The company called out European biofuel margins that had dragged on performance but heralded its decision to scale back investments in sustainable aviation fuel (SAF) and renewable diesel production in light of the tougher environment.
Proposals to add biofuel production units to existing BP refining sites were shelved back in June, while another three similar plans were placed under assessment while the oil major moved to simplify its biofuel portfolio.
That announcement had come as BP confirmed plans to buy out the other 50% stake in its Brazilian sugarcane-to-ethanol joint venture with Bunge – BP Bunge Bioenergia – with the second-quarter results justifying the decision.
“Our decision to take full ownership of BP Bunge Bioenergia while scaling back plans for new biofuels projects demonstrates our commitment to delivering as a simpler, more focused and higher value company,” chief executive officer Murray Auchincloss said in a statement.
The results highlight the ongoing robust nature of the fossil fuel-based energy sector, versus the challenges the biofuels space – and particularly the European biofuels sector – are facing.
Rival oil major Shell recently announced a delay in its plans to add new renewable fuel capacity to some of its existing refining sites, while US-based oil major Chevron has furloughed workers at its Germany-based biodiesel plant.
View our SAF prices
Pressure on European markets
That has come amid intense pressure on the European sector as a flood of Chinese waste-based UCOME biodiesel weighed on values in the region and slashed production margins for local producers.
The EU, after being urged to investigate by a slew of industry bodies, confirmed earlier this month that it would apply anti-dumping duties to the flows, in a move that was welcomed by the bloc’s producers.
However, challenges remain – with increasingly potent US-based biorefineries now online and producing, demand for key feedstocks has remained strong and prices have recovered, piling extra pressure on European producers.
The situation in the US – where sophisticated new renewable production capacity qualifies for tax breaks to incentivize production – is at odds with Europe, where demand is mandated through blend targets.
That means production margins are key for European producers, and with finished biodiesel prices relatively low, and feedstock prices supported, margins have not looked attractive for the bloc.
Strategic move into feedstocks
BP’s focus on Brazil-based sugarcane production likely represents a strategic move into the feedstock space, after rival Brazilian ethanol producer Raizen achieved certification for its bagasse-based ethanol production as a feedstock to SAF.
Alcohol-to-jet fuel processes mean that corn and sugarcane-produced ethanol are now being looked at with more interest as a potential to fuel huge investments in SAF production to meet ambitious blend targets.
Overall, BP reported $9.6 billion in earnings for the quarter, down by 1.3% from the previous quarter, with underlying replacement cost profits for the first half of the year landing at $5.5 billion.
That is down by 27% in the first half of 2023, according to BP.
