What is Biodiesel?
Biodiesel is an umbrella term that covers a range of potential fuels derived largely by a transesterification process from such diverse feedstocks as rapeseed, palm oil, soybean or even used cooking oil and tallow.
In most cases, the blending of these biodiesels into the mainstream driving fuel market is driven by mandates, with blending percentages often established by national or continental government.
Many of the European region's biggest economies tend to see a dominant diesel streak in their car fleets, with a preferential tax regime making diesel cheaper at the pumps. As such, diesel tends to take the lion's share of Europe's road fuel demand, and biodiesel by association tends to dominate biofuel demand across the continent.
However, unlike ethanol, the biodiesel market covers a wide range of potential fuels, including the mainstay fatty acid methyl ester (FAME) that is the predominant biodiesel blend across the continent, and rapeseed methyl ester (RME) that contributes the bulk of domestically produced biodiesel supply using rapeseed grown locally.
Alongside FAME and RME there are other methyl esters that contribute to the blending pool, including tallow (TME), palm (PME), used cooking oil (UCOME) and soybean (SME). For most of these esters, the performance of the finished biodiesel in cold weather determines both patterns of demand and price, with the component esters that form the FAME blend varying through the year.
Alongside cold properties, demand for biodiesel within the EU region is often affected by the various compliance schemes that have been implemented at national and continental levels. Chief amongst these are the Renewable Energy Directive (RED) and Fuel Quality Directive (FQD), established by the European Parliament. RED in particular commits European nations to a volume based mandate of 10% biofuel contribution in transport fuels by 2020.
The path to achieving compliance, however, is set at a national level. So Europe is a patchwork quilt of blending requirements ranging from around 2% through to 8%, but all working towards the RED goal of delivering 10% of road fuels from sustainable sources by 2020. Germany is the largest biodiesel market in Europe, and the second largest in the world behind the US.
Individual countries may also establish their own national schemes, such as the recently implemented scheme in Germany that focuses on the greenhouse gas (GHG) savings that using biofuels brings versus the mineral fuel equivalent. Certification schemes look at the entire life cycle from field to fuel tank and are intended to encourage the use of feedstocks that maximize GHG savings.
Increasingly, refiners such as Neste, Repsol, ENI and Total are also looking at hydrorefining vegetable oils to produce biodiesels that are the equal of and often superior to mineral diesel. S&P Global Commodity Insights does not currently publish assessments for hydrorefined vegetable oils (HVO).
While FAME is the prevalent grade, it is in itself a blend of other methyl esters, meaning Europe can need to import flows of PME and SME from Asia or the Americas, although trade embargoes may have an impact in complicating those movements. RME tends to be locally produced from Europe's own rapeseed crops.
The requirements of FAME are further subdivided into two categories - FAME 0 and FAME -10. The numerical value denotes the cold properties of the fuel, with all components of FAME 0 required to operate in temperatures of zero degrees Celsius and above.
FAME -10 is the cold weather version, with all components required to operate at temperatures of minus 10 degrees Celsius or lower. As with mineral diesel, biodiesel's performance in cold weather is determined by two main features - the cloud point and the cold filter plug point (CFPP). Cloud refers to the temperature at which the biodiesel begins to turn waxy - and for PME this can be as high as plus 10 degrees Celsius. The CFPP refers to the temperature at which the biodiesel will freeze in the engine.
S&P Global publishes a range of biodiesel price assessments for the European region, with prices expressed both as an outright price and as a premium to an underlying futures contract. In common with most middle distillates, prices for biodiesel across Europe are often expressed as a price differential (and typically a substantial premium) to the ICE low sulfur gasoil futures contract.
Prices are also published for biodiesels that meet the requirements of the RED scheme. In all cases, prices are basis the barge market in the main trading hub of Amsterdam-Rotterdam-Antwerp typically in 1,000 mt barge sizes. Furthermore, S&P Global reflects T2, duty paid indications in its Platts assessments.