Current Status and Prospects of Biodiesel and Sustainable Aviation Fuel SAF

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Current Status and Prospects of Biodiesel and Sustainable Aviation Fuel (SAF). I. Current Prices, Supply, and Demand for Biodiesel and Sustainable Aviation Fuel: In the European market, the prices of HVO (second-generation biodiesel) and SAF (sustainable aviation fuel) rose significantly in the second half of 2023, with supply and demand at a tight balance. Regarding HVO, the spot price in Europe has reached 2,800 US dollars per ton, driven mainly by tight supply due to accidents and maintenance at local plants, coupled with strong demand ； The price of SAF in Europe is around 2,700 US dollars per ton, while the FOB price of products exported from China in early October is 2,400 US dollars per ton; this inversion of prices persists (with HVO prices being higher than those of SAF). The first generation of biodiesel performed poorly; in the first half of the year, its demand and profit margins were constrained by the competition from HVO and SAF for raw materials (with prices reaching 8,300 yuan per ton at one point), as well as by anti-dumping tariffs imposed by the EU. Although there was some improvement in the second half of the year, overall conditions remained challenging. Due to expectations of production shutdowns in China, raw material prices have recently dropped to around 8,000 yuan per ton, resulting in short-term tightness on the supply side. II. Outlook for Future Supply, Demand, and Prices of HVO and SAF: HVO prices are expected to remain strong, driven primarily by the abolition of the EU’s IP3 regulation and the double carbon credit policy; more HVO will be needed to meet carbon credit requirements, which could lead to an increasing supply gap. The supply and demand of SAF depend on Chinese production capacity, as factories in Europe and the United States prefer to produce the more profitable HVO. It is expected that purchases in Europe will become more even across quarters in 2024, and prices will be supported by supply constraints resulting from maintenance activities domestically, leaving little room for decline. In the long term, demand for HVO and SAF is set to grow steadily, but the increase in production capacity is limited (around 180,000 tons in China in 2024), and the supply-demand imbalance may continue to drive up prices. III. Impact of domestic and international biofuel policies and trade environment: The EU’s mandatory blending policy serves as the key driving force; the 2% SAF blending target for 2023 was not met. In 2024, the UK will introduce a mandatory 2% blending requirement, while Singapore, Japan, and South Korea have relatively weaker policies (around 1%). Domestic policy progress is slow; the roadmap for biojet fuel, which was originally scheduled to be introduced in August 2023 (for more real-time updates, add WeChat: aileesir), has been delayed. A pilot program for mandatory blending at 1% may start in 2026, with pilot-scale production at airports amounting to around 50,000–100,000 tons per year. In terms of the trade environment, the EU imposes anti-dumping tariffs on Chinese HVO; there are no such anti-dumping measures in place for SAF at present (companies such as Neste have proposed such measures, but the EU relies on Chinese supply in the short term). Anti-dumping measures have been imposed on U.S. SAF due to its excessively high subsidies. IV. Domestic production capacity supply and export process: Exports must go through a \"white list\" pilot program; the main barriers include time costs (regulatory procedures, online monitoring) and assessments of the rationality of production capacity. New companies need to be approved simultaneously with existing applicants. Next year and the year after, there will be limited new production capacity in China that can be counted on with certainty. The 300,000-ton project in Hainan (with an actual output of 180,000 tons) is expected to come online by the end of 2024, while another 300,000-ton project may resume operations in 2024 after repairs are completed as a result of an accident. V. Analysis of technologies, processes, and costs for biodiesel and biojet fuel: The technical approaches include advanced foreign processes (UOP, ExxonMobil, with yields of 73%-75%) and traditional domestic processes (with yields of around 65%), and this difference in yields results in a cost difference of approximately 1,000 yuan per ton. Pre-treatment devices (such as the Swedish Farafa process) can improve the suitability of raw materials and reduce costs, but the investment is high (around 100 million yuan). Cost calculations show that there is room for net profit when the cost of raw materials is 8,000 yuan per ton and the selling price of the product is 1,850 US dollars per ton. The key factors influencing this are the sophistication of the manufacturing process, the capacity for pre-treatment, and the transportation distance. VI. Raw material supply and application potential: The total amount of waste oils in China (including gutter oil and sewage oil) is approximately 5 million tons, with a potential for use as biofuels of 4–5 million tons; preprocessing equipment is required for this purpose. If export controls on PFAD (palm oil refined fatty acids) in Southeast Asia (such as Indonesia) are relaxed, an additional two to three million tons of supply could be added. Used cooking oil and waste oil can be incorporated into raw materials through pretreatment to reduce costs, and some companies in China have already begun to try this approach. VII. Outlook on Market Application Trends for Biofuels: First-generation biodiesel faces limited growth prospects due to high raw material costs and policy restrictions in the EU (maximum blending limits) ； Second-generation HVO enjoys strong demand due to unrestricted addition ratios and better carbon reduction effects; in 2024, the cancellation of double carbon credits may further boost consumption levels. The demand for SAF depends on industry-mandated blending policies; short-term supply gaps need to be filled by Chinese production capacity, while in the long term it could become a key driver for the growth of biofuels. The automotive and marine markets are growing relatively slowly due to cost and policy factors.