Biodiesel demand booms amidst Middle East conflict

SASKATOON — Global demand for bio-based diesel is soaring, which is spurring consumption of vegetable oil feedstocks.

“This is massive,” said Fred Ghatala, president of Advanced Biofuels Canada.

“It is very apparent that the energy security benefits of biofuels are being leaned on around the globe, especially in countries with the fastest growth in fuel demand.”

The closure of the Strait of Hormuz has cut off more than 14 million barrels of crude oil per day from the global supply, and that is reinforcing plans that were already in the works to diversify fuel supplies in many countries.

The U.S. Environmental Protection Agency recently announced its final Renewable Volume Obligation (RVO) blending rule for biomass-based diesel.

The EPA set the blending mandate for biodiesel and renewable diesel to 5.4 billion gallons in 2026 and 5.5 billion gallons in 2027.

That is a 61 to 64 per cent increase over the 2025 level of 3.35 billion gallons.

U.S. soybean and Canadian canola associations were thrilled with the huge increase in the mandate.

Brazil intends to increase its biodiesel blending mandate to 24 per cent in 2035, up from 15 per cent today.

That will drive domestic soybean demand from the industry to 74 million tonnes, up from 7.2 million tonnes today, according to Aprosoja-MT, the soybean and corn producers’ association of Mato Grosso state.

Indonesia is moving to a 50 per cent palm oil biodiesel blend on July 1, 2026, up from 40 per cent today.

The new mandate is expected to increase domestic palm oil consumption by around three million tonnes per year, according to a study by Indonesian investment bank CIMB Securities.

Malaysia is moving to a 15 per cent palm oil-based mandate by June 2026, up from a 10 per cent mandate today. That is expected to add 300,000 to 334,000 tonnes of annual domestic palm oil consumption.

Those are just some of the many markets around the world boosting biodiesel/renewable diesel mandates in response to soaring global fossil fuel prices.

WHY IT MATTERS: The biofuel sector is an important source of demand for mopping up the global glut of grains and oilseeds.

Ghatala said the shift to biofuel is a trend that has been in place for five years but is really picking up steam following the outbreak of hostilities in the Middle East in late February.

“Countries are realizing that energy security and biofuels go hand in -hand,” he said.

That is driving up vegetable oil feedstock prices but not as much as competing products like diesel and NYMEX heating oil.

The premium for CBOT soybean oil over heating oil got down to US$0.36 per gallon, which is historically “very small,” he said.

That is making biofuels more attractive.

Oilseed opportunity knocks

Ghatala said the current geopolitical crisis is showing governments around the world that they can’t rely on fuel from a single area of the globe or from a single source like petroleum.

He hopes that message resonates with Canada’s provincial and federal governments.

“It is a very opportune time to be looking at biofuel production in Canada,” said Ghatala.

“It’s time that we double down rather than holding our cards.”

One of the most important initiatives happening right now are the targeted amendments to Canada’s Clean Fuel Regulations.

If those amendments are done correctly, it will ensure that Canadian agricultural feedstocks will always have a place in the Canadian renewable fuel market.

The other important initiative is the Federal-Provincial-Territorial Biofuels Working Group, which is advancing a coordinated strategy to grow Canada’s biofuels sector.

“Both of those (initiatives) should be tailwinds for our sector and Canada’s agricultural commodities,” said Ghatala.