HC Insider Insights - Fuelling the Future: Carving a Road for Ethanol as a Transport Fuel
Category: Insights

Fuelling the Future: Carving a Road for Ethanol as a Transport Fuel

Ethanol has become a key renewable fuel used to reduce greenhouse gas (GHG) emissions from passenger vehicles. More European countries have adopted higher ethanol blends with gasoline, while the US, the world’s largest producer, sees exports as an outlet to gain market share. Testament to the strong interest in ethanol is a growing number of companies establishing ethanol and biofuels trading desks.

But while ethanol is one of the most readily available, low-carbon fuels, policy remains the primary driver to incentivise further growth. In the second installment of a series on future fuels proposed by HC Group’s Liquid Fuels Practice, HC Insider looks at the short-term demand drivers and inherent regulatory risks & opportunities facing a new generation of biofuel traders on the road to net zero.

A mixed talent picture

In October 2021, EDF Trading (EDFT) announced the appointment of Jonas Hansson as Senior Ethanol Trader responsible for the build out of EDFT’s Green Fuels Desk. The company is following in the footsteps of trading houses who have set up a portfolio of biofuels products which would also include biodiesel produced from vegetable oils or animal fat.

As one of the most widely used biofuels, ethanol is typically traded by oil majors, as well as by key producers and agricultural players such as Tereos, Cargill, and ADM in Europe. Others include Marquis Energy in the US and Raizen in Brazil, the world’s second largest producer, who is also trades ethanol in Europe. Trading strategies vary from one company to another. Those with interests in production activity for instance are having to manage physical assets, while others see ethanol trading as a complementary product in building up a biofuels’ portfolio. When it comes to teams and talent, majors and producers usually have dedicated, established ethanol traders, while trading houses would largely employ traders covering it as part of a broader biofuels’ strategy. With such a varied picture, the traded market is largely described as small and illiquid.

Yet, many see growing interest in ethanol to boost trading activity and take advantage of increased volatility. Companies planning to establish a foothold in Europe for instance have been looking for talent with strong commercial mindsets to fully tap opportunities offered by increased ethanol demand. When faced with a lack of commercial skills, they are often having to move individuals across from their gasoline trading portfolio to their biofuel desk, particularly when these talents have strong blending experience.

Most widely used biofuel

In Europe, the rebound in gasoline consumption to pre-COVID levels since mid-2021 has boosted ethanol demand as economies eased out of lockdown restrictions. But structurally, the adoption of higher ethanol blending standards by more countries has added to the demand increase compared to pre-pandemic levels.  
In the latest instance, the UK upgraded its standard fuel blend to E10 on 1 September 2021, following Sweden in August 2021 and others like Hungary earlier in 2020. Ethanol prices have partly responded to the impact of higher blending rules. For instance, the price of ethanol for delivery at Rotterdam, the European pricing point, rose by around 40% between early August and September. However, it must be noted that ethanol prices also responded to higher energy prices in past months, especially for wholesale natural gas which is used as a feedstock for ethanol production plants.

The UK, Sweden and Hungary joined other EU nations, the United States and Australia which have been using E10 for years. In other parts of the world, Brazil, the world’s second largest producer of ethanol, and biggest user of biofuel, has been mixing gasoline with up to 27% of ethanol. In other South American nations, fuel-flexible car fleets can run on fuel made of up to 100% of ethanol.

The growth of ethanol produced from food crops has also shed light on structural risks caused by growing competition for crop products from the food supply chain, as echoed in recent headlines about India’s plans to achieve 20% of ethanol blending by 2025, from 8.5% currently. This has led some ethanol producers and companies to shift their focus on developing cellulosic ethanol – also called second-generation or advanced ethanol. In this case, ethanol is produced from non-food components of crops, including straw and residues from forest operations. Companies such as Brazil’s Raizen, a joint venture between Shell and Brazilian energy company Cosan, have been spearheading the growth of such products, in addition to first generation ethanol.


So far in the EU, excluding the UK, 15 countries have adopted E10 blends as part of the EU Renewable Energy Directive (RED), which promotes the use of biofuels in order to decarbonise the economy. In July 2021, the European Commission released its Energy Package setting the goal to decarbonise the road transport sector – along with maritime and aviation – through the phase-out of combustion-engine cars by 2035.

For ePURE, the European ethanol advocacy group based in Brussels, higher ethanol blends offer the opportunity to reduce carbon emissions within the existing fleet. “One way of decarbonising transport, if we want to make use of existing infrastructure and existing vehicles, is to reduce the carbon intensity of the fuel,” Emmanuel Desplechin, Secretary-General of ePURE, told HC Insider in an interview.

But this hinges on further regulatory signals – including taxation - for ethanol and biofuels under the third RED legislation currently under revision. Despite progress made under previous versions of RED1 and RED2, Desplechin calls on more realism from European Commission regarding the timeline to phase-out combustion-engine cars, pointing to today’s significant share of gasoline-fuelled vehicles. Indeed, according to its Sustainable and Smart Mobility Strategy published in December 2020, the European Union is also projecting battery electric vehicles to account for only around 14% of the fleet by 2030, with plug-in hybrid electric vehicles which are partly fuelled by gasoline making up 6% and other internal combustion engines (including hybrids) at 80%.

Electric Vehicles

According to a recent study published by automotive research firm JATO, the sales of electric vehicles have been growing dramatically in Europe, outpacing the sales of diesel-fuelled vehicles for the first time in August 2021. But, as ePURE was quick to highlight, the same study by JATO underlines that petrol-driven cars remain the biggest sellers, representing more than 50% of new passenger vehicle sales in August 2021.

The share of electric vehicles is largely expected to keep growing in coming years, especially in developed countries with established electricity infrastructure. But despite ambitions to achieve full electrification from the EU, there are no clear pathways ahead on how to get there, at least within the next decade.
A key uncertainty is the availability and production capacity of batteries. According to a report entitled ‘The optimal vehicle electrification level in a battery-constrained future’ and released in June 2021 by CONCAWE, the European oil industry’s association for environment, health & safety in refining & distribution, there are considerable uncertainties regarding the demand for batteries used for transport in 2030. This largely depends on the level of electrification of the vehicle sold, which in turn depends on regulations, customer preferences, and vehicle manufacturers’ strategies, CONCAWE says. The report adds that supplies of batteries in the EU will likely take time to ramp up due to potential constraints on both the availability of raw material and on production capacity.

Some technical experts think that hybrid vehicles will likely account for a bigger share in future fleets as an interim solution to full electrification. “It is not clear what the engines’ designs will be,” says Robin Nelson, Former Science Director for CONCAWE. For Nelson, future hybrid engines could pave the way to new possibilities for biofuel use. “Engines could be optimised if the electric and agri- components are designed together. Then one could possibly go for slightly higher octane,” Nelson adds. 

Global markets 

In the US, despite the commitment to cleaner fuels from President Joe Biden’s administration, biofuels mandates remain vulnerable to other factors, especially in the context of the pandemic’s economic fallout and of high energy prices. 

Recent reports have suggested the Biden administration could reduce biofuel blends mandates for 2021 and 2022. But given growing pressure from refiners to decarbonise their operations and potentially take position in other sectors such as aviation or heavy-duty road transport, there is a view that ethanol may be disfavoured amid plans by some refiners to convert their facility to renewable diesel and avoid decommissioning costs.

In this context, ethanol export trade could represent a viable outlet for producers to support the global drive to decarbonise transport fuels. According to Brian Healy, director of global ethanol market development for the US Grains Council (USGC), there is high potential in developing countries with hefty oil import bills to import ethanol for transport such as Nigeria or Indonesia. “Our focus is on increasing global demand for ethanol. Policy is what gets the country there,” he said. “The US, like other players on the global scene, has the opportunity to help them build their domestic industry with a role for trade to consistently meet policy mandates,” Healy adds.


While developed markets such as Europe may offer some opportunities for ethanol in the short term, the longer-term outlook is less clear. The uneven pace of regulatory changes, national policies and implementation across key geographies means the level of investors’ commitment to ethanol will likely be equally erratic. Yet, companies remain keen to capture value from ethanol through adequate and bespoke talent strategies. In Europe, uncertainty over policy and the pace of the fleet’s electrification highlights the need for talent with strong understanding of regulatory risks and of their commercial implications. But new, favourable regulation could unlock its potential as a transport fuel and encourage more investment notably from oil and gas companies to facilitate their own transition to a low carbon future. – FS

For queries related HC Group’s Biofuels activity, please contact Laura Berger, Director at HC Group’s Liquid Fuels and Chemicals, at LBerger@hcgroup.global