Report shows challenges to using biodiesel for FuelEU compliance

In Denmark, the Maersk McKinney Moller Center for Zero Carbon Shipping in its most recent report says there are several views on whether supply can meet demand for biodiesel due to the new FuelEU regulation. Industry experts they spoke to noted that it will be difficult for EU ports to procure and provide 600,000 metric tons of biodiesel in 2025 due to competition from other sectors. Furthermore, concerns over the quality of used cooking oil, which is the primary feedstock for biodiesel, could lead to a tightening of the market.

However, the strain on supply could be alleviated as other ports increase volumes to meet demand. For example, Singapore sold roughly 500,000 tons of bio-blended fuel oil in 2023, and the Spanish port of Algeciras-Gibraltar started offering a B24 blend in 2023. These developments suggest ports may be able to meet rising demand.

Another consideration is that a significant portion of the biodiesel bunkered in Rotterdam is marketed to customers as emission reductions. Additionality guidelines will likely prevent companies from using biofuel sold to cargo owners as emission reductions towards FuelEU compliance. If companies continue to use biodiesel and sell the emission reductions to customers, then more volumes of biodiesel will be needed to meet both voluntary emission reductions targets as well as FuelEU compliance targets. High demand for both FuelEU compliance and voluntary emission reduction markets could strain supply.

With a wide-range of supply and demand estimates, projections of the future prices of biodiesel vary from 25% to 300% costlier than fossil fuels in 2050. This variation is due to the uncertainty around the availability of bio feedstocks, which are the most expensive component of biofuel production costs. This uncertainty is further driven by the need for sustainability and GHG requirements, which limit the supply to certifiable waste-based feedstocks such as used cooking oil and waste animal fats.

With other sectors such as aviation, industry, and heavy-duty trucking expected to increase consumption of biofuels, we can expect supply of biofuels to be further constrained. The transport sector alone consumes 10 times the energy of shipping, straining the available supply of waste oils and fats.

Practical challenges of using biodiesel at higher concentrations on the operation side could also add costs to using biodiesel not accounted for in our calculations. There are ongoing challenges with engine equipment, fuel quality and stability, as well as potentially higher insurance premiums.

For companies who expect costly biodiesel or who want to protect investments from the volatility of an uncertain biodiesel market, the center says the optionality of e-fuel through a dual-fuel vessel looks like a prudent investment.