Rising European biofuels uptake supports demand and price of gasoline additive ETBE

An increase in biofuels uptake in Europe is set to support prices of the fuel additive ETBE, as Sweden and the UK prepare to introduce E10 gasoline, boosting demand for ETBE's feedstock, ethanol.

As biofuels grow their market share within the energy complex, demand for ETBE, or ethyl tertiary butyl ether, has steadily risen in recent months.

The trend is set for a further boost as more countries adopt gasoline blended with 10% ethanol(opens in a new tab), or E10, with Sweden and the UK the latest poised to take the step.

ETBE is closely related to MTBE (methyl tertiary butyl ether), sharing similar market fundamentals, and both typically benefit from a strong European gasoline market.

Where the two products differ is in their production. Ethanol provides the main building block for ETBE whereas MTBE uses methanol.

Bio credentials add value

ETBE is composed of around 42% ethanol and is mainly used for gasoline blending. Chemically, the feedstocks for the two products are very similar, and MTBE and ETBE have comparable chemical attributes, but ETBE distinguishes itself as a desirable blending component due to its biofuel characteristics. The bio-ethanol feedstock allows ETBE to be eligible for biofuel credits under the RED II European mandate.

In contrast, methanol does not receive biofuel credits, unless it is bio-methanol – which is not typically used to make MTBE.

Because of ETBE's superior characteristics and the fact that ethanol is a more expensive feedstock than methanol, it almost always trades at a premium to MTBE.

Recently, MTBE has experienced lackluster demand amid unfavorable blending economics, whereas ETBE has experienced robust demand due to interest in biofuel credits. As mobility restrictions ease across Europe, commuter and holiday travel are increasing driving demand, further adding support to ETBE.

"ETBE demand is picking up, especially in Germany, now France is picking up too as restrictions ease," a trader told Platts June 25.

"Currently seeing more interest for spot ETBE than MTBE as ETBE is supported by bio ticket demand," another source told Platts.

ETBE purity provides a significant value in the market—typically commanding higher premiums the higher the purity—with the bulk of ETBE production and trading comprising of purity in the 90-95% range.

To better reflect ETBE market dynamics, S&P Global Platts has introduced a new purity specification for its ETBE assessment, basis FOB Amsterdam-Rotterdam, effective June 30, 2021.

Platts aims to represent the most fungible part of the ETBE market, introducing a lower minimum purity of 90% while reflecting pricing of a higher 100% purity, with value adjusted post-trade for purity on loading using a de-escalator formula.

Support from E10

Looking towards the second half of the year, ETBE is expected to find further support from the upcoming E10 fuel uptake in Sweden and the UK as the availability of feedstock ethanol is expected to tighten, according to sources.

Sweden will introduce E10 fuel from August 1 this year, with the UK expected to follow suit in September, according to the UK Department for Transport and Bioenergy International.

The switch to E10 will inevitably increase demand for ETBE feedstock ethanol, forcing both outright prices and the ETBE premium to MTBE higher. At the same time, demand for additional ETBE itself in high octane gasoline blends can be expected amid the market's preference for greener fuel alternatives in Europe.

"E10 in the UK will certainly have an impact on the spread of MTBE to ETBE, we should see an increase as demand for ethanol increases," a market source said June 9. "At the moment we can sell more [ETBE] than we can produce for Q3."