In the last decade, biofuels have emerged as a small but important element in the global transport fuels mix, spurred largely by government policy in a few key markets. However, as 2013 dawns the sector may be on the cusp of significant change. In established markets, momentum is growing behind a long awaited transition towards advanced biofuels. This shift is being driven by the evolution of government support systems, in response to sustainability concerns that have dogged the first generation of bioproducts.
The biofuels market has expanded steadily in the last 10 years, with growth in the USA and Europe adding to longstanding activity in Brazil. Reported total biofuels production grew from approximately 20 billion ltrs in 2001 to over 107 billion ltrs in 2011.1 Globally, ethanol is the dominant biofuel, accounting for 80% of production, although this is down from 95% in 2001, with the development of commercial scale biodiesel capacity.
Technology in transition
Biofuels are transport fuels produced from biomass. Feedstock sources include food crops (sugars, starches and oil crops), fast growing energy crops (such as jatropha, miscanthus and algae), crop residues and waste products (such as used cooking oil, UCO). While terminology varies, they are broadly classified as either conventional (also referred to as first generation) or advanced (second, third and even fourth generation) products. In general ‘first generation’ refers to crop based ethanol and biodiesel; ‘second generation’ can include ethanol and biodiesel from non-food crops and waste; ‘third generation’ includes biofuels produced from algae; ‘fourth generation’ includes those with identical chemical structures to fossil fuels and other newer products.
Most biofuels remain uncompetitive in cost terms with fossil fuels, and market development has therefore relied on governmental support in the form of incentives and mandated consumption levels. The key support measures so far are those implemented in the US, the EU and Brazil. In addition, state support is increasing in other markets. Notable instances include the implementation of a 5% ethanol blending mandate in India, launched in November 2012, and the setting of mandatory 10% blending targets in nine Chinese provinces.
A recent development linked to the growth of the biofuels sector has been an increase in interest in bioderived products from the global chemical industry. While bioderived chemicals currently hold a very small position, most major chemicals groups are now active in the market, seeking to hedge against rising petrochemical feedstock prices, and anticipating potential regulatory tightening along the lines of the transport fuel sector.
The outlook for the global biofuels sector is mixed in 2013. On one hand, continued growth in demand and production is likely in the US and Brazil, as well as in newer markets in Asia and Latin America. Offsetting this positive outlook is the possibility that a major prop to demand, the EU’s RED, will be adjusted in the coming years, removing key support from the first generation products that make up the majority of the region’s output.
The requirement for renewables as part of a more sustainable energy mix will continue to drive interest in biofuels and bioderived chemicals. However, a combination of widely varying processes and products, and a key demand driver that is influenced as much by socio political as by economic factors, means that the development of the global biofuels sector may remain volatile in the years to come.
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