Philip: Hello, and welcome to part two of a two-part Argus Americas "Biofuels" podcast. I'm Philip Goughary, Business Development Manager, Renewables and Biofuels, with Argus Media. Joining me again today is Jasmine Davis, Associate Editor for U.S. Renewable Diesel at Argus. Jasmine also covers conventional diesel markets on the U.S. West Coast. Jasmine, thank you again for coming on the mic with me today.
Jasmine: And thank you, Philip. It's great to be here.
Philip: Well, before we get back to our discussion, could you briefly reintroduce yourself to our new listeners, and explain what you cover, and how renewable diesel fits into your broader reporting?
Jasmine: Sure. So, I cover U.S. renewable diesel for the Argus Americas Biofuels Report, particularly focused on California's spot R99 markets. I also cover conventional ultra-low sulfur diesel markets on the U.S. West Coast, and I moonlight as our U.S. West Coast jet fuel reporter as well. On the diesel side, renewable and conventional diesel are closely connected in California, because of renewable diesel's nature as a drop-in fuel replacement for conventional CARB diesel. So, they're competing for the same buyers, and respond to many of the same underlying market supply conditions.
Philip: Well, thank you for that. In the first part of this series, you walked us through a high-level overview of the U.S. renewable diesel market in 2026. We discussed recent factors that affected the California R99 price action coming into this fall, as well as record diesel production in the U.S., and perhaps even the new normal, as you so appropriately put it in the first episode. In addition, we touched on the United States still exporting renewable diesel as HVO, despite rising domestic demand. In this episode, we'll dig deeper into all California, explore new emerging markets for domestic renewable diesel, and discuss how Argus's indexation and products aid in transparency, which begets liquidity. Jasmine, I'd like to pick up right where we left off by asking you this. Is the United States becoming self-sufficient in renewable diesel?
Jasmine: So, the figures show the rising domestic production, sharply lower imports, and growing exports, and all of that is pointing to a much larger role here for U.S.-produced renewable diesel. But again, it's still really important to separate the national balance from regional availability. So, like we've seen recently, in the end of the summer, the end of the third quarter, is we saw California getting hot again, with the production interruptions that we were having, both on the West Coast itself, but at the U.S. Gulf Coast. And that's part of that price rise that has really ushered the return of imports from Singapore, and these occasional import cargos that we still see from places like Newfoundland. So, we haven't seen a total drop-off in imports. I wouldn't say that we're totally self-sufficient. But, all that being said, California can experience tightness even when overall U.S. production is strong. And on the flip side, elevated U.S. production has significantly increased RD availability into at least one other less conventional domestic market.
Philip: Ah, yes, my home state. So, on that note, I think that one of the more interesting developments this year has been the emergence of Texas as a renewable diesel market. Can you expound on that a little more? Can you tell us and walk us through what happened in Texas?
Jasmine: Yeah. So, Texas is an interesting case study. Because with renewable diesel in the U.S., most of that's going to come down to your strongly-incentivized coastal markets, whether that's programs that are more localized along the East Coast, or when you're looking out west at your LCFS programs, that range from California all the way up into British Columbia. But, this is where those policy changes come into effect. And they really opened the door for, like you said, some unconventional destinations for U.S. product. So, the higher incentives for domestically-produced RD increased available supply during portions of 2026. That's fair to say. And again, that's part of that policy incentive, specifically the RVO that we're talking about right now. But when California becomes saturated or less liquid, and especially when you factor in that these markets are ultimately all fairly seasonal, so we do see peaks during things like the fall harvest, we see lulls and kind of the summer doldrums, or winter in California is a little bit slower. So it's not fixed year-round demand. We do see an ebb and flow. California can become more saturated. That spot market can slow down. And with the federal policy incentives that we're seeing, Gulf Coast producers of renewable diesel, they've got an incentive to go full tilt right now, even when California is a little bit slower.
So, where are you gonna put that product if you're still outputting renewable diesel on the Gulf Coast, but the spot market in California is less liquid? So, enter the Texas truck market. And in the RD market, we've started to refer to Texas as a sort of steam release valve, because of that dynamic. So, Texas is able to absorb some of the excess when California RD is otherwise well-supplied, but the producer margins and the incentives remain strong, like what we've seen with strength in D4 RIN prices this year, as an example.
So, then you might say, okay, but why Texas specifically, a state without an LCFS legislation, and that LCFS program is what's driven renewable diesel adoption across the West Coast? And to that I would say Texas isn't without an incentive for biomass-based diesel consumption. So, we do have, or I guess you have, since I'm no longer Texan, I'm more of a Texpat these days, a state excise tax credit of 20 cents per gallon for qualifying biomass-based diesel. So, that's biodiesel, and it's also renewable diesel. And that helps that Gulf Coast-produced U.S. renewable diesel compete with conventional diesel in the Texas market, at certain times. This market really agrees that at least in the medium term, Texas should remain a secondary outlet when California or West Coast movement in general slows. And we see evidence of this further, even with California temporarily the sort of hotter market, through things like rising acquisition of tankage for RD in places like Houston.
Philip: Okay. So, first of all, I thank you for the Texpat. I'm gonna write that one down. That's a pretty good expression. It's the first I've heard it. We do miss you, though. You can come back anytime you want.
Jasmine: Maybe in winter.
Philip: There you go. It is interesting to hear you say that this looks to be a little more permanent, especially on the tankage perspective, because I think that the real risk of this, in terms of the market, is the question of is this all hat and no cattle, right, to use a Southern term. But you're saying that we may think of Texas as a more permanent renewable diesel demand center, going forward, at least in the near term, yeah?
Jasmine: Yeah. So, I think something to keep in mind with renewable diesel, and, you know, this is still a fairly young market. We've seen a lot of change in a very short period of time. And I think all of us who handle the renewable diesel market have really learned not to put all of your eggs in one basket, and don't get married to a specific vision of the future. But, based on what we see happening in places like Texas, it does seem like the market is putting, you know, at least a couple of eggs in that basket. Just a few. They're making sure that they're equipped to move RD into Texas. We're seeing offers in Houston. We're seeing more of that tank space. But is that to say that Texas is the next big thing when it comes to renewable diesel, you know, it would be a little bit premature to say that, you know. But the attractiveness, it increases when California slows. And there is that tax credit, that really does support the competitiveness against conventional diesel, at certain times, in that market. So, whether it develops into a deeper and more consistent market is really gonna depend on a few things, like sustained demand in Texas, the supply economics down along the Gulf Coast, and the availability of product, when you also have netbacks to places like Europe and Canada and the U.S. West Coast to consider. We don't say that California's king for nothing. Those LCFS programs, they really do keep the priority focused on your coastal markets here.
Philip: Well, all right, then. I think we can keep Texas firmly in the "new normal" category, and we'll be watching your hard work...
Jasmine: For sure.
Philip: ...to see if we need to...
Jasmine: The medium term.
Philip: [inaudible 00:08:19] Yeah. We'll see if there becomes a new new normal down the road. Maybe zoom back into California. For listeners who don't spend each and every day in this market, can you just explain to us specifically how R99 is priced in California, how we construct that at Argus?
Jasmine: Argus assesses California R99 against two reference points. And we call these two bases. So, on one hand, you have the CARB complex, which, as the name would imply, this is your CARB diesel basis. And you also have the NYMEX ULSD contract. And in recent years, market liquidity has by far and large favored the CARB diesel basis, or that CARB complex. And you might be wondering, what is the CARB complex? Well, I'll tell you. So, it begins with your conventional LA or San Francisco CARB ULSD price, which I also assess. And then you tack on your additional environmental costs associated with using conventional diesel in the California market. So, that's going to include your California carbon allowance cost for diesel, your LCFS deficit cost, and the crude carbon intensity deficit cost for diesel. So, the market differential for R99 is then tacked onto that complex, CARB diesel, three attributes, plus your R99 differential. And under normal conditions, however you might define those over the past few years, the ones that we've seen most commonly is that R99 is generally gonna trade at a discount to the CARB complex. So, if you compare these prices head to head, volume of the physical fuel versus volume of the physical fuel, you're gonna pay more for R99 than your outright CARB diesel price in Los Angeles. But when you factor in the environmental costs that you accrue by using CARB diesel instead of R99, that's when R99 becomes the more competitive buy. So, in order for that to happen, you really do need that to be a negative differential, or a discount to the CARB complex. And that is, because of that necessity to kind of keep the R99 market afloat in a widespread fashion, that is the most common dynamic that we see, is that discount.
Philip: And then what about the different delivery modalities that we assessed in that state?
Jasmine: Well, I'm so glad you asked. So, we have a few. Head-of-the-pipeline assessments are going to be your Kinder Morgan pipeline system in Los Angeles and San Francisco. We see these as being your most liquid spot R99 markets. In Los Angeles, head of the pipeline is really going to reflect volume that's arriving via vessel, whether it's coming over on, you know, "Jones Act movements" from the Gulf Coast, or those import vessels that are arriving. And in San Francisco, that's going to be comprised a lot more of your local production hub in Northern California. So, for head of the pipeline, on the Kinder Morgan system, we look at a minimum volume of 5,000 barrels, and that timing is going to follow Kinder Morgan's diesel scheduling for whichever market you're looking at. So, that's going to follow either CARB diesel in Los Angeles or CARB diesel in San Francisco, which roll at different times each month.
Then, we also have rail-delivered assessments, and those are gonna cover ASTM D975 specification R99, delivered to terminals in either the greater LA or the greater San Francisco regions. The minimum there is gonna be 5 rail cars, or about 145,000 gallons, as we define it. And those rail cars, we're gonna be looking at cars that are loading within the current calendar month. So, to give, to illustrate the difference here, it is still October, so we are looking at rail cars that are loading in October, for our rail-delivered assessments. For your pipeline assessments, Los Angeles has already rolled to November. So we're looking at November on pipe, October loading on rail, but those October-loading rail cars are probably going to arrive in November. So, lots of complicated logistics happening in California, but that's how we break it up. And then both sets of those prices, so, four total, are manually assessed each day, using market information like trades, bids, offers, other indications. We're constantly keeping an eye on market fundamentals. We're keeping an eye on what's going on in your corresponding CARB diesel markets, and really looking at just any available information that we can get to try to make sure that those prices are as reflective as possible at all times.
Philip: Well, that is complicated, indeed, and certainly explains how busy you tend to be. So I appreciate you diving a little deeper into that. But tell us, how does that differ, then, from the Gulf Coast or the New York Harbor assessments?
Jasmine: So, Gulf Coast and New York Harbor are calculated assessments, rather than your manually-assessed California prices. And the Gulf Coast range is going to be a netback range that's reflecting your sort of highest and lowest-value outlets for U.S. Gulf Coast-produced product. So, that upper end is going to be an LA netback, specifically your LA head-of-the-pipeline price, and the lower end is going to be a producer, selling just into the Texas truck rack market, which we assume is usually going to be your worst netback for product. The New York Harbor assessment takes that Gulf Coast assessment and it adds a Gulf Coast-to-New York freight quote. That's how we get that calculation.
Philip: Let's go back to talking about this idea of how we assess, the idea of tracking trades, bids, offers, and other indications in the market. Argus launched an open markets platform for California R99 this year, which we call our AOM. What role does the AOM play in assessing the California market?
Jasmine: Well, so, we launched our AOM in May of this year, after a year-long consultation with the market. And here, what we're really offering is a place where your approved counterparties can post bids and offers, and initiate bilateral transactions. Key word there is going to be initiate. This is not a clearing platform. And it's going to support your head-of-the-pipeline trading in Los Angeles and San Francisco, as well as rail cars for delivery into both of those locations. And we have a guideline, or, we have guidelines that list out locations that we consider to be either Northern versus Southern California, for those rail cars. So, we get really into the nitty gritty on what's allowed to trade on this platform and what's not, fear not. And then that's going to operate daily from 1:00 to 1:30 p.m. Central Time. And in addition to being a place where you can post those bids and offers, and initiate trade, we also see this as a sort of one-stop shop for all things renewable diesel. So, we have a ticker that's updating our latest renewable diesel prices each day. We also stream our commentaries, our news, and our analysis. So, the idea is that you log onto this platform, and everything that we know about renewable diesel, you will know the details of it, and as soon as we know it.
Philip: Why would you say that's especially useful in developing markets, like with the RD markets?
Jasmine: So, renewable diesel trading can be pretty fragmented, whether it's across locations or delivery modalities, or even the pricing structures themselves, with that CARB versus NYMEX optionality. So when you're bringing the bids and the offers and the market information into this defined daily window, it gives participants in these markets another way to observe the current buying and selling interest. That being said, we're not moving over to a pure window-based platform. This is going to be something, and it has been something that's enhancing the way that we assess renewable diesel. So, trades or bids or offers that happen in the platform feed into our overall renewable diesel assessments, just as off-screen activity still does. So, it's supporting trade initiation, while the Argus assessments continue to draw on a really broad body of market information, that's gathered throughout the entire day, even though this window is for 30 minutes.
Philip: To close, what are the most important developments in the renewable diesel markets, that participants should be watching?
Jasmine: I'll give you three things to keep an eye on, four new normals, and three key trends. So, first, we're gonna be looking at regional supply reliability, and the nature of that carbon RD dyad that I've really just resurrected and beaten that horse over and over again on this podcast so far. But it's really important. You wanna look at that, because the changes in the availability of one of those products is not going to occur within a vacuum. So, if you have tightness in the CARB diesel market, that can translate into more RD demand, and vice versa. So you really do wanna keep an eye, not just on renewable diesel. It's kind of like what I said earlier, where there's really no such thing as a pure renewable diesel story in California anymore. Any story about diesel is a story about all diesels in California at this point. Second, the relationship between that record domestic production and the outlets available for that supply, whether that supply is moving to California or it's moving into a newer market like Texas, Canada, Europe, as exports. But primarily, we're gonna be continuing to look at those coastal incentivized markets in the U.S. And then the last thing I would keep an eye on is the interaction between renewable diesel fundamentals and the wider diesel complex. So, you can't just look at renewable diesel supply and demand. You have to look at the moves in the NYMEX contract. Then you have to look at the moves in CARB diesel prices, which are pinned to the NYMEX contract, but those are also gonna fluctuate as it pertains to your local supply and demand dynamics, which in California, this can be a fairly insulated market a lot of the time. So you have to look at CARB diesel specifically, and what it's doing on top of what national diesel and contract prices are doing.
And on top of that, you also need to look at those environmental credits and renewable diesel supply conditions, and all of those factors are working together to influence your R99 price. So, there really are a lot of moving parts, and I wish I could say that you didn't have to hold so many spinning plates if you wanna keep an eye on what's going on in the R99 market. But I guess, lucky for everyone else who's listening to this podcast is my job is to keep an eye on all those things, and summarize it cleanly for you. So, really, maybe I'm the only person who has to monitor all of these dynamics, but know that that's what I'm doing.
Philip: Well, thank you for breaking all of that down, both on the high level and the zoomed-in view. That's all the time we have today, but if you missed it, be sure to download part one of this two-part deep dive into state of domestic renewable diesel. Jasmine, thank you very much for taking the time today.
Jasmine: Thank you guys.
Philip: If you'd like to learn more about renewable diesel, the Argus Open Markets platform, or any of the other prices, data, or products we offer, visit https://www.argusmedia.com/en. There you can find details on renewable diesel, under Methodology and Key commodity prices. Also, please don't hesitate to get in touch at oil-products@argusmedia.com.
