INSIGHT: Rise of HVO to be the downfall of traditional biodiesel in Europe

LONDON (ICIS)–As hydrotreated vegetable oil (HVO) use grows in Europe, with more expansions anticipated in the next few years, questions are arising as to its impact on the traditional biodiesel market and the wider oleochemicals industry.

It is likely that the rise of HVO use will lead to a decrease in traditional biodiesel demand and therefore biodiesel production, which would in turn eat into glycerine supply in the region.

HVO is a type of biofuel produced from vegetable oils, using hydrogen as a catalyst. Using hydrogen instead of methanol as part of the process means HVO is widely considered a more environmentally friendly, sustainable biofuel than traditional crop biofuels.

Despite its name, HVO can also be produced using tallow and used cooking oil.

HVO production in Europe is expected to increase, with new plants opening this year and further projects planned for the next four years (see table below).

Company	Location	Capacity (tonne)	Expected completion
Total	La Mede, France	500,000	Opened July 2019
ENI	Gela, Italy	750,000	Opened August 2019
ENI	Porto Marghera, Italy	240,000	2021
UPM	Kotka, Finland	500,000	Final decision pending
St1	Gothenburg, Sweden	100,000	2022
Preem	Lysekil and Gothenburg, Sweden	1,200,000	Increasing to 1.3m tonnes by 2023
PKN Orlen	Plock, Poland and Litvinov, Czech Republic	Not disclosed	Not disclosed

The jump in production comes amid a push from the EU to move towards second generation biofuels and away from first generation (crop-based) biofuels.

HVO can be used as a substitute for biodiesel when blending biofuels into conventional diesel engines.

The most commonly produced biodiesel in Europe is rapeseed methyl ester (RME), while palm methyl ester (PME) and soybean methyl ester (SME) are also heavily used in the region, particularly in summer.

These grades and others can also be blended together to create fatty acid methyl ester (FAME) blends, which are also commonly used across Europe.

The rising use of HVO brings into question the impact on the biodiesel market.

The EU has already announced that it plans to eventually phase out all crop biofuels and rely on second generation fuels instead.

As such, some biodiesel players expect that HVO and other second generation fuels including used cooking oil methyl ester (UCOME) will, in the long term, completely take over from first generation biodiesel usage.

This is very much a long term plan however. While HVO production and use is growing in the region, it is not yet produced at a level that could meet current biodiesel capacity in Europe.

One biodiesel player said: “I think HVO will be used in addition to biodiesel because there is not so much available. [There are] higher production capacities on paper than actually in use. We will see what is possible. I think HVO will be short and will be an addition to FAME.”

There have been some issues with HVO feedstocks that could stall its progress in Europe. Market players have said that palm oil is a preferred feedstock for HVO, as is tallow.

Raw tallow supply has already tightened this year due to an increase in tallow biodiesel production, so some players do not expect it to be a feasible feedstock for HVO on a large scale.

But palm oil is contentious because of the sustainability and ethical issues surrounding palm oil plantations. Particularly in Europe, several companies – mainly in the cosmetics industry – are phasing out palm oil use altogether.

A change in EU legislation from next year, with the implementation of the renewable energy directive II (RED II), means that palm oil usage as a biofuel is expected to be phased out from 2023.

The EU directive states that there will be a phase out of high indirect land use change (ILUC) biofuels with a significant expansion of feedstock production areas into land with a high carbon stock (see table below), starting from 2023.

By 2030, these biofuels will need to be completely removed from the blending pool.

Oil crop	Average annual expansion of production area since 2008 (kha)	Average annual expansion of production area since 2008 (%)	Share of expansion into land referred to in Article 29(4)(b) and (c) of Directive (EU) 2018/2001	Share of expansion into land referred to in Article 29(4)(a) of Directive (EU) 2018/2001
Rapeseed	301.9	1.0 %	1 %	–
Palm oil	702.5	4.0 %	45 %	23 %
Soybean	3,183.5	3.0 %	8 %	–
Sunflower	127.3	0.5 %	1 %	–

Source: European Union

There was also a recent decision by the French parliament to remove tax breaks on palm oil in biofuels, which is throwing the future of the new Total biorefinery in La Mede, France, into question.

The plant was expected to use palm oil as a feedstock to produce HVO.

One market source anticipates that the company will look to export their palm-based material to elsewhere in Europe.

The source said: “The big question is what happens with HVO from Le Mede, where this will flow. I assume this will be [going to] Germany.”

While HVO is unlikely to completely cut conventional biodiesel out of the blending pool in the short-to-mid-term, it is likely to reduce the market share of biodiesel in Europe.

This in itself could cause supply issues in the glycerine market in the region.

While biodiesel production creates glycerine as a by-product, HVO manufacturing does not produce any glycerine by-product.

Glycerine can be produced via fatty acids as well but this is much less common in Europe, with the majority of the material created through biodiesel production.

If biodiesel demand is hit by the rising popularity of HVO, this would lead to production cuts, which in turn would see less glycerine in the European market.

Glycerine is a necessary component in some pharmaceutical applications and is also commonly used in cosmetics, personal care and food applications.

If glycerine availability in Europe tightens, the market will naturally look to imports to fill supply gaps.

However HVO use is rising across the globe, so the question is how much global glycerine supply will be impacted by this.

There could be a move back towards fatty acid produced glycerine, in order to fill any voids in stocks.

But this is a very long term expectation, with HVO use in Asia still in its early stages.

One biodiesel producer in southeast Asia said: “How do you see electric cars relative to gasoline-powered cars? It [HVO] should be seen in the same light. It is the future and it could eventually become a viable alternative or replacement.

“But it involves much higher costs. It has also not technologically been proven to be superior. There are still obstacles to broad usage of HVO. It is not yet ready for use in the mainstream market and will not be so anytime soon.”

In the US, there are several HVO capacity expansions set for the next year, though no impact is expected on the market until 2021, when Diamond Green Diesel is expected to begin production at its expanded Norco, Louisiana refinery.

Diamond Green Diesel—a 50/50 joint venture between Valero Energy and Darling Ingredients–currently has a capacity of 275m gallons at its Norco refinery. The expansion is expected to increase the refinery’s nameplate capacity to 675m gallons.

The Norco plant currently converts approximately 15% of the waste fats and oils generated in the US into renewable diesel. Post expansion, Diamond Green Diesel will process approximately 20% of the animal fats and used cooking oil generated in the US, according to the company.

Increased feedstock consumption from the renewable diesel sector is expected to put upward pressure on feedstock costs for US biodiesel and oleochemicals producers – especially on used cooking oil (UCO) and tallow – once the Diamond Green expansion is complete.

In September, Valero and Darling initiated an engineering and development cost review for a new renewable diesel plant in Port Arthur, Texas, that would leverage Valero’s existing refinery in the area. Production at the plant would add an additional 400m gallons of renewable diesel to market by 2024 if construction begins in 2021.

One European market source expects that HVO production in the US will almost completely replace biodiesel production in the coming years.

The source said: “If you look to the US, they are looking at HVO, this might be the next generation and then you have no glycerine.

“In California we expect HVO production will be 3-4 million tonnes. With this amount coming up in the states it will replace current biodiesel production by maybe 80%. This would mean they have much less glycerine and would turn back into net importers of glycerine.”

While most of the impact of growing HVO usage will be felt by the biodiesel and glycerine markets, there is also a possible impact on other oleochemicals markets, particularly fatty acids.

In Europe, there are concerns that a rise in HVO production could reduce the amount of palm oil and tallow available for fatty acid production.

Tallow fatty acid supply has already been hit in 2019 due to the increase in tallow biodiesel use.

HVO production at a large enough scale to completely remove crop based biodiesel from the blend pool may be a long way away, but even an increase in production over the coming few years is likely to have a large impact on the oleochemicals market going forward.

By Samantha Wright

Additional reporting by Izham Ahmad and Lucas Hall