Spotlight: China reinforces position in HVO market with launch of new 400,000 mt/year plant

A version of this Spotlight from S&P Global Platts Analytics was first published March 24.

State-owned energy company Beijing Sanju Environmental Protection & New Materials launched a 400,000 mt/year capacity hydrotreated vegetable oil (HVO aka 'renewable diesel') plant in Rizhao, Shandong province on March 12 that utilizes used-cooking oil (UCO) and palm oil mill effluent (POME, aka palm acid oil or PAO) as feedstock. Beijing Sanju is planning to establish a subsidiary in Malaysia to procure a steady supply of HVO feedstock including UCO, gutter oil, tallow and POME/PAO.

The new HVO plant, Shandong Sanju Bioenergy, was the result of an April 7, 2020 cooperation agreement between Beijing Sanju (primary owner, investor and tech provider), Hainan Qilu Development (investor and subsidiary of Qilu Transportation Development Group) and the Juxian County Government (minority owner, fixed assets).

In August 2020, Beijing Sanju signed a sales contract with Hainan Qilu to supply 100,000 mt of HVO by the end of second quarter 2021. In September 2020, Hainan Qilu's parent company was merged (contracts as well) with Shandong Gaosu Group, a state-owned enterprise that manages the bulk of Shandong province's highways/expressways.

Shandong Sanju Bioenergy produces HVO via suspension bed hydrogenation, or ebullated bed hydrogenation, a process that is mostly used for heavy residual oils that have impurities, such as metals, that could spoil the catalyst necessary for fuel production. Beijing Sanju provides the catalyst, technical expertise and financing to employ suspension bed hydrogenation to produce HVO using waste/residue-based feedstocks.

Beijing Sanju operates other HVO plants

In July 2019, Beijing Sanju began producing HVO using the suspension bed hydrogenation process at the Hebi Huashi United Energy Technology plant in Henan province. The plant operates as a joint venture between Beijing Sanju and Hebi Huashi, where Beijing Sanju provides the catalyst technology, financing and product distribution, and Hebi Huashi provides the fixed assets and labor. In H2 2019, the plant produced 20,000 mt of HVO, all of which was exported to Europe. In particular, the first 5,000 mt batch was exported in August to Europe's Gunvor Group via the Port of Lianyungang to the Port of Rotterdam. The Henan plant is scheduled to produce 100,000 mt/year over the next three years based on July and October 2020 agreements between Beijing Sanju and Hebi Huashi.

In April 2020, Beijing Sanju launched HVO production at its Hainan Huanyu New Energy plant in Lingao, Hainan island. The Hainan plant has an estimated production capacity of 40,000 mt/year, while the Henan plant initially had a 60,000 mt/year capacity before it was roughly doubled to 100,000-120,000 mt/year in August 2020. In H1 2020, a combined 30,800 mt of HVO was produced using both plants, 30,600 mt of which was exported.

Going forward, Beijing Sanju plans to establish a 1 million mt/year capacity HVO plant in Beihai, southern Guangxi region. The proposed plant, Guangxi Sanju Bioenergy, is currently undergoing an environmental impact review.

Europe is a clear target

All three of Beijing Sanju's HVO plants have valid International Sustainability and Carbon Certifications (ISCC), meaning their UCO/POME-based HVO exports are compliant with Europe's Renewable Energy Directive (RED). Europe's strong commitment to high renewable energy targets and strict penalties for non-compliance will continue to support HVO import demand from China. Platts Analytics estimates HVO demand to grow in Europe from 2.316 million mt (51,164 b/d) in 2021 to 2.698 million mt (59,617 b/d) by 2025.