Bio-propane premium drops below bio-naphtha, demand subdued in both markets

The bio-propane premium to the propane large cargo assessment has dropped below the bio-naphtha premium versus conventional naphtha for the first time since Platts began assessing the alternative green fuels. However, subdued petrochemical margins and high price points continue to stump demand in both markets, according to sources.

Platts, part of S&P Global Commodity Insights, assessed the NWE bio-propane assessment at $1,802/mt -- a $1,295/mt premium to the CIF NWE large cargo assessment Jan 23.

The premium of bio-naphtha FOB NWE to the benchmark Platts CIF NWE naphtha cargo assessment stood at $1,300/mt on Jan. 23, or assessed outright at $1.939.50/mt, according to Platts data.

Sluggish petrochemical demand has reduced spot trading activity in both bio-naphtha and bio-propane markets, with demand forecasts remaining relatively bleak in the near term, according to market players.

"Overall demand in Europe is not going up. If anything, petrochemical runs are lower because of poor margins," an LPG source said.

"Cracker margins are still rubbish, that's just business as usual nowadays," added a naphtha source. "'We have not traded bionaphtha this year because of sluggish demand from petchems."

Feedstock Availability

The niche nature of the renewable markets means both supply and demand is thin, with more mandates needed to incentivize customers to pay additional premiums to conventional oil products and encourage greater production.

With bio-propane and bio-naphtha dependent on related feedstocks, notably hydrogen and used cooking oil, their availability and price fluctuations impact premiums and outright prices on both products.

The hydrogen market was assessed at $1,968/mt Jan. 23, down $25.13/mt on the day, while UCO was assessed steady at $980/mt, Platts data showed.

As renewable industries continues to develop, questions surrounding the availability of feedstocks in the medium-to-long term are coming to the forefront.

"The question is how much can be co-processed, when do the bio-fuels run out?" an LPG distributor said. "Just now, yes there is ample product, but if you see the aspirations for SAF and bio-diesel, which are both mandated, how much UCO and rapeseed can we get our hands on as an industry?"

With bio-propane and bio-naphtha both being produced as bio-products from sustainable aviation fuel and biodiesel, mandates in these markets can help bolster bio-LPG and bio-naphtha supply as their production grows. However, bio-LPG and bio-naphtha availability remains marginal when compared with their conventional markets, even when considering the capacity growth in Northwest Europe.

In France, bio-LPG and bio-naphtha production from sustainable aviation fuel is expected to increase to 91,300 mt and 58,400 mt respectively by 2030, Platts data showed. In Italy, production is expected to reach 120,700 mt for bio-propane and 82,500 mt for bio-naphtha over the same period. For the Netherlands, bio-propane production is expected to climb to 338,300 mt, while bio-naphtha is projected to reach 231,300 mt by 2030.

Bio-LPG and bio-naphtha supply from hydrotreated vegetable oil in France is expected to increase to 52,200 mt and 16,800 mt respectively by 2030. In Italy, bio-propane production is expected to reach 69,000 mt and 22,200 mt for bio-naphtha over the same period. For the Netherlands, production is expected to climb to 193,300 mt for bio-LPG and 62,100 mt for bio-nap by 2030.