Biofuel Demand Surges Amid Geopolitical Shocks and Higher Oil Costs

Global biofuel demand is surging due to energy security concerns and geopolitical shocks. According to Morningstar DBRS, consumption is projected to grow by 30% this year, with upside potential extending through 2030.

The growth is being fueled by a combination of higher oil costs, resulting from the conflict involving Iran and shipping constraints in key routes such as the Strait of Hormuz and the Red Sea. These disruptions have pushed governments to accelerate biofuel adoption, while new blending mandates are reinforcing demand growth.

However, Morningstar warns that biofuels remain a relatively small slice of total transport energy demand and are unlikely to materially displace crude-derived fuels in the near term. Their growth is highly sensitive to oil prices and policy support, which raises questions about how sustainable the current expansion really is.

The industry's history of boom-and-bust cycles serves as a cautionary note, with Morningstar pointing out that overexpansion in the early 2000s led to margin pressure and plant closures. The firm cautions that growth could moderate if fossil fuel prices fall or government subsidies and mandates are scaled back.