SAF Still a Drop in the Tank as Biofuels Markets Brace for RVO Decision

The U.S. Energy Information Administration (EIA) highlighted a bullish long-term trend this week, projecting that renewable diesel and sustainable aviation fuel (SAF) growth could significantly alter the U.S. liquid fuels market. However, despite this positive outlook, the current reality tells a more complex story. SAF production remains a small fraction of total jet fuel use, and capacity additions—especially for SAF—are not scaling as quickly as headline projections might suggest.

To put this into perspective, U.S. jet fuel consumption averaged 1.65 million barrels per day in 2023 (about 69.3 million gallons daily). By contrast, SAF production was only around 2,000 barrels per day (about 84,000 gallons daily)—representing a mere 0.12% of total jet fuel consumption. Even if all announced SAF projects come online, capacity may only reach 30,000 barrels per day in 2024, lifting SAF’s market share to just 1.8%. The ambitious U.S. target of 3 billion gallons annually by 2030 would still only cover about 10% of projected jet fuel demand. Clearly, while the narrative is promising, the reality is that SAF has a long runway before reaching material market impact.

In feedstock markets, soybean oil continues its gradual adjustment. The soyoil-to-gasoil ratio has retreated to 1.75x, reflecting both softer vegetable oil prices and stable gasoil just below $600/mt ($597 today). The BOGO spread has narrowed to just below +$450, and D4 RINs have softened further to 1.14. In Europe, soybean oil is trading at a €25/mt discount to rapeseed oil, extending the gap as soft oils stay under pressure. Brazilian FOB Paranagua premiums for soyoil are holding firmer at -300 for June, though geopolitical risks—particularly the South Asian conflict—temper optimism for export demand.

Physical biodiesel premiums in Europe remain well above BOGO despite slight declines. Spot barge trading was active today, with FAME 0 premiums at +$679/mt over ICE gasoil, UCOME at +$788, and RME at +$699. These levels underscore continued tightness in physical supply versus the forward paper market.

On the policy front, all eyes are on the U.S. EPA. Administrator Lee Zeldin has pledged that the long-delayed Renewable Volume Obligations (RVOs) will be issued before Memorial Day (May 31). An increase in RVO targets would likely be welcomed initially by the biofuels trade but would also push RIN values higher—tightening compliance costs for refiners. This, in turn, will intensify pressure on the EPA to approve some of the 161+ pending Small Refinery Exemption (SRE) petitions as a political and economic offset. It is also unlikely that the RVO decision will be accompanied by further 45Z guidance, which requires multi-agency coordination and approval. Similarly, legislating a BTC-like provision before the RVO announcement appears improbable given the current legislative calendar and complexity.

Meanwhile, the U.S.-U.K. trade deal announced overnight will eliminate duties on U.S. ethanol exports to Britain. While the direct trade flow impact is minimal—the U.K.’s ethanol market is small (UK GDP per capital is smaller than Mississippi) —this move signals the broader U.S. strategy toward trade negotiations with the EU, where biofuels and agricultural products are likely to be key bargaining chips.

In summary, while policy developments and long-term projections paint an optimistic picture for renewable fuels, current market dynamics reflect a more nuanced reality. Traders should remain vigilant, particularly as the upcoming U.S. RVOs could significantly influence compliance values and market strategies.