Biofuels Demand In The EU Expected To Decline

Biofuels Demand In The EU Expected To Decline

Stratas Advisors
Feb 13, 2017

This synopsis is from a report that is available to subscribers of Stratas Advisors’ Global Biofuels Outlook and Europe services.

After some rare demand growth driven by low oil prices since December 2014, Europe’s combined demand for gasoline and diesel is expected to shift into a mild decline, averaging -0.3% from 2017 through 2020, deepening to an average annual decline rate of -0.7% over the 2020-2040 time period. The region’s demand for these fuels is expected to decline by over 1.1 MMb/d (-14%) from 2016 to 2040.

While the finalized RED II framework for EU biofuels demand may not be quite as stringent as the European Commission’s current proposal, many of the proposed elements are likely to remain in some form, and it will probably result in lower EU biofuels demand overall as most of the fuels it seeks to encourage are relatively expensive. 

The Stratas Advisors forecast assumes that the EU market continues to use conventional/food-food based biofuels around the level set by the RED II caps, with small additional volumes of advanced biofuels. The end result is that by 2030, EU biofuel penetration is similar to current levels with demand awkwardly increasing to partially meet the existing RED 2020 10% target before declining again. Our overall projected demand and production are lower than our prior forecast.

Partly hampered by a gasoline market that is expected to be continually eroded over the long term, ethanol demand sees very limited growth in the near term to 2020, increasing just 3-4 Mbbl/d. By 2040, ethanol demand is expected to be 20 Mbbl/d below 2016 levels (-22%).

Biomass-based diesel sees somewhat greater growth to 2020, increasing close to 8% to 270 Mbbl/d, but is also impacted by the shifting regulatory support for biofuels, falling to 225 Mbbl/d by 2040, or 10% below 2016 levels.

Under our new outlook, EU biofuels demand will account for just 4.9% of energy in the transport sector (excluding double-counting and renewable electricity) by 2020, reduced from our prior expectations and well short of the 2020 10% target. This still represents an increase over the 2016 level of 4.5%, but by 2030 we anticipate lower biofuel penetrations will again bring the biofuel contribution back down to 4.5%.

Source: Stratas Advisors, Eurostat, EurObservER

Over the course of the long-term outlook, France and Germany continue to be by far the largest markets, though their combined share of total EU demand declines from 40% in 2016 to 33% by 2040. Of the two, France maintains the steadiest market as Germany sees a more rapid decline in liquid transport fuel demand.
Source: Stratas Advisors, January 2017