Is there a future for oil majors to increase bioenergy?
On the road to carbon neutrality, marginalized bioenergy has become the new favorite of oil companies.
Bioenergy generally refers to biofuels and biomass energy that can generate electricity. Biofuels are solid, liquid, or gaseous fuels composed of or extracted from biomass, commonly including biodiesel, bionatural gas (i.e., biogas), and sustainable aviation fuel. Biomass energy that can generate electricity mainly refers to all kinds of wood after processing.
The French company TotalEnergies (Total) sees bioenergy as one of the many means to achieve its carbon neutrality goals. "Bioenergy" is also one of the most accessible and lowest-cost products to help decarbonize oil and gas operations. Si Mingyang, Total's chief technology officer, told Caijing Eleven that one of Total's three newly established R&D areas is new decarbonized energy, including biomass and hydrogen.
Outside of Total, other oil companies in Europe are racing to invest in bioenergy. BP UK has identified bioenergy as one of the top five growth engines for strategic transformation over the next decade; In November last year, Shell acquired Nature Energy, Europe's largest biogas producer, which is already the world's largest producer and trader of biofuels.
Chinese oil companies are also actively deploying bioenergy. Sinopec Group has the largest biofuel production capacity, and it has listed green and clean as one of the company's six major development strategies, including the development of bioenergy.
According to the Global Energy Industry 2050 Net-Zero Roadmap released by the International Energy Agency, bioenergy consumption will increase from less than 40 exajoules (EJ) in 2020 to about 100 exajoules in 2050, accounting for about 20% of the world's total energy demand.
There are two major hurdles that oil companies need to cross on the road to opening up the bioenergy business model: one is the continuous supply of raw materials, and the other is the reduction of costs. Individual bioenergy products, such as biodiesel in Europe, have largely crossed these two thresholds.
However, with the popularity of electric vehicles, biodiesel lacks the potential to continue to grow. In the future, bioenergy with the greatest growth potential is Sustainable Aviation Fuel (SAF). Industry insiders expect SAF to usher in explosive growth within five to ten years.
01 Two major challenges of bioenergy
Before the global strategy towards carbon neutrality, the first generation of bioenergy was already being developed in individual regions, mainly based on technologies for the production of fuel from crops, such as corn ethanol; The U.S. now ranks first in the world in fuel ethanol production. The second generation of bioenergy is mainly based on biofuels produced from raw materials such as animal fats and waste edible oils. The European Union is the largest consumer of biodiesel. The raw materials of the third generation of bioenergy mainly come from agricultural and forestry waste.
Regardless of the type of bioenergy, the prerequisite for large-scale development is a stable and continuous supply of raw materials. The raw materials of bioenergy are highly dispersed and differentiated, so the storage of raw materials is the first hurdle for oil companies to develop bioenergy.
Total plans to have an annual biofuel production capacity of 5 million tonnes by 2030, accounting for 10%-15% of its fuel sales. Si Mingyang said that to scale up the production of biofuels, the most important thing is to obtain more raw materials. Different raw materials have different technical paths, and factories need to adjust the process flow for different raw materials. Total is currently converting some of its refineries into bioenergy refineries. In the future, the company will strive to obtain more quantities and diversify raw materials by cooperating with companies around the world.
At the TotalEnergies China Scientific Forum held on September 18, 2023, Cao Dongxue, a senior expert at Sinopec, said, At this stage, Sinopec is mainly focusing on biofuels produced from waste oils and fats, and the production of biofuels from agricultural and forestry wastes is the next direction of efforts.
Cao Dongxue said that according to the characteristics of China's oil consumption, the production of biofuels from waste oils and fats is relatively easy to do in the near future, although there are some bottlenecks. In the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Pearl River Delta and other regions, the consumption of edible oil is relatively large, and Sinopec has laid out the production of biofuels in these areas.
PetroChina has built the first straw-to-bio-natural gas pilot base in Daqing Oilfield, with a daily biogas output of more than 2,000 cubic meters. The reason why the construction in Daqing Oilfield was chosen is also because the local raw materials are relatively abundant. Daqing City accounts for about 5% of the total cultivated area of Heilongjiang Province. Among them, the corn planting area reached 7.09 million mu, and the stock of straw was large.
As the scale of bioenergy expands, the problem of raw materials will become more prominent. For example, after the second phase of the construction of a biomass power generation project, due to the shortage of raw materials, it had no choice but to stop work occasionally.
According to Zhang Dayong, deputy secretary-general of the China Industrial Development Promotion Association and secretary-general of the biomass energy industry branch, China's biomass energy utilization will increase from less than 500 million tons in 2023 to 700 million tons in 2030. By 2060, it will further increase to 1.7 billion tons.
With enough raw materials, policy support is needed for large-scale bioenergy development. Due to the low energy density, bioenergy development costs are generally higher than fossil fuels.
China used to have some subsidies for biomass power generation, but now the subsidies have been reduced. The industry believes that the high cost of bioenergy should be solved through a market-oriented approach. Zhang Dayong said that the relevant policy design should reflect the environmental value of bioenergy and broaden the ways to realize the environmental value of bioenergy, such as allowing bioenergy emission reductions to participate in the carbon market and issuing green electricity certificates for bioenergy.
In Europe, where bioenergy consumption is the highest, the total consumption of biofuels in 2022 is about 29.4 billion liters, of which biodiesel is about 16.3 billion liters. According to Argus, an international energy and commodity price assessment agency, biofuels in Europe have a premium of 30% to 200% over regular diesel.
Gao Hua, chief representative of Argus China, told Caijing Eleven that Europe's latest policy requires the transportation industry to reduce greenhouse gas emissions by 14.5% by 2030, or renewable energy accounts for 29% of the transportation sector. If they do not buy biofuels at a high premium, transport companies must buy carbon tickets (similar to carbon emission allowances in the carbon market, which are only for one type of carbon certificate in the transport sector), which currently costs more than 100 euros/tonne of CO2. As a result, European buyers are willing to pay relatively high prices for biofuels.
02 The most promising bioenergy: SAF
The main path to carbon reduction is electrification, and in areas where electrification cannot be achieved, biofuels instead of fossil fuels are the main force. Electrification is largely unavailable in the aviation sector. For oil majors, the shift from fossil fuels to SAF is a must.
According to the International Civil Aviation Organization (ICAO), as the aviation industry continues to grow, international aviation operations will cumulatively account for 7% of global CO2 emissions for the same period between 2020 and 2050 without additional efforts to reduce emissions.
The key to decarbonising the aviation industry is to popularize SAF. According to the International Air Transport Association, 65% of the aviation industry's emissions reductions will be achieved through SAF.
SAF refers to aviation alternative fuels that meet sustainability criteria and are derived from biomass (food waste oil, animal and vegetable fats, vegetable cellulose, etc.) or waste (municipal solid waste, agricultural and forestry waste, etc.).
ICAO estimates that global SAF demand will be 5 million tonnes by 2025, growing rapidly to 128 million tonnes in 2040 and doubling again to around 285 million tonnes in 2050. The demand for SAF in the Chinese market is also large. Jiang Xin, deputy director of COMAC's Beijing Civil Aircraft Technology and Research Center, said that by 2035, China's domestic demand for SAF is expected to increase by 45 million tons. The use of waste edible oil alone cannot meet the demand for refining, and it is necessary to explore refining methods with stable supply and controllable cost, such as extracting from plants (reeds, bamboos), etc.
Advanced economies such as Europe and the United States have provided clearer and more active policy support for SAF. A.T. Keney Global Partner Teng Yong and others wrote an article introducing that in 2021, the EU proposed sustainable aviation fuel regulations, requiring that by 2025, all aircraft taking off and landing at EU airports must use aviation fuel with a SAF blending ratio of 2%, and this proportion will gradually increase, reaching 5% in 2030 and 63% in 2050. The U.S. government passed the Sustainable Aviation Fuel Act and the Sustainable Skies Act, which provide tax breaks and subsidies for SAF production, as well as targeted grants for new technology development, production process improvements, and SAF supply chain building.
China currently has few supportive policies for SAF, but it has already proposed quantitative consumption targets for the first time. The 14th Five-Year Plan for the Green Development of Civil Aviation proposes to achieve 50,000 tonnes of sustainable aviation fuel consumption in China by 2025.
SAF is listed as a priority biofuel by Total; The company plans to produce 1.5 million tonnes of SAF per year by 2030. In Europe, Total already has a number of SAF refineries in commercial operation and is currently expanding its production capacity. In June, Total announced that it would double its SAF production at its Grandpuits plant, bringing the site's SAF production capacity to 285,000 tonnes per year.
From producing fossil fuels to producing SAF, oil companies need to not only absorb new knowledge and technologies, but also change their culture. Si Mingyang said that in the process of transformation, the company needs to continue to learn and remain flexible. At the same time, Total also faced the challenge of concentration, because there are so many technical paths for SAF that the most appropriate choice must be made at different moments.
Sinopec built Asia's first SAF production plant in September 2011, which was based on palm oil and food waste oil. In 2014, the Civil Aviation Administration of China (CAAC) issued the No. 1 Bio-Jet Fuel Technical Standard Project Approval Letter to Sinopec. In 2013, 2015 and 2017, Sinopec produced bio-jet fuel for the first test flight, the first commercial flight and the first transoceanic flight. Sinopec's Zhenhai Refining & Chemical Co., Ltd. operates a 100,000 tons/year SAF unit, which is the largest completed project in China.
According to the Research Report on Sustainable Aviation Fuel Development in China: Current Status and Prospects, released by the Energy Research Institute of Peking University, China's total potential SAF production capacity will reach 2.05 million mt/year by 2025, when the supply can meet 4.5% of China's total jet fuel demand that year.
Like other bioenergy, the promotion of SAF needs policy support. Yang Lei, deputy dean of Peking University's Energy Research Institute, said that the support policy is either government subsidies, allowing costs to be taken out at a reasonable price, or having a suitable sharing mechanism, such as reflecting the cost of green aviation fuel in air tickets. In addition, some mandatory standard requirements can also be set in the policy.
This article is from the WeChat public account"Caijing Eleven" (ID: caijingEleven), Author: More than eleven people, 36 Krypton is published with permission.
