Investment opportunities in Southeast Asia’s biofuel sector

By Dieter Billen and Nikhil Sachdeva

The United Nations’ COP28 summit concluded with a landmark agreement to transition away from fossil fuels, a tripling of renewable energy capacity, as well as to double energy efficiency improvements by 2030. As governments look to move away from fossil fuels, it would be beneficial for investors to turn their attention to sustainable alternatives that promise both environmental benefits and financial returns. Among these alternatives, biofuels have emerged as a pivotal area of interest. The importance of biofuels extends beyond their green credentials; they represent a strategic opportunity to capitalize on the growing demand for cleaner energy, diversify portfolios, and hedge against the volatility of traditional fossil fuel markets.

In Southeast Asia, abundant agricultural resources and strong crop production offer a natural advantage for biofuel development - a promising opportunity for investors to consider.

Biofuels, derived from organic sources such as crops, animal fats, and used cooking oil, offer a compelling blend of sustainability, innovation, and economic potential. They play a key role in decarbonizing hard-to-abate sectors by providing low-carbon alternatives, especially to the transport, power, and chemical industries.

In transport, they offer viable solutions for vehicles, ships, and aircraft that have limited cost-effective alternatives. In the power sector, they can replace or complement fossil fuels in electricity generation. In the chemical industry, bio-based feedstocks enable the production of sustainable plastics and biochemicals, reducing reliance on petroleum-based inputs.

Carbon Reduction Potential of Biofuels

Biofuels generally have a lower cradle-to-grave lifecycle carbon footprint compared to fossil fuels, with almost all biofuels outperforming traditional fossil fuels in lifecycle carbon emissions.

Biomethane, for instance, emits about 65% less greenhouse gas than natural gas on a lifecycle basis. Biofuels produced from animal manure can even have negative emissions, indicating they offset their own lifecycle emissions and help reduce overall atmospheric carbon levels.

The findings underscore the environmental advantages of biofuels over fossil fuels. As industries and governments seek to reduce carbon footprints, the transition from fossil fuels to biofuels will play a crucial role in meeting global climate goals.

Increasing biofuels adoption in Southeast Asia

With most countries in the region committed to decarbonizing by 2050, biofuels are an integral part of their energy transition strategies.

Southeast Asia is advancing sustainable development under global agreements like the Paris Agreement, with biofuels central to meeting these commitments. Rising corporate climate commitments further drive demand for bio-based products.

Government policies such as blending mandates, incentives, and subsidies are boosting investment, particularly in transport fuels like sustainable aviation fuel (SAF) and renewable diesel, positioning biofuels as a key part of the region’s energy strategy.

Southeast Asia currently remains heavily reliant on imported fossil fuels to meet its energy needs, and biofuels present a significant opportunity for the region to enhance its energy security by reducing dependence on foreign oil.

Challenges in biofuels adoption

The biofuels industry faces several challenges, starting with the premiums associated with higher bio-feedstock prices compared to cheaper fossil fuels. This cost disparity can make biofuels less attractive in markets where fossil fuels dominate.

Scalability concerns also restrict crucial investments in the biofuels sector. While building economies of scale and investing in a portfolio of biomethane projects can provide long-term benefits, the initial ticket sizes and the high upfront costs deter some investors.

Sustainability of certain bio-based feedstocks also remains a concern. Land competition can drive deforestation, biodiversity loss, and soil degradation, while high water use and runoff add further risks. Indirect land-use change and fossil fuel inputs may also undermine carbon savings.

Southeast Asia as a bio-feedstock hub

The Asia region, particularly Southeast Asia, is rich in bio-feedstock. The region’s abundant agricultural and waste products, such as palm oil, sugarcane, cassava, and animal manure, provide a steady supply of bio-feedstock, positioning the region as a key player in the global biofuels market.

Moreover, Southeast Asia offers generally lower feedstock costs due to its climate, agricultural practices, and labor, making it an attractive region for investors to secure bio-feedstock supply.

Conclusion

Opportunities exist across three key segments of the biofuels value chain— feedstock suppliers, biofuel producers, and off-takers. Our full article explores these opportunities in greater detail, highlighting key considerations and success factors for investors.

The article is part of our full ASEAN Infrastructure Newsletter, where we cover key trends and opportunities across several markets, including strategies for investors that are seeking to maximize value creation .

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