In January SGS INSPIRE launched its first podcast on energy in transport called INSPIRE-ing Energy Talks. In our first podcast, Lucky Nurafiatin discussed biofuels mandates and feedstock availability with Jose Angel Olivero Garcia from LIPSA. In this episode, SGS INSPIRE and LIPSA take a closer look at the availability of vegetable oils and used cooking oil trade compared to the world’s biofuels mandates.

Hello everyone. Welcome to the first episode of inspiring energy talks and SGS inspires podcast. My name is Lucky Nurafiatin. I am a market analyst for Asia Pacific, and I will be your host. In this episode, I have Mr Jose Angel Olivero here with me to discuss global biofuels mandates and the feedstock supplies to support those mandates. Mr Olivero is currently holding a position of sales director at Lipidos Santiga S.A. also known as LIPSA. He received a degree in economics from the University of Sheffield in 1988 and a degree in food Business management from Institute at International Sentimo in 2015.

In the past 33 years, he has been involved in the oilseeds, oils and fats business. Mr Olivero has been the sales director at LIPSA since April 1996. Prior to his current role at LIPSA, he worked in the sales department of Cargill Espana from May 1989 to March 1996. Mr. Olivero has participated in many international events, both as panelist and speaker, and represents Lipsa in many international forums and associations. Those are including FEDIOL, AFOEX, the Spanish Foundation of Sustainable Palm oil and the Roundtable on Sustainable Palm Oil. A little background on LIPSA. The company is family owned and was founded in 1969. It started processing oils and fats in 1973. The company owns two vegetable oil refineries with the combined processing capacity of more than 1 million tonnes per year and exporting its products to more than 40 countries across 5 continents.

Hello Mr Olivero, welcome to inspiring energy talks. Happy New Year to you and I hope you had a great time. Firstly, thank you for being here, I know you are very busy.

Hello. Good morning or good afternoon, good evening, depending on where you are located. Thank you very much. Looking forward to your invitation to this interview. I'm very happy to cooperate.

Thank you. With your first experience in vegetable oil and fats, I'm sure you are also familiar with the additional usage of vegetable oils (from cooking oil in the past) and feedstocks for the oil and chemical industry to also as feedstocks for fuels to produce biodiesel.

Looking at the biofuels industry as a whole, the commercial use of biofuels started before 2005. So, depending on the countries, some only did research and trials and then, you know, kind of stopped short from the nationwide implementation. Some others continue with biofuel mainly in certain states or provinces. Several countries are mandating the use of biofuels nationwide, and even increasing the plant percentage over the time. I think most of us are familiar with the ethanol and biodiesel, as the traditional biofuels. At present, ethanol is mostly used by on road transportation, Brazil is leading with a 27.5% blending mandate. Other countries typically mandate up to 10% with some higher ethanol blending up to 85% available on the market. India is expecting to mandate E20 by 2025/2026 and the US government is trying to push E15. On the other hand, the use of biodiesel is open to all diesel engines, actually, those including non-road transport or construction engines, logistic equipment, agricultural equipment, up to the stationary diesel engines, countries with fast domestic vegetable oil production, especially in Europe, in South America and Asia are currently leading the use of biodiesel. While in some, the same cases are still applicable today, some countries with very small vegetable oil industry or they are net vegetable oil importing countries. They are also implementing or introducing the use of biodiesel, albeit at a lower blending percentage, compared with those with the blending percentage compared with those with the fast vegetable oils production. Typically, all those countries using their waste or used cooking oil, or we call UCO as feedstock. In the case of China and India, they use UCO mainly to alleviate such oils re-entering the food market. So, biodiesel blending percentage ranges widely within countries, some countries blend 2% up to 5 or 7%. Other countries blend up to 10%, high blend of 20% to 30% are used and introduced in several countries. In Indonesia, in Malaysia, in Slovakia, are also available in selected retailers in some countries in the US, in South Korea and in Australia.

So, Mr Olivero, I believe you attended the Indonesian Palm Oil Conference in Bali in October last year, right?

Yes, correct.

I think you may already know that Indonesia is currently leading the world on biodiesel mandate with about 30% blending in most diesel. I said in most diesel because it involves automotive diesel and industrial diesel. These are used in the domestic maritime industry, the only diesel that not or exempted from blending biodiesel. Are diesel used in the high mountainous area, premium diesel is also exempted as well as diesel used by the military and then further the government is planning to increase the blending mandate up to 35 and 40%. They announced a few weeks ago that in starting January they want to implement 35%, but they are kind of afraid of the availability of CPO of crude palm oil. So, it’s delayed a bit maybe by one month or two. So even though we know the mandate, we don't know yet when exactly the government will implement the 35%. Since Indonesia is currently the largest producer of palm oil, so what is your view on its biodiesel mandate and what is the implication of this mandate to the global palm oil trade?

Well, my view is that Indonesia will try to increase its mandate as much as the production and exports are unbalanced, that’s what exactly what they have recently done by increasing it to 35% from the from the previous 30%. So, they need that all expected surplus is converted into biodiesel. To maintain the price level high enough to keep the palm oil producers happy. Also, the gas oil prices when went up or let's say the high gasoline prices that we experienced in the last year also helped to increase the blending mandates. For now, the price of petroleum and gasoil went down, the prices are relaxing and let's see what the implications of this price relaxing are, but they will try to increase it to 35% or even to 40% in the future, if they find they have sufficient stocks to do so.

How does it influence the global palm oil trade? Because they are exporting CPO exports, will it have a big impact on the global palm oil trade?

Yes, of course it will, but it's just a mechanism they introduced to control the prices, you know. Whenever they see the prices going down because there is a lack of demand, they will try to increase the blending mandates because all the surplus they have is going to be converted into biodiesel. The production is going up the production of palm oil in Indonesia, not that much in Malaysia, which is stagnated. But Indonesia is still increasing, but the demand, the global demand for food. I would say it's probably stagnating. So, there will be a surplus to be produced and that this surplus can only go to biodiesel in my opinion. This is a mechanism that the Indonesians have control and make the prices of palm oil higher, so the producers are happier.

OK, yes, I think Indonesia used a biodiesel mandate as a cushion for the CPO price. I think that's what you mean, right?

Yes, correct.

Yes, so Indonesia's neighbour Malaysia, as you mentioned earlier, is also known as the second largest palm oil producers, right. Although the fall production volume is kind of a big gap between Indonesia and Malaysia as of now. But Malaysia's government also has been working on a B20 rollout for the last two years. It was kind of stop and go due to several reasons, but the government still plans for a complete switch from the current B10 to B20 by mid this year. So once this plan is achieved. What do you think will happen? Because at the same time, Indonesia has B35 in by mid this year and then Malaysia has B20. Will that Influence the price of palm oil and then after that influence the price of others vegetable oil, maybe in the in the palm oil or global oil trade.

Yes, I mean, in Malaysia, the current mandate is B10, right, for transport and B7 for industry nationwide. So B20 also for transport has started in a few places like Sarawak or Labuan for instance. There is already a previous cabinet approval for B20 for transport and it's likely that Malaysia will soon move to B20 for transport nationwide, once the new government settles down. There is a plan to move to B30 by 2025. But we need to wait and see the new governmental direction. The problem is that both Malaysia and Indonesia at the end, they both face problems to increase their palm oil sales. Especially to territories like Europe, where the palm oil sales are falling. Not only for biodiesel, but also for food. So the only way to maintain price levels and stocks at sufficiently high price levels and stock low enough is by increasing the mandates. If you want to again, as I said before, if you want to keep your farmers happy. You better increase their income, right? So how to do that, with high prices and how to keep prices high when the consumption of palm oil for food is falling in some parts of the world like Europe, by increasing mandates. However, we have to say that the impact in Malaysia is much lower than in Indonesia, obviously because of the production is much lower. But also the local consumption is much lower in Malaysia. So I mean the biodiesel consumption in Malaysia or the diesel consumption in Malaysia is much lower than in Indonesia. So the impact of any mandate increase in Malaysia is much lower than Indonesia.

Ah, yes true, in addition to palm oil, other vegetable oils such as, you know, rapeseed oil, soybean oil, sunflower oil. Coconut oil and even peanut oil also can be used as per diesel feedstock, right? Correct me if I'm wrong, but I think in Europe and North America rapeseed it is more popular.

Yes, what is more popular in Europe, both for food and for biodiesel. Two thirds of the rapeseed oil consumption in Europe is going to biodiesel only one third to food and in North America, well, you have Canada where they produce canola and the more or less half of the crop is exported the other half is crushed locally. They produce less than in Europe because they produce 20 million tonnes of seed roughly. 10 million (tonnes) is exported and 10 million (tonnes) is crushed locally. So, you have a production of 4 million tonnes, which is much lower than Europe. Europe produces, maybe double. 8 to 9 million tonnes. I would say it's popular, but also obviously in the US Soyabean oil is very popular.

Yes, Soyabean oil is also popular in South America as well, right? I understand also, Ukraine is also one of the major vegetable oil producers. With this ongoing conflict between Russia and Ukraine, almost one year actually. Do you still see the effect of this conflict on the vegetable oil market or the market kind of finding the new equilibrium already?

Well, the market always finds an equilibrium because obviously the price, always has an effect on supply and demand. As you know, the prices skyrocketed earlier last year. Well, I was going to say earlier this year, but obviously in 2022 when the conflict, the war, I don’t like to say conflict because it's not a conflict, it's actually a war. When the war stopped, obviously the price is skyrocketed, because also at the same time Indonesia set up a ban to export the palm oil. The market started with big uncertainty because of the war and because of the Indonesian ban, maybe the prices to go up tremendously. Once the uncertainty was lower because the ban was finished by Indonesian government and sunflower oil started to flow again from Ukraine, step by step in May, June, July. Firstly, by truck and rail because initially the ports were closed, the prices started to fall down. Most of the oil was transported by truck or rail and initially because they couldn't export by sea at the beginning of the war. The volumes that were before exported to India and China they stopped totally the purchases in Black Sea countries, Ukraine and Russia. All the exports flooded Europe and overflowed the European market. So, the prices have started to come down. Also, we have to say that the worldwide oil consumption is not growing in my opinion, for food, biodiesel is something different because it's mandatory and it depends on the country or by country regulation. But yes, I wouldn't say the oil consumption. Is going up because we are facing a recession worldwide. At the same time the production of Soy, rapeseed and palm is going up. Consequently, the prices are trending. lower and that's normal. In Ukraine also, I have to say that the crushes need to process the seeds, they need to sell the stocks in the spot market because they need the money, they're not selling much forward, they're selling spot, because there is a big uncertainty of what is going to happen. A lot of sunflower seed is also exported as well and there are problems to crush the crop locally. Lack of energy, lack of electricity sometimes, they need to export seeds, which is not normal. Normally they typically exported oil and mill. Once they have cleaned up their stocks, not yet. Exporting the seed or the oil, I would say that if the next crop that is going to be planted soon in February, March, April is again low and we could expect that is lower than normal again, like it was in 22-23. We had a crop of 10 million tonnes, then if we have a second consecutive low crop in Ukraine, then we could see higher prices in my office.

Higher prices. Again. Yes. So, it's kind of looks like a wave, right?

We have to watch out for La Nina and El Nino weather phenomenon because now we have a very long La Nina. That will make still one more year of high yield production in Malaysia and Indonesia. However, we have to say that despite La Nina for two years we are not seeing very high yields in Indonesia and Malaysia. Basically, the crop increase in production is coming from higher acreage, which is coming into production in Indonesia especially. In my opinion, once La Nina is over production will stagnate in my opinion, we will probably see higher prices of palm due to lower yields and lower production in Indonesia, maybe not in 2023. But in maybe in 2024, if we have an El Nino weather phenomenon coming in by the end of 2023 or beginning of 2024. In the future, maybe we see higher prices of palm. If La Nina ends up more or less soon and we start to see signs of El Nino coming in.

So that the if if that happens in a few years, then typically the biodiesel mandate will probably change again in Indonesia and Malaysia. As you mentioned earlier its making caution for the price, basically that's the reason of the biodiesel mandate. In addition to the virgin vegetable oils, more countries are now producing biodiesel from UCO, used cooking oil or other wastes from power palm oil industry. Speaking about UCO, are you familiar with the UCO trade?

Yes, we are because we are processing a lot of fuel in one our factories by.

Ah, OK, yes. You see that UCO trade is gaining momentum primarily now because more countries do not want biodiesel produced from the virgin vegetable oils, right? Various reasons Including indirect land use change, biodiversity and greenhouse gas emission reductions. But UCO supply primarily depends on the consumption of virgin vegetable oils by the food industry. How much is the percentage of these oils consumed by the food industry actually? To understand the volume of UCO outside.

Well, it varies depending on the country because it's not the most developed countries or most developed territories like Europe or US. The UCO collection is more efficient when you can see a more percentage of the oil usage being collected as UCO. Also, it depends on the habits of the population, some countries have more habit of frying. The frying habits of people, then it also depends on whether you fry vegetables or you fry animal products like fish or meat. It's very different from one country or from territory to territory. And also, the habit of collection is not the same in Europe as in Africa. In Africa you wouldn’t have much UCO or in maybe Latin America, But in the US, Europe or Malaysia, and Indonesia, there is more the habit of collecting it.

Yes so, coming to that, I think based on what you see in the market, which country or region actually supply most UCO?

Yeah, well, basically, everybody knows that this is China., then Indonesia and Malaysia are providing a lot. They buy also or have their own UCO collections., but also, they received UCO from several other countries of the region. Apart from Europe or America, I would say Asia is the main supplier.

Ah, OK. I think within Asia itself; China is the main supplier for now, right?

Yes, I would say so

Do you think the UCO supply will be sufficient to meet demand from the industry, especially when the maritime industry and the aviation sector there are also looking into UCO for their biofuels feedstock.

Well, I believe that there is no sufficient UCO in the world, to produce the amount that the world would need for Road transport, sustainable aviation, and maritime fuel, especially because these last two, this aviation sector and maritime sector. They don't want to use virgin oils because of image basically. Sustainable Aviation just taking off, in the next few years we will see a lot more sustainable aviation fuel and maritime fuel is also coming, especially in Europe, which is setting up soon minimum mandate of 2% for 2025. In my opinion, the demand will be much higher than availability and there will be a supply constraint or maybe prices will go very high.

Yeah, actually I heard from my contact in the maritime sector a few months back that the price of UCO, somehow it was more expensive than virgin vegetable oil in a few months back. I don't know, is it true from your experience?

It is, sometimes it depends on obviously on whether you compare it with the with palm oil price or with the soybean, rapeseed, or sunflower price. We all know that the palm oil is has a big discount versus the other oils. So yes, it is sometimes more expensive, and it will be much more in the future. As the appetite from the petroleum industry will be massive and supply will be lower than demand. Also, you have to take into account that demand in Europe is very high now because there is mandatory incorporation of advanced feedstocks like UCO and we still have the double counting system, so all these types of feedstocks count double. In the future, the EU want to change the system to GC reduction system and the double counting will disappear if the new RED 3 (the new Renewable Energy Directive 3) is approved, which is supposedly to be the case because the three institutions of the European Union agree to end the double counting system, so the Parliament, the Council and the Commission, the three in the trialogue, they agreed to end double counting. We will have a system of GCC reduction and obviously UCO reduces more greenhouse gases than virgin oils. So, there will be an incentive to use more advanced bio advanced feedstocks.

Speaking about the advanced feedstock, I know you are involved in the vegetable oil and fat business for more than three decades, so you may be, I'm sure you are familiar with the waste from the refining vegetable oils. I understand now always from palm oil refining, for example, palm fatty acid distillate or palm acid oil are also gaining more popularity to be used as biodiesel feedstock. Or even renewable diesel feedstock. Do you see that also happen from, you know, the waste from other vegetable oil refining process, for example soy oil? Or do you see that also the industry can use it? The soy oil that I don't know the name.

Yes, as well we we call it, we call it mainly acid oils. Well, you have two types, so you have the acid oils coming from the chemical refining and you have the fatty acids coming from physical refining, but yes, the industry uses already these byproducts, let's call it. It's not a byproduct anymore because it's sometimes it could be very similar in price to the to the virgin oil. Yes, the market is already using them and widely and they will continue to, they will continue using them.

But it's still not sufficient, I mean combining with the UCO and then all those ways are not sufficient. In your opinion, no.

In my opinion, there will be a big fight for feedstocks because the demand will be huge in the future according to the mandates, so we will see in the future whether we are able to be more efficient in the collection of UCO or in the production of animal products, wastes and residues. Whether we will be able to convert more again wastes and residues into feedstocks for biofuel. Maybe other technologies that allow other type of waste and residues to be processing to biodiesel. The future will say, but I mean we have about 30 years. We are 30 years ahead of 2050, or less than 30 years, but I guess that in the next 30 years people will be able to be more efficient and produce sufficiently products for feedstocks for this industry. But at the moment I am very sceptical and I think it's going to be tough to get enough feedstocks.

Yeah, it it's the getting more interesting the discussion between feedstock and then you know typically some of the countries or government or industry mandating it without realising or without further understanding whether the feedstock will be available or not, that's sometimes that's the case or most of the time is the case. So, this discussion is getting more interesting Unfortunately, we run out of time. So Mr Olivero, it is wonderful to discuss this with an expert like you. I really thank you for your sharing your insights with us and I think as we continue our efforts to decarbonize, the race to find more feedstock, I mean sustainable feedstock, and then the race to have a breakthrough technology to meet biofuels demands will be intensified in the next few years. I think we are living in the interesting times, to see all those changes. So, thank you for joining us. Yes, inspires podcast series. We'll be back with more intriguing topics and let's keep inspiring.

OK. Well, again, thank you very much for inviting me to this speech and of this interview. I hope I gave you the answers the market is expecting to have. It’s going to be very complicated to comply with the with the market expectations. We are here in our refinery of Huelva in Spain. We are trying to process as much as we can, wastes, residues and vegetable fats and animal fats. To the to this sector, which is which we consider a sector of the future, because we think that the petroleum industry is addressing this Renewable energy topic deeply and we are here to help.

Thank you very much.

Thank you. Have a nice day.