Sustainability, Energy Transition, ESG

Food, Fuel and Materials: Competing for Inputs, Fuel has the Edge.
December 1, 2023
Companies Mentioned:
Virgin Atlantic, Ingevity, Dow, Next Wave Energy, ExxonMobil, Origin Materials, Ford, GM, VW, Borealis, OMV, LyondellBasell, Maersk, BP, Integra Plastics AD
Commodities Mentioned:
Hydrogen, Renewable Fuels, SAF, Chemicals, Polymers, Corn, Ethanol, Ethylene, Alkylate, Ammonia, Methanol, Soy, Canola, Wood Waste, Polyethylene
Subjects Covered:
Recycling, Renewables, Carbon Capture, Emissions, New Energy, The Hydrogen Economy, ESG Investing, Climate Litigation, Clean Fuels

C-MACC Weekly Sustainability and Energy Transition Report

Food, Fuel and Materials: Competing for Inputs, Fuel has the Edge.

  • Looking at the Virgin Atlantic flight this week, noted below, we see an increasing risk that incentives to produce renewable fuels drag up input prices for others.
  • The Ingevity closure in Louisiana is largely a function of the plant feedstock being bid away by renewable fuels – supported by incentives, not available to materials.
  • COP28 is challenged, both by the focus on the role of the oil and gas sector and with a widening funding gap partly driven by a crisis of investor confidence.
  • Dow’s Alberta project gets the green light coincident with Canada considering a CCS incentive – this would make the project look better and might attract others.
  • Otherwise, we look at China’s race ahead in renewable power and the additional competitive edge that it would yield, as well as challenging targets in Europe.

First: Making a Material Difference – Fuels Poaching Inputs

Why would you turn chemicals into fuels – chemicals and polymers have a much higher value – or do they? As we race to solve the transport fuel emission problems, we are creating investment and use incentive schemes that are bidding away inputs from traditional uses, whether this is corn to ethanol and possibly on to jet fuel (SAF) or renewable diesel or low carbon chemical inputs that could be used to make fuels. Next Wave Energy in the US has a facility at or near completion to turn ethylene into alkylate, exploiting the cheap cost of US natural gas versus the high cost of crude oil. If that was low-carbon ethylene (either from ethanol or from hydrogen-fueled ethylene), the alkylate could qualify for renewable incentives, and in a weak chemical market this may be a higher valued outlet for ethylene. As we note in more detail in a paragraph below, we could also see methanol and ammonia pulled away from chemical markets for fuel use, especially if the fuel infrastructure is in place before new blue or green ammonia/methanol capacity can be brought online. But possibly the most concerning is large scale use of crops to make fuels – ethanol to jet fuel for example, as competition with the food chain could cause all sorts of political challenges if food input prices rise.

Exhibit 1: The shaded area represents our estimate of decarbonization/conversion.

Source: Bloomberg, C-MACC Analysis, November 2023

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