Renewables 2020

Analysis and forecast to 2025
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Transport biofuels

Forecast summary

The biofuels industry has been strongly impacted by the Covid‑19 pandemic. Global transport biofuel production in 2020 is anticipated to be 144 billion litres (L), equivalent to 2 480 thousand barrels per day (kb/d) – an 11.6% drop from 2019’s record output and the first reduction in annual production in two decades.

While this projection is a slight upward revision from the IEA forecast update in May, it is far below the 3% growth anticipated for 2020 in our pre-pandemic forecast. The greatest year-on-year (y-o-y) drops in output are for US and Brazilian ethanol, and European biodiesel. 

Global biofuel production in 2019 and breakdown for 2020

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Lower transport fuel demand resulting from the Covid‑19 crisis reduces biofuel consumption in countries where mandate policies require a set percentage of biofuels to be blended with fossil transport fuels. Overall, global gasoline demand is anticipated to contract by 10%, and diesel by 6% in 2020. Diesel is less affected, as a substantial share of its consumption is for the transport of goods, which the crisis has impacted less than personal mobility.

A lowering of crude oil prices since the start of the pandemic has made biofuels less competitive with fossil transport fuels. The average crude oil price for 2020 is currently estimated at around USD 40/bbl, down from USD 64/bbl in 2019. This has reduced unblended ethanol purchases in Brazil (-17% in the first half of 2020) and delayed increases to biofuel blending rates in the Association of Southeast Asian Nations (ASEAN) region because this would imply higher costs for governments that subsidise biofuels to ensure their competitiveness with gasoline and fossil diesel. Lower crude oil prices have also caused biofuel prices to fall, albeit generally to a lesser extent, which challenges production economics for some plants. 

Global biofuel production in 2019 and forecast to 2025

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If fossil transport fuel demand rebounds to close to pre-pandemic levels and policy support in key markets continues to expand, transport biofuel production could reach 162 billion L in 2021, a return to the 2019 level. This is contingent, however, on the health crisis being brought under control and the avoidance of further widespread mobility restrictions.

Output in 2022 is anticipated to increase a further 4% y-o-y to 169 billion L. Growing fuel demand and strengthened biofuel policies in Asian and South American countries enable those markets to account for the majority of the additional growth. Countries in these regions are also reinforcing biofuel policy support to boost demand for nationally important agricultural commodities.

During 2023-25, average global output of 182 billion L is anticipated, with the greatest production increases being for ethanol in China and Brazil, and for biodiesel and HVO in the United States and the ASEAN region. Biofuels are expected to meet around 5.4% of road transport energy demand in 2025, rising from just under 4.8% in 2019.

Ethanol markets

Fuel ethanol production reached 115 billion L globally in 2019. However, global output has been strongly impacted by the Covid‑19 crisis. Production is therefore anticipated to contract 14.5% to 98 billion L in 2020 – a return to 2015 production levels. Around 80% of the y-o-y fall in output occurs in the key markets of Brazil and the United States.

A strong dip in gasoline demand in several key ethanol markets is the primary reason for lower ethanol production in 2020, with the drop in some ethanol-producing countries surpassing the global average. If gasoline demand rebounds in 2021, production could increase to 109 billion L before returning to close to 2019 levels by 2022. In 2023-25, average output is anticipated to be 119 billion L, with Brazil, China and India the key growth markets over this period.

Y-o-y gasoline demand contraction by volume in key ethanol markets, 2020

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In the United States, ethanol production reached 59.5 billion L in 2019. A similar level was expected for 2020, but the pandemic has severely affected the US ethanol industry. Despite another bumper corn crop, a 12% drop to 52 billion L of production in 2020 (the lowest output since 2014) is anticipated owing to 10% less y-o-y gasoline demand.

Output fell approximately 40% between February and April, as many plants idled or reduced output in response to the sudden drop in gasoline demand, negative operating margins and constrained storage capacities. However, output has since improved and by September was only 9% below the 2019 level.

The financial impact of the pandemic on the biofuels industry has been cushioned by the Renewable Fuel Reimbursement Programme, which provided USD 0.12/L to eligible producers for output between 1 January and 1 May 2020.

Ethanol consumption has remained steady at around 10% of variable gasoline demand in 2020. As gasoline consumption recovers, US ethanol production is expected to increase to 55-58 billion L over 2021-22. During 2023-25, output is expected to stabilise at around 55 billion L as greater passenger vehicle efficiency reduces gasoline demand and, in turn, the volume of ethanol needed for blending.

Higher production would require an increased uptake of ethanol blends such as E15 or E85.1 However, despite support from the Higher Blends Infrastructure Incentive Program, they continue to account for a small portion of the market and scaling up their availability is not likely to noticeably affect ethanol demand nationwide before the end of the forecast period.

The other key means to enable higher production is to increase ethanol exports. However, given the drop in gasoline demand, matching 2019 production in 2025 would require a doubling of the record export levels of 2018, which will be challenging.

Brazil ethanol production, 2019 and 2020

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United States ethanol production, 2019 and 2020

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Brazil produced 36 billion L of ethanol in 2019, with output anticipated to fall 16.5% to 30 billion L this year. Brazil is facing dual pressure in 2020: an 8% drop in gasoline demand that is curbing consumption of ethanol blended under the 27% mandate; and low oil prices that reduce gasoline prices, which in turn affects the competitiveness of unblended ethanol versus gasoline at the pump.

Brazilian ethanol output has also fallen in 2020 because mills are expected to maximise sugar production at the expense of ethanol during the 2020‑21 sugar cane harvest season. The higher profitability of the sweetener in current market conditions means that the use of recoverable sugars for sugar rather than ethanol is anticipated to rise by 10 percentage points, reversing the trend of the last two years.

Partial output recovery is expected in 2021 (33 billion L) and 2022 (34 billion L) as ethanol production from corn feedstocks expands rapidly. Corn-based production is anticipated to increase to 2.5 billion L by 2021, 85% higher than the 2019 level, with a number of plants in development and corn supplies ample. Although this output is low compared with sugar cane-derived ethanol, corn-based production is anticipated to continue expanding throughout the forecast period.

Over 2023-25, average ethanol production of 37 billion L is forecast with y-o-y production growth expected as gasoline demand is anticipated to rise 1% per year. In addition, the RenovaBio policy improves the economics of biofuel production by introducing emissions reduction targets that fuel distributors can meet by obtaining traded emissions reductions certificates (called CBIOs) awarded to biofuel producers.

RenovaBio rollout began this year, and by June more than 200 producers had been certified to receive CBIOs. In September, the certificates traded at around USD 3.8 to USD 4.6 per certificate, which equates to an emissions reduction of 1 tonne of CO2 equivalent. Due to lower transport fuel demand during the Covid‑19 crisis, the original RenovaBio target for 2020 was adjusted down by 50% to 14.5 million CBIOs.

Ethanol production in China reached 3.9 billion L in 2019, and this level is expected to remain stable at around 4 billion L in 2020. Despite a 7% contraction in gasoline demand, some ethanol production growth is expected from the expansion of 10%‑ethanol (E10) supplies to new provinces. Production capacity has doubled since 2017, and several large new plants are in development.

The depletion of China’s previously large grain reserves has caused the government to delay the nationwide rollout of 10% ethanol blends planned for 2020. Nevertheless, extending E10 supplies to more areas is ongoing, with eight provinces offering complete coverage and another six in the process of expanding its availability.

China’s Annual Energy Plan indicates that policy adjustments will be made to improve ethanol deployment prospects though steady expansion of production capacity and the promotion of ethanol-gasoline blending. Consequently, during 2023-25, average production is expected to reach 8.5 billion L, more than double 2019 production.

Ethanol production overview for key Asian markets, 2019-2025

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Fuel ethanol output in India reached 1.9 billion L in 2019, but it is expected to drop 8% to 1.8 billion L in 2020. Production prospects have been impacted by a 13% reduction in gasoline demand, while lower oil prices mean that ethanol is less affordable than unblended gasoline. In addition, constrained ethanol storage capacity at mills has compromised production.

However, production could rebound to a record 2 billion L in 2021 as gasoline demand recovers and molasses feedstocks become more available. Over 2023-25, average output of 3 billion L per year is anticipated, reflecting expected investments to increase production capacity.

Although India’s ethanol production is anticipated to expand, domestic output is expected to fall short of the country’s biofuel policy goal for 2022. While the target is for 10% ethanol blending nationwide, the production forecast for 2025 equates to around 7% of gasoline demand.

In Thailand, ethanol production is expected to shrink 7% in 2020 to 1.5 billion L. Output is impacted by a 6% decrease in gasoline demand and lower molasses feedstock availability. During 2023-25, average yearly production of 2.4 billion L is expected, with growth spurred by expanded production capacity and a shift to make E20 the principal blend consumed by passenger vehicles. This change was originally planned for 2020 but was delayed by the Covid‑19 pandemic. 

Biodiesel and HVO markets

Global biodiesel and HVO production reached 48 billion L globally in 2019. The Covid‑19 crisis has impacted global output to a lesser extent than ethanol, as the reduction in diesel demand has been less pronounced than for gasoline, and key markets introduced higher blending mandates in 2020 despite the pandemic. Production is expected to contract by around 5% to 46 billion L in 2020, with most of the reduction in European markets.

European production is expected to bounce back in 2021, which, combined with ongoing growth in ASEAN countries and the United States, causes global output to reach 53 billion L in 2021 and 56 billion L by 2022. Over 2023-25, average output is anticipated to be 63 billion L, 30% higher than the 2019 level. Expanding HVO production in Singapore and the United States accounts for over half of this increase. 

Biodiesel and HVO production overview for key global markets, 2019-2025

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Output of biodiesel and HVO in the European Union reached a record 15.7 billion L in 2019.2 Production is anticipated to decrease 13.5% to 13.6 billion L in 2020. A key factor in this reduction is the Covid‑19 pandemic, which reduced EU diesel demand by 10.5% in 2020. Furthermore, storage capacity is saturated and the price of biodiesel has fallen more quickly than the cost of feedstocks, challenging biodiesel production economics. Two-thirds of production is from France, Germany, Spain and the Netherlands, and about one-quarter of total EU output comes from HVO.

The production decline would have been even greater if not for the biofuel mandates of various member states (e.g. France, Italy, Poland and Spain) linked to the Renewable Energy Directive (RED) 2020 target of 10% renewable energy in transport. Germany’s Climate Protection Quota also reinforced its carbon intensity target in 2020, notably boosting biodiesel and HVO demand. In addition to these favourable policy changes, a rebound in diesel demand in 2021 could cause output to increase to 15.8 billion L.

Over 2023-25, average output of 16.5 billion L is expected across the EU. HVO use expands considerably owing to its advantageous technical characteristics and the specifications of the updated RED for 2021-30. However, only 30.5% of all passenger car registered in the European Union in 2019 were diesel-fuelled (ACEA, 2020). Fewer diesel car registrations and increasingly efficient passenger and road freight vehicle fleets therefore means diesel consumption drops 10% over the forecast period, reducing biodiesel and HVO demand created by mandate policies.

In the United States, biodiesel and HVO production was a record 8.4 billion L in 2019. In 2020, output is expected to hold steady at around 8.2 billion L. The drop caused by the Covid‑19 pandemic is counterbalanced by policy-driven demand from the federal Renewable Fuel Standard (RFS2), California’s Low Carbon Fuel Standard (LCFS) and the reintroduced Blender’s Tax Credit, resulting in 3% lower diesel demand. Anti-dumping duties on imports from Indonesia and Argentina, which rendered them uneconomic, also underpin domestic output.

Average yearly biodiesel production of 14 billion L is expected over 2023-25. The main driver for growth is a fourfold increase in HVO output arising from a flurry of investments in production capacity, including the conversion of several fossil fuel refineries. Tighter annual LCFS carbon intensity requirements in California, Oregon and the Canadian province of British Columbia will stimulate demand for low-carbon HVO from waste and residue feedstocks, but scaling up production will likely require that a new policy continue to stimulate the demand created by the RFS2 after its expiry in 2022.

In Indonesia, a record 7.2 billion L of biodiesel were produced in 2019. Output in 2020 is expected to increase slightly to 7.9 billion L. The rise in the national blending mandate from 20% to 30% at the beginning of 2020 offset a 12.5% reduction in diesel demand due to Covid‑19. The pandemic has, however, delayed the commissioning of some new production facilities.

Continued policy support over the forecast period is anticipated, as Indonesia’s oil import dependency is increasing. Improving security of supply is therefore a key aim of measures that support domestically produced biofuel consumption in transport. The biodiesel mandate is expected to rise to 40% during the forecast period, with vehicle testing already under way.

During 2023-25, average yearly output of 10.5 billion L is therefore expected, with higher biodiesel consumption from the transport mandate spurred by 10% diesel demand growth over 2021-25. Increased production is delivered by new plants coming online and underutilised capacity ramping up output.

Low-level HVO production has begun in Indonesia, with plans to launch production at several refineries. HVO blending with biodiesel, which is generally not constrained by blend limits, is considered one way to make vehicles suitable for the 40% mandate.

Brazil produced a record 5.9 billion L of biodiesel in 2019. A good soybean harvest and stronger demand resulting from an increase in the blending mandate (to 12%) this year is anticipated to raise production slightly to 6 billion L in 2020.3

Production could scale up to 7 billion L by 2025, reducing current biodiesel plant overcapacity. The primary impetus for higher output would be a staged mandate increase to 15% by 2023 and the introduction of the RenovaBio policy, which is likely to stimulate more output from lower-carbon waste oil and animal fat feedstocks.

Biodiesel production in Argentina amounted to 2.4 billion L in 2019, but the sector has been hit hard by the Covid‑19 crisis and output is expected to drop 40% to 1.4 billion L in 2020. Not only will a roughly 9% decrease in diesel demand reduce local consumption under the 10% blending mandate, but exports to the United States also remain closed due to trade tariffs. Although average yearly production over 2023-25 is anticipated to recover to 2.3 billion L, this will depend on how biofuel policies are revised in 2021.

References
  1. These refer to 15% and up to 85% ethanol by volume blended with gasoline. References to E10 and E20 later in this section refer to 10% and 20% ethanol blends.

  2. EU27 production, excluding the United Kingdom for consistency with forecast numbers.

  3. Although the biodiesel mandate was temporarily reduced from 12% to 10% in September and October.