INDUSTRY INSIGHTThought Leadership

Road to decarbonization: unlocking the role of bionaphtha

By Giulia Squadrin, Biofuels Associate Editor, and Amandeep Parmar, Net Zero Editor, Argus Media

In the fight against greenhouse gas emissions, the petrochemical industry has put a lot of thought and effort into recycled plastics. But as renewable targets rise, and consumer pressure mounts, there is a good case for looking into advanced bio-feedstocks as well for producing renewable plastics. This means bionaphtha is now in the spotlight.

The rise of so-called “second generation” biofuels – drop-in fuels which can replace fossil fuels without engine modification ­– includes the development of such bionaphtha, a versatile and high-value by-product of the technology involved.

That is to “hydrotreat” renewable feedstocks, mostly wastes and waste vegetable oils, to create molecules that are chemically identical to hydrocarbon fuels. Hydrotreated vegetable oil (HVO), also known as renewable diesel, and sustainable aviation fuel (SAF) are the primary products of this process, which involves treating used cooking oil (UCO) and other feedstocks.

But bionaphtha is also part of the output, and typically makes up 5-10% of an HVO biorefinery’s yield.  Global HVO capacity will be a little over 17 million tons by the end of 2022 and is set to rise to close to 34 million tons by 2027, according to data compiled by Argus.

Global SAF output is set to grow at the same time from around 1 million tons in 2022 to over 17.5 million tons by 2028, with the UAE accounting for about 400,000 ton of capacity and 300,000 ton in Turkey. Some of this growth will come from some fully synthetic e-fuels – direct conversion of green hydrogen and CO2 to fuel. But in combination the upshot will be that renewable naphtha production will also surge.

Gulf countries step up decarbonization

As the GPCA has noted, Covid-19 dealt an “unprecedented blow” to GCC economies in 2020, but global markets have since bounced back, and chemicals revenue in the region is estimated to have ranged from USD 60-63 billion in 2021.

And despite grappling with the economic effects of the pandemic, regional chemical producers have joined a global movement towards a more sustainability-conscious market. On 2 March in Nairobi, Kenya, a total of 175 nations endorsed the End Plastic Pollution resolution, which aims to boost investment in recycling and bioplastics.

The UAE, for example, plans to up recycling to the point where there is 75% waste diversion from landfills. Saudi Arabia’s SABIC has meanwhile expanded its portfolio of circular and bio-based polymers, while Kuwaiti petrochemical producer EQUATE has begun marketing products with up to 30% chemically recycled content.

Renewable naphtha can only help with these efforts, in particular because GCC countries will be able to source the product locally over the next few years.

It is encouraging to note that bio-naphtha production and use in the region is a “self-propelled” effort: there is no legislation incentivizing the use of green naphtha in the petrochemical sector. In Abu Dhabi, for instance, state-owned Etihad and local waste management company Tadweer are building a waste-to-biojet plant to process 4 million ton/year of municipal solid waste into 400,000 ton/year of sustainable aviation fuel, starting in 2026. That will likely yield a percentage of renewable naphtha, alongside projected bionaphtha supplies from Turkey and elsewhere around the same time.

Neste is the only active bionaphtha producer in the Asia-Pacific region: it makes 1.3 million ton/year of HVO in Singapore and aims to double output in the first quarter of next year. New plants being built in South Korea, Malaysia, Indonesia, Japan and Australia mean at least 5.8 million ton/year of HVO and 4 million ton/year of HEFA SAF will be online by 2027.

Around 2.5 million ton/year of this, however, will be in China, where government export quotas mean the product can’t leave the country and is usually used at source by the manufacturer.

Fertile ground for key renewable feedstocks

Arab Gulf countries already play a key role in the global biofuels supply chain: they export crucial volumes of waste feedstocks, mainly as used cooking oil for biodiesel, HVO and bionaphtha production.

Countries in the Middle East have exported over 1.14 million tons of UCO to the EU and the UK from 2012. Saudi Arabia accounted for nearly half of total volumes and additional imports came from the UAE, Qatar, Oman, Lebanon, Jordan, Kuwait, Israel and Bahrain. And some volumes stayed in the region for local biodiesel production, mainly in the UAE and Oman.

Demand for UCO and other waste feedstocks will rise sharply in the coming years as more hydrotreating capacity comes online. Argus consulting forecasts anticipate waste and advanced feedstocks to fall short of demand by over 7 million tons by the end of the decade in Europe. This means that any available volumes will become increasingly valuable.

Bio-demand outpacing supply

HVO capacity in Europe will be around 4.5mn t this year, most of it in the hands of Finnish producers Neste and UPM, France’s TotalEnergies, and Italy’s Eni. Capacity is forecast to grow to around 8mn t by the middle of the decade.

Biofuels demand from the EU road transport sector should reach around 16.6mn tonnes in 2023, according to the European Commission’s 2021-2031 Agricultural Outlook, and the focus will increasingly be on advanced and drop-in fuels.

Petrochemicals companies now compete with the transport sector — a traditional home for biofuels since the inception of the EU’s Renewable Energy Directive (RED) — for additional volumes. Meanwhile a revised EU directive, RED II, has set member states higher mandates for renewables use. It targets 32pc renewables share of final energy consumption by 2030, which includes a 14pc share of renewable fuels to be used in transport by 2030, up from 10pc in 2020.

This mandated market is normally the primary driver of renewable fuels prices, but bionaphtha producers are profiting from a growth in bioplastics demand, which has pushed prices for the by-product to a premium over its former value in gasoline blending.

Petrochemicals producers have a more limited number of renewable feedstocks for use in crackers: typically HVO, bionaphtha or alternatively bio-LPG, which is also a by-product of HVO and SAF production. But HVO volumes are largely absorbed by road transport and aviation, and bio-LPG is not yet viable in volume terms. Bionaphtha has therefore become a primary feed for renewable plastic and bio-attributed polymers. The use of HVO or bionaphtha for bioplastics production involves a “mass balance” of renewable feedstock to allocate sustainability credentials to the end product, without the need to track the renewable content of individual items.

Bionaphtha can otherwise, as noted, be blended with gasoline, where it can complement or replace in part ethanol, biomethanol and ETBE.

The Argus UCO-based bionaphtha price in northwest Europe has averaged $3,420/t since it was launched in March, equating to a premium over Argus Class II HVO of around $143/t in the same period, and $2,564/t higher than the Argus cif northwest European naphtha price.