Global supplies of used cooking oil is expected to more than double to 31 million mt by 2030, from the current 14 million mt, market participants said over September, a development driven by rapidly growing Asian supply geared towards cashing in on US and EU incentives for biofuels made from agricultural waste and non-agricultural feedstocks.
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In the EU, biodiesel made from UCO, also known as used cooking oil methyl ester, or UCOME, is counted twice towards emissions savings targets, while the US' Inflation Reduction Act also supports tax credits for clean fuels and Sustainable Aviation Fuel.
SAF made from UCO achieves a 45%-90% reduction in carbon intensity, a popular metric used to measure reduction in carbon emissions, according to an SAF Market Outlook report by S&P Global Commodity Insights in August.
UCO-derived biodiesel has a significantly lower carbon footprint with a carbon intensity score of 21.7 gCO2/MJ, much lower than biodiesel derived from first generation conventional vegetable oil feedstock such as rapeseed, soybean, and palm, according to a working paper by the International Council on Clean Transportation released in February.
|Pathway Description||Carbon Intensity value (gCO2e/MJ)|
|Soybean to biodiesel||51.83|
|Used cooking oil to biodiesel||19.87|
|Canola to biodiesel||50.23|
|Corn oil to biodiesel||28.68|
|Mixed tallow to biodiesel||32.83|
Source: California Air Resources Board
UCO importsfrom the EUis estimated to rise to 3.7 million mt in 2030, according to trade estimates, as the bloc ramps up its decarbonization targets under its Renewable Energy Directives policy from its second phase known as RED II to RED III in 2023.
With an increased collection of UCO, China is likely to become the largest supplier of the feedstock to western destinations, experts said.
"We estimate China collects between 3.1 million-4.1million mt of UCO annually," a trader from Repsol Global told S&P Global.
And China's UCO production has the potential to rise further from current levels.
"UCO potential from restaurants in urban areas is estimated to be 4.5 million mt annually," the trader said. "Another 0.6 million mt of UCO can come from food processing per year. This means China's potential for UCO production can be around 5.1 million mt per year."
Globally biomass-based diesel production reached around 3.5% of the total diesel pool, according to the US Department of Agriculture. Waste feedstocks accounted for one-third of the biomass-based diesel output, with UCO leading the list.
Chinese supply and demand
China's UCO exports over January-August reached 1.18 million mt, according to S&P Global data. The main destination was the US, followed by the EU and Singapore.
The US' UCO imports from China was negligible prior to the passing of the IRA in August 2022 as there was no policy incentive then, but a new trade flow has since emerged.
In 2022, China's total UCO exports stood at 1.58 million mt, up 39% from 2021, according to customs data. At the time, EU and Singapore were the main buyers.
Arbitrage opportunities for Asia
Policies supporting UCO demand in markets such as the EU and US pushed UCO prices above that of first-generation feedstocks in Asia, where there is little local demand or policy push to process advanced feedstocks.
Indonesia, Asia's largest biodiesel producer, uses crude palm oil as the major feedstock for its national biofuel program. Platts assessed physical CPO at $833/mt Sept. 27, S&P Global data showed. UCO FOB North Asia, which represents Chinese exports, was assessed at $940/mt Sept. 27.
In September, the Platts-assessed UCO North Asia averaged at $936.6/mt, 11.7% higher than CPO FOB Indonesia at $838.5/mt.
Biofuel suppliers using advanced feedstocks rely heavily on government subsidies as such feedstocks are more expensive than first-generation biofuels and petroleum-based fuels.
Over January through September, Platts assessed UCO North Asia at $915/mt, higher than the average CPO FOB Indonesia at $907/mt.
Apart from China, other Asian countries could be in a decent position to take advantage of the surge in UCO demand from markets like the EU and US, although a lack of policy support, and making collection and exports at large scale would be the main hurdles, analysts said.
"In Cambodia, despite the abundance of feedstocks, biofuel policies are still lacking," a Singapore-based UCO trader said. Cambodia has an export-ready production capacity of 182 million liters/year of biodiesel potential, he added.
In Malaysia, the second largest palm oil producer in the world, palm oil production waste such as palm oil fronds and empty fruit bunches have enormous potential as alternative feedstocks, according to a report released by the ASEAN Centre for Energy earlier this month.
However, Malaysia's current biodiesel program, which mandates a mix of 20% biodiesel into its gasoil supply is run primarily on palm oil-based biodiesel known as palm oil methyl ester.
In Asia, there is an abundance of first-generation feedstocks such as palm oil and sugar which governments have mandated for use in biofuel generation, a Singapore-based biofuels trader told S&P Global.
So, they do not have any incentive to build the supply chains needed to absorb used cooking oil generated locally, the trader added.