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Biomethane may be harbinger for Oregon LCFS program

28 Jun 2017 15:54 (+01:00 GMT)
Biomethane may be harbinger for Oregon LCFS program

San Francisco, 28 June (Argus) — Use of biomethane, a low-carbon fuel produced from dead plants and other organic material, is on the rise in Oregon, an early indication the state's effort to reduce reliance on gasoline and diesel is taking hold.

The total volume of biomethane consumed in Oregon in 2016 was equivalent to the energy content of 444,993 USG of diesel, up nearly five-fold from 92,146 USG in 2015, according to Oregon Department of Environmental Quality (DEQ) data. Last year was the first full year of Oregon's low-carbon fuel standard (LCFS).

Proponents of the state's LCFS are optimistic those volumes will continue to grow. Biogas, an unprocessed form of biomethane, is an "incredibly low-carbon fuel and there is additional opportunity for development and expansion in Oregon," Oregon Environmental Council climate program director Jana Gastellum said.

Biomethane can be used as a drop-in fuel or blended with compressed natural gas (Bio-CNG) or liquefied natural gas (Bio-LNG), two fuels most commonly used in heavy duty trucks.

Oregon's LCFS requires a 10pc reduction in the carbon intensity of its transportation fuels by 2025. To achieve that goal, the program sets annual, intermediate targets that gradually become more stringent. As such, fuel importers regulated under the program will soon need greater supplies of low-carbon fuels for compliance purposes.

Whether biomethane, also known as renewable natural gas, fills that need may depend on whether enough vehicle fleets have transitioned to use the alternative fuel.

"For renewable natural gas, the limitation for consumption in Oregon is dependent on demand and not supply," consulting group ICF said in a report commissioned by the DEQ. The report suggests that biomethane could play a significant role in the future of the program and generate as much as 11pc of credits under certain scenarios.

The groundwork for biomethane's rapid rise in Oregon may have been laid in California — particularly with Bio-CNG. California's LCFS program began in 2011 and registered its first use of Bio-CNG two years later. The state has subsequently dominated overall demand for the fuel.

Of the approximately 114mn diesel gallon-equivalents of renewable natural gas consumed in the US in 2016, California accounted for nearly three quarters. That leaves nearly 30mn diesel-gallon equivalents available to generate LCFS credits in Oregon, according to ICF.

But some Oregon stakeholders worry that California's much larger and, at the moment, more lucrative market will snap up any excess supply of low-carbon fuels like biomethane.

"We believe California's Low-Carbon Fuel Standard program will have an impact on Oregon's access to the lower carbon intensity fuels in the coming years," Western States Petroleum Association president Catherine Reheis-Boyd said. "Key low-carbon intensive fuels are more likely to go to California, reducing Oregon's bank of carbon credits important for the success of the program."

Such concerns could be mitigated if state officials decide to link the two fuels markets, just as California has done with Quebec and its cap-and-trade market. The Oregon LCFS program was structured with an eye toward future linkage with California, but formal discussions between the two states have not yet taken place.

Oregon LCFS credits remain at a discount to those in California. Argus assessed Oregon LCFS credits at $45/metric tonne last week. California LCFS credits were at $77/t yesterday.

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2016 Oregon LCFS credit generation by source

2016 Oregon biomethane volumes