S&P Global Commodity Insights

Biofuel Feedstock Trade

Flows
First-come, first-served?
May 2023

Jean-Benoît Deloron, Senior Consultant, jeanbenoit.deloron@spglobal.com

Juan Sacoto, Executive Director, juan.sacoto@spglobal.com

Biofuel Feedstock Trade Flows

‒ Used cooking oil imports from China to produce renewable diesel in the US West Coast. This odd trade is soon to
become the new normal for biofuel feedstock traders. Biofuel industry is initiating major shifts for agricultural
commodities. « 2nd generation feedstocks », like animal fats or used cooking oil (UCO), benefit from a low carbon
intensity score compared to 1st generation feedstocks (vegetable oils) and are actively chased by biofuel producers
globally.
‒ This pursuit has started like a sprint, but it will turn into a marathon. Although renewable diesel for on-road transport is
currently the driving force for biofuel in several countries (including North America and Europe), sustainable aviation
fuel (SAF) is expected to take off post 2025 and add further demand for lower carbon feedstocks. Multiple initiatives
and projects across the world have been initiated by airlines companies to reach their carbon reduction targets.
‒ Like most energy transition markets, procurement of raw material is most crucial and can become a limiting factor. Key
regions like Europe and North America are turning feedstocks short while Asia and Latin America fill the gap. Further,
oil and gas companies in North America and Europe are also securing the feedstocks through integration via joint
ventures with the major agricultural and biofuel companies. Next step is likely tighter international vertical integration
and coordination. First-come, first-served.

Surfing the 2nd wave (renewable diesel) and preparing for the 3rd (SAF)
As the world moves towards energy transition away from fossil fuels, the availability of critical raw materials has become a
common constraint. Lithium, cobalt, copper, and other minerals are often cited. The biofuel industry (including biodiesel,
renewable diesel, and sustainable aviation fuel) is not an exception with anticipation of a feedstock shortage.
Biofuel feedstocks are categorized today into two main categories. The 1st generation feedstocks composed of
vegetable oils, mostly soybean oil, palm oil, canola oil or sunflower oil have been consumed historically by both the food and
biodiesel industry. The 2nd generation feedstocks gather wastes (UCO, yellow grease, brown grease), co-products (distillers
corn oil, palm oil co-products) and animal fats. They have been traditionally used as a concentrated form of calories for
animal feed but become more and more used for biofuel.

Commodity Insights Agribusiness Consulting

Biofuel policies differ largely from one region to the other. In the early 2000s, biodiesel policies and industry emerged
globally: US, Europe, Latin America (Brazil and Argentina) and Southeast Asia (Malaysia, Indonesia, Thailand) offered a new
market to oilseed crushers. While environmental factors have received increasing policy emphasis, agriculture and energy
security remain the main focus, especially in southern countries. Over the last 5-10 years, North America and Europe biofuel
legislation are moving away from food crops and favor 2nd generation feedstocks because of their low carbon intensity score
and their non-competing use with arable lands.
Feedstock availability has been the leading factor for biofuel development but now it becomes the limiting factor.
World biofuel use of feedstock increased by 100% between 2015 and 2022 while feedstock production increased by only
25%. This pattern is stronger for 2nd generation feedstocks than 1st generation feedstocks. Waste feedstocks are highly
strategic for biofuel producers because of their low carbon intensity score generating higher credits for renewable fuel
production. With domestic production being maximized towards biofuel, producers are seeking feedstocks overseas. Second
generation feedstocks have been increasingly traded over the last few years, reaching 20% of global feedstock trade flows in
2022, while it barely reached 10% in 2015. However, the industry is far from being mature. Renewable diesel production is
expected to boom by 2030, while SAF momentum is expected post 2030 and materialize as the 3rd wave of biofuel industry;
disruption of feedstock trade flows observed last months is just a start.

World 1st generation feedstock exports World 2nd generation feedstock exports
Distillers Corn Oil Animal Fats Used Cooking Oil Palm Oil co-products
Palm Oil Soybean Oil Canola Oil Sunflower Oil

90,000 25,000

80,000
20,000
70,000

60,000
1,000 Mt
1,000 Mt

15,000
50,000

40,000
10,000
30,000

20,000
5,000
10,000

- -
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: S&P Global Commodity Insights. Source: S&P Global Commodity Insights.
© 2023 S&P Global. © 2023 S&P Global.

North America turning feedstock short

US, Europe and Canada have adopted ambitious policies over the last years for the development of renewable diesel
production through credits mechanisms that favor low carbon intensity feedstocks (LCFS and RFS/IRA at state and federal
levels in the US, CFR in Canada, RED II in Europe).
2nd generation feedstocks usage switched in less than 5 years from being feed industry dominant to biofuel
industry dominant in the US, Canada, and Europe. The animal feed industry is switching to other lower priced alternatives
which includes grains and palm oil, a source of calories that is not favored for biofuel use. Second generation feedstocks are
maximized volume-wise towards biofuel in countries favoring its use for biofuels. As byproducts or residues, these feedstocks
have a low elasticity to biofuel demand except for UCO in emerging markets where collection rates have a strong potential
thanks to vegetable oil use growth. The next industry move is to explore alternative low carbon feedstocks (such as camelina,
carinata, pennycress) and bolster international trade, a move that has already started but will intensify in the future.
Biofuel industry has turned into the feedstock import market over the last years to face domestic supply shortage.
US has, for instance, imported significant volumes (50 thousand metric tons) of UCO from China for the first time in
December 2022. 2023 first quarter for the same trade already hit 130 thousand metric tons. Feedstock imports are driven by
regulations: Europe is for instance importing palm oil mill effluent (POME), a palm oil waste product, because it is included in
the EU advanced feedstocks list, while the US is relying today on imports of UCO or animal fats which have approved
pathways under California LCFS market, the main renewable diesel market in the world. Canada has historically exported low
carbon feedstocks to the US but its recent biofuel policy implementation in 2022 (CFR) could disrupt these flows.

spglobal.com Biofuel Feedstock Trade Flows | 2

North America feedstock imports Net trade of feedstocks in North America

Used Cooking Oil Animal fats Used Cooking Oil Distillers Corn Oil Soybean Oil

1,400 Canola Oil Palm Oil Animal Fats

Palm Oil co-products Total feedstocks
1,200 5,000

4,000
1,000
3,000
800
2,000

1,000 Mt
1,000 Mt

600 1,000

-
400
(1,000)
200
(2,000)

- (3,000)
2015 2016 2017 2018 2019 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: S&P Global Commodity Insights. Source: S&P Global Commodity Insights.
© 2023 S&P Global. © 2023 S&P Global.

Expansion of renewable diesel industry is exceeding availability of domestic 2nd generation feedstocks, even with
aggressive imports in the outlook. The marginal feedstock to fulfill feedstock requirements for biofuel production remain
vegetable oils. Each country relies on its major producing feedstock: rapeseed oil and canola oil in Europe and Canada,
soybean oil in the US and Latin America, palm oil in Southeast Asia. In northern countries, the vegetable oil net trade balance
is shrinking because of strong biofuel demand. For the first time in decades, the US is turning net short of biofuel feedstocks.
South American and Asian countries are today the better positioned to address the feedstock requirements of ambitious
northern countries regarding renewable diesel production; both on the 1st and 2nd generation feedstock front.

Latin America and Asia countries feeding food and biofuel industries
Latin America and Asia regions will become strategic suppliers of vegetable oils for food and biofuel, globally. Latin
America accounts for 70% of world soybean oil but almost no flows are directed towards Europe and North America. Rising
demand for feedstocks may provide new opportunities for such trades. Historically, vegetable oil production in EU is mostly
derived from imported soybean or crushing from domestic rapeseed. In the meantime, Argentina already exports finished
biodiesel products to Europe while soybean oil imports from Brazil to EU is highly watched because of “deforestation-free”
products policy gaining traction in the continent. In the US, import tariff rates on soybean oil limits import potential from Brazil
and Argentina. However, in a context of global tight supply for feedstocks, Brazil and Argentina have the potential to further
increase their export volume globally by, 1) maximizing their crushing capacity and, 2) benefitting from global vegetable oil
trade re-allocations and gaining market share globally both on the food and fuel segments.
Latin America and Southeast Asia are also emerging as strategic suppliers of 2 nd generation feedstocks. Meat and
vegetable oil consumption are expected to grow at a robust pace for the next decades; hence the collection of animal fats and
UCO will be critical to serve the North American and European countries where the production of these feedstocks hit a
plateau. In Southeast Asia, the biodiesel industry is among the most mature in the world with high blending rates at 35% and
20% respectively in Indonesia and Malaysia. The region relies on strong domestic palm oil production for biofuel production
while also being the world top exporter of palm oil and palm oil co-products. Exports of palm oil are expected to accelerate
towards the food industry for two main reasons: on one side palm oil is the cheapest oil for food usage with suitable quality
specifications, on the other side canola oil and soybean oil volumes are switching significantly to biofuel which opens new
markets for palm oil. Export market for palm oil co-products, valued for their low carbon intensity, is expanding exponentially
in Asia. They account for most of the growth of low carbon feedstock trade which grew from 2% to 18% of total feedstocks in
Asia between 2015 and 2022.

spglobal.com Biofuel Feedstock Trade Flows | 3

Central and South America feedstock exports Asia feedstock exports
Palm Oil co-products Animal Fats
Palm Oil co-products Animal Fats
Palm Oil Canola Oil Palm Oil Canola Oil
Soybean Oil Distillers Corn Oil Soybean Oil Distillers Corn Oil
Used Cooking Oil Share of 2nd generation feedstocks Used Cooking Oil Share of 2nd generation feedstocks
12,000 6% 60,000 18%

16%
10,000 5% 50,000
14%

8,000 4% 40,000 12%

1,000 Mt
1,000 Mt

10%
6,000 3% 30,000
8%

4,000 2% 20,000 6%

4%
2,000 1% 10,000
2%

- 0% - 0%
2015 2016 2017 2018 2019 2020 2021 2022 2015 2016 2017 2018 2019 2020 2021 2022

Source: S&P Global Commodity Insights. Source: S&P Global Commodity Insights.
© 2023 S&P Global. © 2023 S&P Global.

Securing feedstocks
The race to source feedstocks and especially 2nd generation feedstock is fierce since the supply is limited. In such
context, oil majors and biofuel companies have developed partnerships or acquired agricultural companies over the last 2
years. Biofuel backward integration and agriculture forward integration are not new. However, two patterns are shaking the
industry: 1) the pace of joint ventures, partnerships, and acquisitions; and 2) the scale of players involved and cross-sectional
investment. Among the most striking examples of alliances in the US over the last 2 years: ADM and Marathon, Bunge and
Chevron, and United Airlines Ventures and Next Renewables Fuels. This last one between an airline company and a biofuel
producer also highlights dynamism and the potential for sustainable aviation fuel (SAF) which will drive the renewable diesel
market for the next decades to come. Decarbonization in the aviation sector will depend greatly on SAF adoption and add
extra pressure to feedstock procurement and global re-allocation.
Biofuel is impacting the fork to wheel industries but even beyond from seed to wheel industries. Business integration
is developing between the seed industry and biofuel producers. These innovative partnerships are based on the development
of new “energy” crops that benefit both the farmers and the biofuel producers. Energy crops key advantages rely on: high
oilseed yield or oil content, low carbon intensity, ability to grow between two other crops rotation and finally they are not
considered as food crops. In 2022, Bunge (partnering with Chevron) announced a partnership with Covercress which is
developing a new winter oilseed crop, developed from pennycress, with high oil content and low carbon intensity. Energy
crops are not exported yet significantly from one region to the other but their development in respective countries is expected
to ease the pressure on import needs in the longer term.

First-come, first-served
In just a few years, biofuel feedstocks have emerged as major commodities through agriculture and biofuel markets. Global
policies are fueling that trend affecting road transportation as well as shipping and aviation sectors. Current trade flows are
clearly moving from Asia and Latin America towards Europe and North America. However, numerous new biofuel plant
projects are also underway, such as in Brazil, Paraguay, Indonesia, China, Japan, South Korea and Australia which will
disrupt the international flows of feedstocks in the near term as more feedstocks will stay in their respective countries. Biofuel
is moving forward to continue playing a key role for the decarbonization of the economy across the globe. Feedstock
availability and global re-allocation are key for biofuel producers. First-come, first-served.

spglobal.com Biofuel Feedstock Trade Flows | 4

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