By Xupu Tianzhe, Consulting Business Department of China National Chemical Information Center
Biodiesel is a renewable energy substitute for traditional fossil diesel fuel. It is mainly made from vegetable oil, animal oil, used cooking oil or microbial oil. Biodiesel can generate fatty acid methyl ester or fatty acid ethyl ester through esterification or transesterification with methanol or ethanol, which is commonly called "ester-based biodiesel". Hydrogenated vegetable oil (HVO) is a highly-discussed hydrocarbon-based biodiesel in the market, and the two kinds are collectively referred to as biodiesel. Hydrocarbon-based biodiesel can entirely replace traditional diesel fuel, without revamping the engine of automobiles or machinery, nor upgrading the transportation pipelines or other infrastructures for oil.
Biodiesel is generally used as plasticizer or diesel additive. According to research, the hydrocarbon emission from biodiesel is reduced by more than 50% compared with that from traditional fossil diesel fuel, and the effect of carbon reduction based on different raw materials is also different. As biodiesel is mainly derived from animals, plants and wastes, there is low carbon in it. In addition, given that it is environment-friendly, diversified and renewable with a wide variety of raw materials, it is believed to be replacing traditional diesel fuel in the fields that call for sustainable development, environmental pressure mitigation, and restriction of urban air pollution.
Production situation
The biodiesel industry in China is less developed than that in Europe and the United States, and hence the market scale is smaller. China’s biodiesel is mainly derived from waste oil (kitchen waste oil, hogwash oil, swill-cooked oil, etc.), bio-oil algae and non-grain crops, indicating that there is a wide variety of raw materials in generating biodiesel in China. However, the supply is unstable, and the application is not widely promoted. These headwinds weigh down on the market development. In the meanwhile, a big number of raw materials such as biodiesel and used cooking oil (UCO) are exported to meet robust demand from Europe. Table 1 shows China's biodiesel exports from 2017 to 2021.
Source: General Administration of Customs of the People's Republic of China, China Biodiesel Industry Association
The compound annual growth rate of China's biodiesel exports hit 50.5% from 2017 to 2021. In 2021 alone, 1.2937 million tons of biodiesel, 1.2654 million tons of ester-based biodiesel and 26 000 tons of hydrocarbon-based biodiesel with H. S. code of 38260000 were exported. About 28 000 tons of hydrocarbon-based biodiesel with H. S. code of 3826 were exported. As a result, a total of 58 000 tons of hydrocarbon-based biodiesel were exported, and a total of 1.3119 million tons of ester-based biodiesel and hydrocarbon-based biodiesel were exported.
Table 2 shows the export situation of China's industrial-grade UCO from 2017 to 2021. The compound annual growth rate of China's industrial UCO exports reached over 30% during the period, lower than that of biodiesel exports.
Source: General Administration of Customs of the People's Republic of China, China Biodiesel Industry Association
Market situation
The Russia-Ukraine conflict pushed the prices of biodiesel higher in the first half of 2022. Against the backdrop, the EU increased the import volume of biodiesel and raw materials, which resulted in a surge in the quantity and price of China's biodiesel exports.
As China's biodiesel exports are mainly sold to the EU, any policy change there poses a very important impact on the domestic biodiesel industry. The overseas biodiesel orders dropped sharply, and accordingly, the export volumes decreased, for a mix of reasons as below. First, with the falling of international crude oil and food prices, biodiesel, as a substitute for traditional fossil diesel fuel, was also affected by the lower prices of the latter. Secondly, the economic growth of the key market EU is slowing down in line with weaker global economy. Commercial and industrial activities decreased, and as a result, the consumption of gasoline and diesel shrank, so did that of biodiesel blended with B5 and B10. Thirdly, at the Group of Seven (G7) meeting in June, some EU members suggested loosening the compulsory blending ratio and unleashing the restrictions of using traditional petrochemical energy so as to contain the rising food and energy prices triggered by the Russia-Ukraine conflict.
August saw the futures prices of crude oil and wheat - as global consumer staples, hit a new low of the second half of the year. This should have been good news for the biodiesel industry, but it is no longer a given as the EU considers loosening the compulsory blending ratio. On the other hand, Europe has resumed including natural gas and nuclear energy, and even coal, as energy so as to reduce the demand for biodiesel in the market.
As China’s biodiesel market is almost blank at present, with almost no application in land and air transportation as well as industrial fields, the market has great development potential. According to the forecast based on the EU and Chinese market situation, the domestic biodiesel market will be effectively developed in the current environment of global biodiesel carbon neutralization. Except for the recent two years with significant economic downturn, the growth of domestic biodiesel production continues, and the growth rate may be small, but not negative. It is estimated that the annual average growth rate of industrial output will be about 16% from 2024. If calculated according to a price prediction model based on the output and export volume in the past five years, with the global geopolitical factors factored in, it is estimated that China's biodiesel production will exceed 4 million tons by 2030. Figure 1 shows the production forecast of China's biodiesel industry from 2022 to 2030.
Figure 1 Production forecast of China's biodiesel from 2022 to 2030 (10kt)
The global tensions are going on and the domestic biodiesel market is being challenged by the global political multipolarization structure.
Future development trend
The biodiesel industry may face internal and external problems in the near future. First, the sustainable supply of raw materials has long been a pain point for the biodiesel industry. The supply of raw materials has been short for a long time, and the exporting has intensified the competition between foreign and domestic biodiesel producers for raw materials. Secondly, although there are many hydrocarbon-based biodiesel projects proposed or under construction, the continuously lower international crude oil prices and the technological bottlenecks leave hydrocarbon-based biodiesel to be less competitive compared with traditional petrochemical energy. Bio-jet fuel or sustainable aviation fuel (SAF) are unlikely to be put into commercial production and then replace traditional fossil aviation fuel due to the technical and economical barriers. Thirdly, the development room of bio-transportation fuel is being squeezed by new energy vehicles (electric vehicles) and new fuel vehicles (hydrogen energy). In addition, there are higher downward risks in the biodiesel market in line with the changing demand caused by the international economic crunch and elevated geopolitical conflicts. In the longer run, biodiesel will be well positioned to effectively contribute to the decarbonization process in China's transportation (land and aviation) and industrial fields. With higher blending proportion and the rise of China's consumer market, support from the "carbon neutralization" policy, China’s biodiesel market will have a big leap in the future.
