Bio-bunkers are trading below fossil distillate in this crisis. That is not the vindication it looks like, and the owners collecting pooling income on LNG tonnage already know why. In the middle of October a barge in Santos loaded around 1,160 tonnes of Brazilian cane ethanol for a CMA CGM container ship. Three days later Singapore bunkered 5,000 tonnes of the same product into a Maersk vessel, the largest ethanol stem the industry has seen. On an energy-adjusted basis, ethanol delivered at Santos has been cheaper than marine gasoil since the end of July. In Rotterdam, a 200-tonne B100 advanced FAME deal printed at $1,160/t at the end of October, while the MGO component implied by the Dutch B30 assessment sat somewhere near $1,490/t. In this crisis, the green molecule has become the cheap one.
The biofuel lobby will read that as vindication. I read it as a mispriced option, and the reasons matter to anyone choosing a fuel for a hull that has to keep trading until the mid-2040s. Start with why bio is cheap, because it is not cheap on its own merits. It is cheap because fossil distillate has become extremely expensive. MGO delivered at Santos averaged roughly $830/t in January and February and about $1,590/t in September and October, a 92% rise in eight months. The US Energy Secretary has put refined product flows through Hormuz at only a quarter to a third of pre-crisis levels, even as crude recovered most of its old run-rate. Ruwais was hit in the spring. Russian units keep going offline to drones, Black Sea diesel exports have been gutted, and Berlin is now discussing reopening refineries it was happy to see shut for climate reasons. Brent around $112 is uncomfortable. The crack is where the real damage sits. Crude can be bought; turning it into something an engine will burn is where the world has run short. Biofuel looks competitive the way a company’s share price looks strong after its main rival’s factory burns down.
The price prints also show what kind of asset a bio-blend really is. On the last Friday of October every European marine biodiesel assessment rose, carried up by biodiesel and fossil values together. The two legs are moving as one. A B30 is not a hedge against diesel. It is a diesel position with an extra leg attached, and that extra leg happens to be trading in your favour this quarter. The fossil leg can be hedged on ICE Gasoil, with deep liquidity and a curve you can trust. The FAME leg is basis, thinly traded and in most books simply carried. I wrote in The Barrel That Broke the Model about what happens when the distribution you are actually trading stops looking like the one in your model. A basis that is comfortable today and illiquid tomorrow is the same lesson in a smaller tank.
