Oversupplied biofuels market should firm as mandates bite: Vopak

The market for biofuels is struggling amid oversupply but toughening mandates boost the longer-term outlook, management at Dutch storage firm Royal Vopak said July 26.

European market players have cited an excess of capacity and competition from dubiously certified imports, which has weighed on prices in the region. The EU has proposed provisional antidumping duties of up to 36.4% on imports of Chinese biodiesel, it said July 19.

"There is quite a bit of pressure on the capacity that is in the market and the economics in the medium and short term are not looking that great," Vopak CEO Dick Richelle said during an earnings call to accompany the firm's first-half earnings report.

This echoes similar comments from the biofuels industry. Global renewable fuels demand will surge until 2030 but for now the market is oversupplied due to legislative changes in Sweden and significant hydrogenated vegetable oil production ramp-ups, Alfred Stern, CEO of Austrian refiner OMV, said June 13.

Platts, part of S&P Global Commodity Insights, assessed the premium of used cooking oil methyl ester that complies with the EU's Renewable Energy Directive at a $634/mt premium to ICE gasoil futures July 25. It has averaged $603/mt since September 2022, when market sources say problematic imports started, having averaged $859/mt since the assessment started in March 2020.

Mandates provide a bright spot on the horizon. Under the terms of EU RED, EU countries are obliged to ensure that the share of renewable energy in the final consumption of energy in transport is at least 14% by 2030, including a minimum share of 3.5% of advanced biofuels.

"Longer term, when the demand mandates are falling more in line with the supply that has been put into place, we expect the longer-term outlook... still to be very positive but this remains a bit of a period where that supply of production with the demand is adjusting," Richelle said.

Pauses to production

In recent weeks, plans for standalone bio-refining units have been paused by Shell, BP and Chevron, while many producers have been forced to operate at negative margins over the last two years, according to industry body EWABA. Additionally, Neste reported its first negative profits since 2014 in the first quarter of 2024 as the Finnish refiner felt the impact of a global biofuels market downturn.

Shell is pausing construction of its 820,000 mt/year biofuels facility at Rotterdam in the Netherlands as it examines market conditions.

This unit, raised as an example during the Vopak earnings call of the malaise in the European biofuels industry, should not have a severe impact on storage of the renewables. "We have no indications that it will have any impact on where we sit and we are still serving that market from the capacity that we constructed at Vlaardingen," Richelle said.

Vopak announced six new tanks with a combined capacity of 64,000 cu m at its Vlaardingen terminal in the port of Rotterdam in May 2023. The new tanks are designed to store waste-based feedstocks for the production of biodiesel and sustainable aviation fuel.

Strength in oil, despite shipping fluctuations

"Our oil hub terminals in Singapore, Fujairah and Rotterdam continue to have a strong demand," Richelle said. "At the same time the need for local imports is driving stable performance in our oil distribution terminals."

Solid storage demand was primarily driven by the continued growth in oil demand globally and the rerouting of trade flows, Vopak CFO Michiel Gilsing said.

Storage levels of oil products in the Amsterdam-Rotterdam-Antwerp hub were 47.355 million barrels in June, 2% above the five-year average for that month, according to data from Insights Global.

Concerns about rising tanker freight rates are unlikely to dampen storage demand as shipping cycles tend to be short-lived and not as long as storage contracts, Richelle said in response to questions. "Supply chains still have to move... whether the shipping rate is high or low," he said.

In any case, freight rates are down a little from the start of the year. Platts assessed the rate to carry a 40,000 mt cargo of clean products from the Persian Gulf to UK Continent at $54.88/mt on July 26, down from $67.25/mt on Jan. 2

Platts assessed the rate to carry a 38,000 mt cargo of clean products from the US Gulf Coast to UK Continent at $34/mt on July 26, down from $36/mt on Jan. 2.