Greenhouse Gas (GHG) reduction targets caused biodiesel use to rise strongly

James Fry, the Chairman of LMC International said it was a surprise to see German biodiesel use surge in the year-on-year change in German fuel demand.

Speaking at the Palm Oil Trade Fair and Seminar (POTS Digital) 2021, James assumed the possibility of a drop to lockdowns, recession and rising prices of oils that would have reduced German biodiesel use. 

Instead, Greenhouse Gas (GHG) reduction targets caused biodiesel use to rise strongly, lifting blending above the 7 percent blend wall and creating substantial new demand for renewable diesel.”

He also pointed out that the biodiesel demand has been strong in California as well. The chart showed that California’s Low Carbon Fuel Standard boosts demand for Fatty Acid Methyl Esters (FAME) and Hydrotreated Vegetable Oil (HVO), as ways of reducing carbon intensity in fuel.

“HVO in particular (much from Nestle in Singapore) has been a major beneficiary. There was a small drop in Q2 as fuel use slumped, but the trend is clearly pointing upwards,” he explained.

Referring to palm oil and biodiesel trends in 2021, James described if long run growth is plotted in crude palm oil (CPO) output, and if it regains its trend, production will rise by nearly 1 million tonnes in Malaysia, 4.5 million tonnes in Indonesia, and globally by over 6 million tonnes, reviving after 2020’s depressed performance everywhere.

“To assess the impact of such growth on CPO prices, one must estimate what will happen to demand. In 2020, food demand fell due to the damage from Covid-19 but mandated biodiesel sales rose, despite lower diesel fuel use in most countries,” he said.

James further shared that previously, when biodiesel became much more costly than diesel fuel, government mandates were reduced temporarily to ease the upward pressure on vegetable oil prices. 

“This time, far from cutting mandates, leading biodiesel consumers, including the US, Indonesia, Germany and Brazil, have all increased their mandates,” he highlighted.

“If Indonesia had cut its mandate to B20, the extra 2.5 million tonnes of palm oil for export would have reduced world CPO prices by $100-$200. Export levies benefited Indonesian palm producers overall.

Since mandates were not affected by high prices in 2020, I see no reason to believe that governments will stop supporting, and increasing mandates again in 2021,” he added.

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