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Vegetable oil hits aviation turbulence

Sustainable aviation fuel was seen as major new market for vegetable oil, but stiffer competition may dash those hopes

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Published: May 1, 2024

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Sustainable Aviation Fuel (SAF) will be the biggest driver of the biofuel market over the next two decades, Joao Morciani, agriculture and biofuels analyst with Fastmarkets, said during a recent webinar. | Getty Images

SASKATOON — The biofuel market for vegetable oil might not be as massive as once envisioned, according to a commodity price reporting agency.

Sustainable aviation fuel (SAF) will be the biggest driver of the biofuel market over the next two decades, Joao Morciani, agriculture and biofuel analyst with Fastmarkets, said during a recent webinar.

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In 2022, the U.S. government established a target of three billion gallons of SAF production by 2030, helping ignite a rally in vegetable oil prices.

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Morciani said the big question facing the biofuel sector is whether the United States is going to be able to achieve that ambitious target.

“The short answer is — no,” he said.

Fastmarkets is forecasting 1.7 billion gallons of U.S. SAF production by 2030, or just above half of the government’s target.

The U.S. Energy Information Administration reported that the country produced 14 million gallons of SAF in 2023.

Fastmarkets is forecasting 124 million gallons of production in 2024, so it is ramping up quickly.

However, to put that in perspective, the U.S. will need to produce 250 million gallons of the fuel per month in 2030 to meet the government’s target.

“(Production) is way below the target set by the Sustainable Aviation Fuel Grand Challenge,” said Morciani.

The other big problem for vegetable oil producers is that there are huge economic incentives to use other types of feedstocks such as used cooking oil (UCO) and tallow.

Fastmarkets anticipates that about 70 per cent of the feedstock will be those types of fats and greases by 2030, with the remainder being vegetable oil.

That was initially deemed impossible, but there have been huge imports of UCO and tallow coming into the U.S. from China, and now the company is “way more comfortable” forecasting that 70 per cent number.

However, Morciani pointed out that UCO and tallow are byproducts, so production of those commodities is fixed, which will eventually cap how much can be used to make biofuel.

“No one will fry chicken to produce used cooking oil or raise a cow to produce tallow,” he said.

A third challenge for vegetable oil as a SAF feedstock emerged shortly after the Fastmarkets webinar, when the U.S. Department of Treasury and Internal Revenue Service released guidance on the SAF tax credit established in the Inflation Reduction Act.

The agencies announced that a modified version of the GREET lifecycle model will be used to determine eligibility for the US$1.25 to $1.75 per gallon credit.

That opens the door for corn ethanol to be used as jet fuel if a bundle of climate smart agriculture practices are used, such as no till, cover crops and enhanced fertilizer efficiency.

“Today’s guidance and modified GREET model help position ethanol-based SAF for takeoff,” Renewable Fuels Association chief executive officer Geoff Cooper said in a news release.

The possible inclusion of corn ethanol as an eligible feedstock could limit the potential market for vegetable oils.

Tore Alden, agricultural analyst with Fastmarkets, showed a chart detailing how prices for biofuel feedstocks such as soybean oil, canola oil, poultry fat and white grease spiked from 2021 to early 2023 and then started falling in late 2023.

The spike was in response to renewable diesel demand and the anticipated demand shock from the SAF sector.

They have since come down following the realization that actual demand is not going to be as big as anticipated demand.

However, he thinks prices may have overcorrected to the downside.

His forecast is for flat prices for the remainder of 2024. However, eventually prices will climb again as SAF demand continues to grow in the coming years.

Renewable diesel margins have also tumbled. Fastmarkets estimates the margin at $1.55 per gallon in California in March, which is about half of the highs achieved in 2021.

Meanwhile, U.S. D4 RIN prices, which are credits used for biofuel mandate compliance, have tumbled below 50 cents per gallon, a 57 per cent drop from 2023 levels.

Alden said RIN prices have followed feedstock prices down and are also depressed because renewable fuel production has exceeded mandates by a significant amount.

Fastmarkets is forecasting 38 billion pounds of total biofuel feedstock use in the U.S. in 2024, an 18 per cent increase over last year, which was up 29 per cent from 2022 levels.

Alden agreed with Morciani that there is mounting pressure to shift that supply to more low carbon intensity feedstocks.

That is why Fastmarkets is forecasting a 73 per cent increase in UCO imports and a 70 per cent hike in tallow imports by the U.S. in 2024.

He also agrees that production of those commodities is finite.

“We either need to move on to advanced feedstock technologies or start to have more realistic goals about what we’re going to achieve with the biofuels program,” said Alden.

Contact sean.pratt@producer.com

About the author

Sean Pratt

Sean Pratt

Reporter/Analyst

Sean Pratt has been working at The Western Producer since 1993 after graduating from the University of Regina’s School of Journalism. Sean also has a Bachelor of Commerce degree from the University of Saskatchewan and worked in a bank for a few years before switching careers. Sean primarily writes markets and policy stories about the grain industry and has attended more than 100 conferences over the past three decades. He has received awards from the Canadian Farm Writers Federation, North American Agricultural Journalists and the American Agricultural Editors Association.

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