

Bio-LNG is chemically like fossil fuel LNG and as a result, can be utilized for the same demand pathways and through the same infrastructure.

Bio-LNG and biomethane can be looked to across Europe to help meet their energy goals over the next decade. Depending on the feedstock, the greenhouse gas savings may differ widely. Bio-LNG and biomethane are being sought after to help reduce carbon emissions across the European market.

“The are currently 1,400 biomethane plants across Europe. Annual biomethane production has grown from 1 Bcm in 2014 to 4.5 Bcm in 2023, producing 1.2% of total European gas demand,” Patrick Caulfield, gas analyst, at Commodity Insights said in a biomethane feedstocks report. “This represents a fourfold increase in total production, albeit from a low base, and we forecast this to grow to 9 Bcm by 2030 and 17.5 Bcm by 2050.”

Bio-LNG is the renewable counterpart to fossil LNG and can be produced through organic feedstocks such as waste, manure, and crops.

Caulfield added that European and national policy drove the increased use of agricultural waste and the decreasing use of energy crops. Increasing attention on sustainability and carbon intensity in Europe has pushed energy crops out of favor as a feedstock.

Under the European Renewable Energy Directives, RED II and RED III, biofuels derived from energy crops would generally not be supported by 2030. With the RED III adding biomethane under the sustainability rules, there were further limitations on energy crop use as a feedstock.

Despite crops still having lower carbon intensity versus natural gas, they remain higher than agricultural waste. Under RED III, biomethane produced from manure and landfill gas has a notably low carbon intensity.

“As a result, guarantees of origin from biomethane produced from lower-CI feedstocks are typically priced at a premium, incentivizing the uptake of such feedstocks,” Caulfield said.

While manure can help to achieve a negative carbon intensity, its energy rating is still relatively low due to the high water content which adds logistical constraints for producing biomethane with this feedstock.

Additionally, market participants have shared a large price differential for biomethane and bio-LNG when using manure as a feedstock over crop or waste.

“The price [of bio-LNG] can be almost double depending on the feedstocks and the [greenhouse gas] savings,” one source said. “There just isn’t enough manure for the forecasted bio-LNG demand.”

Growing demand

Although the cost of procuring bio-LNG is around two to three times the price of Northwest European LNG, Europe’s net-zero targets and mandates around biofuels are expected to bolster bio-LNG’s demand as a renewable fuel from next year.

In particular, traders have pointed to the FuelEU Maritime Regulation being a key driver of the bio-LNG market. The regulation, which comes into force on Jan. 1, 2025, sets limits on the yearly maximum

The market anticipates that feedstock supply may be tight, given that bio-LNG also must compete with other renewable fuel sources for these sources of sustainability.

“It will be challenging to supply enough product, competing with industrial and road transport sectors,” an Atlantic-based trader said.

Accessing Bio-LNG derived from manure feedstock, which delivers the highest GHG savings, will become particularly tight, the trader added.