Asia could look to Australia for biofuels as region’s demand increases

  • Biofuels sector in Australia could be due for a revival on rising Asian demand
  • ‘Our forecast shows that no Asian market can meet its biodiesel and ethanol blending targets this year’
  • ASX biofuels sector shrinks as companies have folded, changed focus, or de-listed from the market

Australia’s biofuels sector is much smaller than during its purple patch of a decade ago, but it may be due for a revival with predictions of surging demand from Asia.

Very few ASX biofuels companies are still in business from 10 years ago, and the survivors have seen their competitors change name, move into a different business, or cease trading.

Agri Energy (ASX:AAE) changed its name to Sirocco Energy (ASX:SCY) in 2012, and then again to AssembleBay (ASX:ASY) which later became ScandiVanadium (ASX:SVD).

Australian Renewable Fuels Group (ASX:ARW) folded in 2016 on a slump in the oil price, a competitor fuel. At the time, it was Australia’s largest biodiesel producer.

Affinity Energy and Health Group (ASX:AEB) morphed into a cannabis company producing nutraceutical products that included algae as an ingredient, and it was delisted in early 2021.

Sterling Plantations (ASX:SBI) a company with palm oil plantations in Malaysia, was quietly de-listed in 2020.

SWW Energy (ASX:SWW) changed its name to Omni Market Tide in 2015, and in 2018 the company became IMEXHS (ASX:IME) and is a cloud-based medical imaging firm.

Asian region’s biofuel targets set a challenge

Asian nations have published some ambitious biofuels targets and the region’s demand for plant-based fuels is expected to grow by 50 per cent over the 2020s.

Countries such as China, Malaysia, South Korea and Japan will need 0.5 million barrels per day (b/d) of biofuels by 2030, compared with 0.34 million b/d in 2020, said analytics firm Wood Mackenzie.

“Our forecast shows that no Asian market can meet its biodiesel and ethanol blending targets this year,” Wood Mackenzie research analyst, Kendrick Ng, said.

Ethanol is expected to account for 260,000 barrels per day of Asia’s demand for biofuels in 2030, and the balance or about 250,000 b/d is likely to be biodiesel.

Wood Mackenzie said Asian nations’ targets for increased biofuels usage present a formidable challenge to the region, given supply constraints and food security concerns.

Competing use of biofuels feedstocks for food

Biofuels are made from plant-based materials such as palm oil or soybean oil which are blended with diesel to produce biodiesel, and ethanol is made from corn.

Palm oil – the main biofuel feedstock in Asia — is in demand in Indonesia and Malaysia for domestic customers leaving less supply for the export market.

Indonesia, a key supplier of palm oil to regional Asian markets, plans to increase its proportion of palm oil in domestic biodiesel to 40 per cent by 2022.

“As Indonesia’s biodiesel production increases, it requires 15 million hectares more palm oil plantations to reach its mandate target, let alone export to its neighbours,” said Ng.

Ethanol use as hand sanitiser during COVID

Ethanol faces a steeper supply shortfall as the biofuel’s feedstock of corn is also used as a foodstuff by people in Asia, and more recently it became the basis of hand sanitiser during the COVID-19 pandemic.

India will soon overtake China as the largest customer for ethanol in Asia, and it has been encouraging the use of biofuels with financial support and government targets.

Ethanol producers in India have benefited from favourable loan schemes and car makers are required to show progress in meeting government targets for biofuels usage.

“If the region enforces and meets its blending targets, this would mean a reduction of exports to outside the region, unless there is a feedstock increase,” said Ng.

“The incremental biofuels demand would be at least 0.75 million barrels per day more by 2030,” he stated.

Australia may have a role to play in meeting some of the surging demand for biofuels in Asia, but first the sector needs to get back on its feet after several years of contraction.

Furthermore, Asia’s biodiesel sector is in dire need of investment to boost its capacity to a desired 0.3 million barrels per day which is necessary to support biofuels targets for 2024.

Extracted from Stockhead

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