World biofuel output to hit pre-Covid levels in 2021, hit new high in 2022

London (Quantum Commodity Intelligence) - Global biofuel demand will return to pre-Covid levels this year driven by higher biodiesel demand in the US and Europe even as ethanol usage languishes around its 2018 figure, said research released Tuesday by the International Energy Agency.

The total for all biofuels in 2021 was forecasted at 163.9 billion litres, up from 150.6 billion last year and slightly lower than 2019's all-time record 164.1 billion.

However, biofuel production was set to hit a new record high in 2022 at 174.9 billion litres, with biodiesel up 14.5% from this year's peak at 60.7 billion and ethanol close to an all-time high at 114.2 billion, said the report.

Supportive policy and capacity increases in the US and a rebound in the European market in line with economic recovery will offset delayed mandate increases and temporary mandate cuts in Indonesia, Malaysia and Brazil to leave biodiesel demand at 53 billion litres this year.

This compares to 47.4 billion litres last year and 49.5 billion in 2019 with new plants and retooled fossil refineries set to double capacity for hydrotreated vegetable oil (HVO) biodiesel in the next two years.

Around 85% of new capacity will be in the US, driven by policy there, while Europe and Asia will both also see double-digit growth.

"The renewable fuel standard, California's low-carbon fuel standard and a biodiesel blender credit make HVO projects economically attractive [in the US]," said the IEA report.

"Outside the United States, new projects will expand capacity 12% from 2020 to 2022 in Europe, and by 32% in the Asia-Pacific region. At full production capacity HVO facilities account for 11% of forecast global biofuel production in 2022, more than doubling the 2019 HVO share."

Low fossil fuel costs and explosive feedstock vegetable oil costs, with palm oil and soybean oil prices historically high this year, have increased the cost of large biodiesel targets and major biodiesel producing and consuming countries Brazil, Indonesia and Malaysia have curtailed plans to expand usage as a result.

High sugar prices will also incentivise Brazillian mills to focus on sweetener production at the expense of ethanol and total output will be unchanged on the year at 33.1 billion litres, 8% below the 2019 level.

The world's biggest ethanol market in the US will also be subdued due to a sluggish recovery in gasoline demand and scarcer than usual export opportunities to Brazil and Europe and production was forecasted at 56.8 billion litres, up from 52.3 billion last year but still lower than the 59.7 billion in 2019.

Policy drivers will be less effective in promoting the take-up of ethanol as when made from corn, the predominant feedstock there, it generally saves fewer carbon emissions than renewable diesel.

The bright spot for ethanol is India, where targets have been raised 2.5 percentage points this year to 7%, seeing production rise to 3 billion litres this year from 1.8 billion and 1.9 billion in 2020 and 2019 respectively.

Total global ethanol demand will then come in at 110.9 billion in 2021, compared to 103.2 billion last year and 114.6 billion in 2019.