Strategic Reponses to the EU Biofuels Market for Fuel Retailers

The European biofuels market is hugely complex and ever-changing. Within such an environment it is often difficult for oil companies and fuel retailers to make long-term investment decisions. Supported by demand forecasts, this brief makes recommendations for different fuel retailers in light of the ever-changing regulatory and market landscape for biofuels.

Report Highlights
Sweden aside, fuel retailers in the EU do not need to offer high blends of biofuels. For price reasons, customer demand for high blends of biofuels remains low and it is not expected to increase in the near future. Nevertheless, EU legislation will continue to oblige fuel retailers to ensure a proportion of biofuels is blended into all fuel sold.

EU and national governmental willingness to enforce biofuels consumption, the production of biofuels and the oil / biofuel cost differential will be some of the main drivers of consumption going forward.

Under any of the three scenarios, biofuels are forecast to represent the highest proportion of road fuel in energy terms in Germany than in any of the other markets covered. In an optimistic scenario, with all of the economic and political drivers at an optimal rate, Germany would continue to surpass its national target by four percentage points.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
SOURCES 1
ANALYSIS 2
Currently, fuel retailers' biofuels strategies vary greatly by market depending on the drivers in place 2
The varying environment for biofuels means that fuel retailers have only chosen to offer E85 on a large scale in Sweden 2
The introduction of legislation in many Western European markets has placed a legal obligation on fuel retailers to sell biofuels 3
In some Eastern European markets fuel retailers have to accept that they will soon be obliged to blend in biofuels 4
Due to the controversies surrounding biofuels companies have acted defensively to defend their public image 5
From a production perspective, European producers are suffering from overcapacity 6
Datamonitor has concluded that there are five key factors driving the consumption of biofuels 7
Going forward, the factors driving the consumption of biofuels will vary depending on the scenario 7
Going forward, an optimistic scenario would mean that all of the political and economic drivers for the consumption of biofuels are at optimal levels 8
In a medium-optimistic scenario, some of the political and economic drivers for the consumption of biofuels are in place 9
In a pessimistic scenario, few or none of the main drivers are in place to encourage the consumption of biofuels 10
Datamonitor also segments EU biofuels markets into 'established', 'developing' and 'nascent' markets 11
Depending on the scenario, it will be worth fuel retailers selling high blends of biofuels in 'established' markets 12
In the best case scenario, biofuels would represent almost 12% of all road fuel sold in Germany 12
German fuel retailers should continue to focus on low blends 13
Whatever the scenario, Sweden will remain the leading market for E85 14
In an optimistic scenario, all fuel retailers would offer E85 at their service stations in Sweden 15
In a best case scenario, bioethanol will be introduced into the Austrian biofuels mix 16
OMV, the leading fuel retailer in Austria, is likely to invest in further E85 stations if the conditions for biofuel sales are optimal 17
'Developing' markets may also see significant increases in demand for biofuels 18
In a best case scenario, sales of B30 will become increasingly popular in France 18
Even in a best case scenario, fuel retailers in France will continue to focus on low blends of biofuels 19
In a best case scenario the consumption of biofuels in the Netherlands will have grown four-fold by 2015 20
A change in the Dutch taxation regime would encourage many fuel retailers to convert pumps to E85 21
Even in a best case scenario, consumption of biofuels in 'nascent' markets will remain limited 22
Notwithstanding the scenario, strong blends of biofuels are unlikely to become popular in the UK 22
Going forward, supermarkets are likely to remain the principal proponents of biofuels in the UK 23
Even in a best case scenario, Spain is not predicted to reach its biofuels targets 24
Notwithstanding the scenario, fuel retailers in Spain are likely to continue to count on low blends to make up their biofuels quota 25
Italy is predicted to remain the laggard of the large European markets, notwithstanding the scenario 26
The large national players such as Agip and Erg Petroli are unlikely to ever sell strong blends of biofuels in Italy 27
APPENDIX 28
Further reading 28
Datamonitor The European Landscape for Biofuels in the Transport Sector May 2007 BFEN0253 28
Datamonitor The Political and Environmental Landscape for Biofuels in the EU Transport Sector August 2008 BFEN0356 28
Datamonitor Demand and Supply-side Dynamics in the EU Biofuels market August 2008 BFEN0357 28
Ask the analyst 28
Datamonitor consulting 28
Disclaimer 28
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Figure 1: Germany is the only market where E85 can compete with regular unleaded on price 2
Figure 2: Austria, France, the Netherlands, Slovakia and Finland have placed a legal obligation on fuel retailers to incorporate 5.75% biofuels by 2010 3
Figure 3: Most Eastern European States have introduced a blending obligation or have voiced an intention to do so 4
Figure 4: Germany, Italy and the UK have the largest amounts of idle biodiesel production capacity 6
Figure 5: There are five main factors driving the consumption of biofuels 7
Figure 6: In any given scenario, B5 is set to represent the vast majority of all biofuel sales 12
Figure 7: In an optimistic scenario, E85 is forecast to account for 26% of all biofuel sales in Sweden 14
Figure 8: In an optimistic scenario, B5 will continue to dominate the dominate the Austrian biofuels market 16
Figure 9: In an optimistic scenario, biofuels are predicted to account for 8.5% of total road fuel consumption by 2015 18
Figure 10: It is predicted that in an optimistic scenario biofuels will represent 8% of all road fuel sold in the Netherlands in 2015 20
Figure 11: It is predicted that in an optimistic scenario biofuels will represent 5.5% of all road fuel sold in the UK in 2015 22
Figure 12: In Spain it is predicted that in a best case scenario biofuels will account for 7.6% of all road fuel sold in 2015 24
Figure 13: In Italy It is predicted that in a best case scenario biofuels will account for 6.5% of all road fuel sold in 2015 26
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