Asia’s ambitious biofuels plans thwarted by supply constraints and food security concerns

Asia’s ambitious biofuels blending targets will be a challenge to meet due to supply constraints and food security concerns, says Wood Mackenzie.

The region’s demand for biofuels is expected to reach about 0.51 million barrels per day (b/d) by 2030, up 50% compared to 0.34 million b/d in 2020, with ethanol accounting for about 260,000 b/d and biodiesel at 250,000 b/d.

Wood Mackenzie research analyst Kendrick Ng said: “Our forecast shows that no Asian market can meet its biodiesel and ethanol blending targets this year.”

Asian biodiesel markets face supply-side constraints. Palm oil, which is the main feedstock in Asia, is being used in key producing countries such as Indonesia and Malaysia, for their domestic biodiesel mandates.

Indonesia is a key market for biodiesel demand in the region on the back of a relatively stronger mandate, subsidies for biodiesel producers and availability of feedstock i.e. palm oil. It plans to adopt B40, a 40% palm oil-derived biodiesel mix in domestic diesel, by 2022 with a long-term goal of B50 and B100. The key challenge is the availability of raw materials to support the ambitious targets.

Ng said: “As Indonesia’s biodiesel production increases, it requires 15 million hectares more palm oil plantations to reach its mandate target, let alone export to its neighbours.”

Furthermore, Asia is in dire need of investments in biodiesel production capacity with a combined of at least 0.3 million b/d to support ambitious targets across the region by 2024.

Like biodiesel, ethanol also faces a crunch in production capacity. However, its bigger challenge is feedstock competition with food.

China announced the E10 mandate, starting in 2020, to reduce corn stock and address air pollution in 2017. This created a backlash as rising ethanol demand for biofuels started competing with food and production of hand sanitiser during Covid-19. China decided to delay the implementation and with its push for electrical vehicles, the outlook for biofuels in the country looks uncertain.

India will soon overtake China as the largest ethanol demand centre in the region as it has been pushing ethanol uptake with financial support and mandates. The country has been pushing ethanol uptake by providing favourable loan schemes to millers and proposing a roadmap to require car manufacturers to determine and visibly display how they comply with mandates. However, it faces similar food security concern in the non-sugar producing states.

Ng said: “If the region enforces and meets its blending targets, this would mean a reduction of exports to outside of the region unless there is a feedstock increase. The incremental biofuels demand would be at least 0.75 million b/d more by 2030.”