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California posts new record LCFS credit build: Update

  • Market: Emissions, Oil products
  • 31/01/23

Adds fuel usage data in fifth, sixth paragraphs.

A second consecutive record build in California Low Carbon Fuel Standard (LCFS) credits added pressure to spot and forward markets today.

New LCFS credits outpaced program deficits by a record 1.7mn metric tonnes (t) in the third quarter of 2022, building unused credits available for compliance to 13.4mn t, according to California Air Resources Board (CARB) data released today.

New credits have exceeded deficits for six consecutive quarters, and posted new record increases for the past two. The rising volume of credits that can be used to comply with state mandates and do not expire have raised alarms from renewable fuel producers seeking tougher new standards for one of the top low-carbon fuel markets.

LCFS programs require yearly reductions in transportation fuel carbon intensity. Conventional, higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from the supply of approved, low-carbon alternatives.

Rising supplies of these low-carbon fuels have met sluggish demand for California's gasoline blendstock and largest LCFS deficit source, CARBOB. The fuel still generated 79pc of all new deficits during the third quarter, even as overall consumption fell by 3.1pc from the previous quarter and by 8.5pc from the third quarter of 2021. Petroleum diesel consumption fell by 29pc from the third quarter of 2021.

Deficits generated from the consumption of petroleum gasoline and diesel in the state fell by 3.5pc from the previous quarter as demand for both shrank during the period.

Credit generation meanwhile continued to climb, up by 2.7pc from the previous quarter, as renewable natural gas, ethanol and electric vehicle charging all produced more credits than in the previous quarter.

Renewable diesel credits meanwhile shrank, as smaller volumes of higher-carbon production found their way to the state during the quarter. Both used-cooking oil- and tallow-based renewable diesel consumption exceeded volumes in the third quarter of 2021 but fell by a combined 22pc from the previous quarter. Corn oil-based renewable diesel increased sharply. Renewable diesel remained the leading source of new credits, at 39pc of all generated during the third quarter of 2022.

Lower, longer

California LCFS credit prices have groaned under the weight of record supplies. Credits do not expire, and so parties may use the growing bank of untapped credits to meet current and future obligations.

Spot credits that traded around $200/t in January 2021 slumped to a six-year low in September 2022, near $60/t. Spot credits have traded between $60-70/t since then, even as CARB reported the previous 11.3mn t record volume of unused credits at the end of October.

Credits immediately sank following the data release early in the second half of today's trading session. Bids for prompt through second quarter 2023 credit transfers briefly dipped to $58/t.

Renewable fuel suppliers have clamored for CARB to respond to the rising unused credit volume with tougher targets. CARB staff have said that a rulemaking to consider revisions to the LCFS would begin early this year.


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08/11/24

California LCFS set for key decision Friday

California LCFS set for key decision Friday

Houston, 8 November (Argus) — Today California regulators will consider toughening carbon-slashing targets and raising hurdles for crop-based fuels to participate in North America's largest Low Carbon Fuel Standard (LCFS). California's Air Resources Board will weigh rulemaking underway for nearly a year — and on the verge of running out of time — to restore shrinking incentives in the state's program to decarbonize road fuels. The decision comes amid growing outcry over the cost of diversifying the state's fuel portfolio passed on to drivers. Choices made on incentives in the largest US renewable fuels and electric vehicle charging markets may offer some clarity to markets now roiled by uncertainty over the approach an incoming second Donald Trump administration will take. LCFS programs require yearly reductions to transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with approved, lower-carbon alternatives. California's program has helped spur a rush of new renewable diesel production that quickly overwhelmed the deficits generated from petroleum gasoline and diesel use in the state. LCFS credits do not expire, and leftover credits available for future compliance grew to 29.1mn metric tonnes by July. The program generated 22.4mn deficits in all of 2023. Tougher targets on tap Board approval of amendments considered today would immediately toughen program targets for 2025 by 9pc. The one-year drop would nearly double reductions first proposed last year, and require cuts six times deeper than the typical year-to-year change in targets. Regulatory staff published models in April suggesting such a target could thin a smothering inventory of excess credits available for future compliance by 8.2mn — roughly a third of the available excess credits. Other proposals would take longer to begin. California would require new attestations about land use for crop-based feedstocks by 2026, shifting toward tougher verification requirements for such feedstocks by 2031. Regulators would limit credit generation for existing suppliers of biodiesel and renewable diesel made from soybean oil or canola oil credits to only 20pc of such fuels they supply to California by 2028. And CARB would begin phasing out outsized credit generation from renewable natural gas used in transportation in 2040, after locking-in incentives for current projects regardless of any regulations that would mandate methane reductions. The program has faced a late push of opposition from fuel suppliers and environmental critics highlighting costs to previously unaware drivers. The campaign inspired an unusual volume of public comment filings in October from residents focused on gasoline costs. But CARB faces a 5 January deadline to approve the proposals. Missing it would restart the regulatory process, which staff has said could take another two years to complete. Credits available for future compliance nearly tripled over the past two years. Renewable natural gas, electric vehicle and even biofuels groups wary of elements of the proposal have issued statements of support this week. Chairwoman Liane Randolph has repeatedly defended the program in public appearances as the temperature on fuel costs concerns rose. Targets must get tougher, she said earlier this year . She reiterated the need for the standard in response to media questions about the lack of information about potential cost increases. CARB's choices will ripple across fuel supply strategies around the world. California used two thirds of the renewable diesel consumed in the US during the second quarter, and access to the market can determine feedstock margins. With immediate federal choices on biofuel tax incentives or possible feedstock sanctions uncertain, clarity on California's may offer suppliers one of the fuel planning footholds this year. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Zambia UN carbon market focus on VCM transition


08/11/24
News
08/11/24

Zambia UN carbon market focus on VCM transition

Berlin, 8 November (Argus) — Zambia is expecting to generate at least 10 projects under the UN's new carbon market mechanism, mostly by transferring projects from the voluntary carbon market (VCM). At least five Zambia-based VCM projects could be transitioned to the new mechanism under Article 6.4 of the Paris climate agreement next year, head of the environment ministry's green economy and climate change department, Ephraim Mwepya Shitima, told Argus in a recent interview. By contrast, Zambia expects to transition only one or two projects from its limited portfolio under UN predecessor the clean development mechanism (CDM), although others might decide to follow suit if they see that "it works", Shitima said. Zambia also expects two projects generated under the new Paris Agreement Crediting Mechanism (PACM) proper to be validated next year, thanks to the Supporting Preparedness for Article 6 initiative that provides support to Zambia, Colombia, Pakistan and Thailand. The PACM, a centralised mechanism for trading carbon credits, is expected to launch next year following agreement on outstanding details at the UN Cop 29 climate summit starting in Baku, Azerbaijan, next week. The more advanced and less regulated bilateral carbon market mechanism under Article 6.2, which has already seen some activity, also depends on agreement at Cop 29 to provide clarity on registries, and the scope and timing of project authorisations. There is an overall expectation that agreement will be reached at this Cop, following years of slow progress and failed deals, not least because the Cop presidency has named Article 6 a priority . The lack of progress on Article 6.4 so far has not stopped project developers in Zambia, Shitima stressed, which have received support from the Zambian government. The government is also working on setting up a registry, although if it does not succeed in time, Zambia will use the international registry earmarked for countries unable to set up their own. And despite the credibility crisis the VCM has suffered since early last year, the standard of Zambia's VCM projects — mostly registered under Verra and Gold Standard — is sufficiently high to allow them to transition to the PACM, Shitima said. It is not yet clear whether the PACM will allow all forestry activities, which constitute most of Zambia's VCM projects. Afforestation and reforestation will be included, but the trickier "avoided deforestation" category is still being negotiated. For forestry projects, carbon storage permanence is an important issue, and the Article 6.4 supervisory body recently proposed relatively strict conditions in the shape of a buffer pool for unavoidable reversals and insurance for avoidable ones. These rules have been criticised as possibly too strict and costly for host countries. But Zambia welcomes these "stringent" rules, Shitima said. The country's green economy and climate change law, expected to come into force by the end of the year, will provide the legal basis for charging proceeds from project developers. These will go into a climate change fund, some of which will cover costs for dealing with reversals or guaranteeing the permanence of removals. Zambia is also in talks with buyer countries under Article 6.2 and expects to sign bilateral agreements with Sweden — with which it already signed an initial agreement — and Norway in Baku. By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Fund woes to hit Australian post-winter bitumen imports


08/11/24
News
08/11/24

Fund woes to hit Australian post-winter bitumen imports

Singapore, 8 November (Argus) — Australia's bitumen import demand following its June-August winter is anticipated to fall by about 20pc on the year because of prolonged funding issues and a lack of big paving projects, market participants told Argus . Australia continues to be plagued by budget and funding issues, with the country still reeling from the effects of the Covid-19 pandemic. Less funding has been allocated to road maintenance works this year and most of the local councils have decided to spend their budgets on other key sectors such as healthcare. Funding levels have overall been on a downtrend since 2020, market participants added. Although demand has risen since mid-October compared to the previous months this year, consumption levels remain unchanged from the same period in the last year as most projects are small and revolve around filling potholes, market participants said. Bitumen consumption is expected to be around 10-20pc lower on the year in 2024, the participants added, with some noting that the situation is unlikely to improve for at least two more years because of higher inflationary pressures in the country. Most importers in Australia currently have enough inventory to last until January 2025 and are not looking to procure spot cargoes on top of their term import commitments, and small volumes can be procured from the local suppliers if required, they said. Roads in Australia are set to get a maintenance boost, especially in parts such as southern Australia, according to the minister for regional development, local government and territories, but market participants argued that what "road projects" encompass has changed over the years and now includes other elements of maintenance such as grass cutting, construction of safety barriers and traffic lights, which do not involve road paving or bitumen. Of the entire budget allocated by the government, only around a third or less goes to road maintenance and paving works, Australia-based importers said. There was also a dip in demand from western Australia as authorities delayed pricing contracts for paving projects because of budgeting constraints. Australia imported around 488,874t of bitumen from January-August, according to Australian Petroleum Statistics data, compared to 605,283t from January-August 2023. Bitumen imports totalled around 932,286t in the whole of 2023, up from 915,467t in 2022. New Zealand demand to rise Conversely, New Zealand's import demand is expected to rise on the back of firm domestic consumption. Market participants in New Zealand said post-winter consumption and sales could be 3-4pc higher than the same time in 2023, which was already a record year for some importers. Importers noted the country is well on track to bringing in about 160,000-170,000t of bitumen this year. The weather has also been dry, making it conducive for road construction works. With the clear weather expected to carry on into summer, which falls between December and February, market participants said they are using this year-end period to stock up on inventory levels before the Christmas break in December. Most companies are likely to see a slowdown in road works by mid-December as contractors will leave for year-end breaks. It is important to buy enough supplies for the new year, said market participants, as February and March are usually the peak paving months for New Zealand. New Zealand imported about 54,000t in the first half of this year, compared to 144,220t during the same period last year, according to GTT data. The region imported 180,576t last year, compared to 200,615t in 2022. By Chloe Choo Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Hungary’s Mol cuts forecast for 2024 refinery runs


08/11/24
News
08/11/24

Hungary’s Mol cuts forecast for 2024 refinery runs

Budapest, 8 November (Argus) — Hungarian integrated oil firm Mol has revised down its 2024 forecast for crude runs at its two landlocked refineries after a "turnaround-heavy" third quarter, it said today. The company expects to refine around 11.5mn t of crude combined at the 161,000 b/d Szazhalombatta plant in Hungary and the 115,000 b/d Bratislava complex in Slovakia this year, down from its previous guidance of about 12mn t. The two refineries processed 8.25mn t of crude in January-September, down from 9.09mn t a year earlier. Their combined crude throughput was down by 11pc on the year at 2.81mn t in the third quarter. Mol carried out scheduled maintenance at Szazhalombatta between 26 July and 19 September and expects to complete maintenance work on petrochemical units at Bratislava in the first half of November. Crude intake at Mol's third refinery, the 90,000 b/d Rijeka plant on Croatia's Adriatic coast, rose by 2.6pc on the year to 802,000t in the third quarter and was largely unchanged year-on-year at 1.26mn t in January-September. The company's crude throughput forecast only includes the Hungarian and Slovakian refineries. Mol cut the share of imported crude in its overall slate to 3.35mn t, or 93pc, in the third quarter from 3.8mn t, or 97pc, a year earlier, while it almost doubled intake from its own crude production to 255,000t in July-September from 129,000t in the same period last year. Szazhalombatta and Bratislava mostly process Russian crude received through the Druzhba pipeline system under an EU oil ban waiver, while Rijeka mainly takes non-Russian seaborne crude. The profitability of Mol's refining business was hit by a 71pc year-on-year fall in its refinery margin indicator — calculated based on the Dated Brent crude benchmark — to just $3.70/bl in July-September. Its oil product sales fell by 4.2pc from a year earlier to 4.88mn t in the third quarter. This included 1.52mn t of products Mol had to buy from third parties to complement its own output and satisfy demand, a significant rise from 1.25mn t of third-party oil products it sold a year earlier. The firm's upstream oil and gas production rose by 11pc on the year to 96,100 b/d of oil equivalent (boe/d) in the July-September quarter. It has raised its full-year forecast to about 92,000-94,000 boe/d from previous guidance of around 90,000 boe/d. Mol's profit fell to 111.5bn forint ($295mn) in the third quarter from Ft175.8bn a year earlier. By Béla Fincziczki Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Deforestation in Brazil's Amazon plunges 31pc


07/11/24
News
07/11/24

Deforestation in Brazil's Amazon plunges 31pc

Sao Paulo, 7 November (Argus) — Deforestation in Brazil's Amazon biome plunged by around 31pc over the 12 months ending in July — the sharpest decline in over 15 years — bringing the country closer to meeting its target of eliminating deforestation in the region by 2030. Brazil lost 6,288km² (2,404mi²) of Amazon rainforest from August 2023-July 2024, a 31pc decline from 9,064km² in August 2022-July 2023, according to the science and technology ministry's national space institute INPE. The fall in deforestation marks the third consecutive decline in deforestation in the Amazon, after devastation in the region reached a multi-year high of 13,038km² in 2020-21. With the decline, deforestation in the biome reached its lowest level since 2015, when the region recorded losses of 6,207km². Deforestation fell steeply in all of the largest states in the legally defined Amazon region — known as Legal Amazon — except for Roraima, according to data compiled by the Amazon deforestation satellite monitoring system (Prodes). The Legal Amazon contains the nine states in the Amazon basin: Acre, Amapa, Amazonas, Para, Rondonia, Roraima and Tocantins, as well as most of Mato Grosso and Maranhao states. It contains all of Brazil's Amazon biome, 37pc of the cerrado tropical savanna biome and 40pc of the pantanal biome. Para state continued to lead in deforestation with 2,362km², accounting for 37.5pc of total deforestation in the biome. But this year's figure was 28pc lower than the 3,299km² in the prior period. Amazonas state posted the second largest deforestation in the period, with losses reaching 1,143km², accounting for 18pc of the total area of forest lost. Deforestation there fell by 29pc in the 2023-24 cycle from a year earlier. Mato Grosso, Brazil's largest grain-producing state, cut 1,124km² of forests, down by 45pc from the 2,048km² in the previous cycle. The government attributed the decline to increased oversight in the region, with the number of fines issued for illegal deforestation nearly doubling from 1 January 2023 — when president Luiz Inacio Lula da Silva took office — and October this year, compared with the period between January 2019-December 2022. The government also highlighted that deforestation was down in 78pc of the 70 municipalities that were declared priority regions by the administration earlier this year. The government announced R730mn ($129mn) in funding to reduce environmental devastation in these municipalities in April. The government also reduced deforestation in the cerrado by nearly 26pc to 8,174km² in the period. That is the lowest level since 2019 and the first time deforestation in the biome has declined in four years. With the reduction in deforestation, Brazil's 2023 emissions fell by 12pc to 2.3bn tons of CO2 equivalent (t CO2e) from 2.6bn t CO2e in 2022, according to Brazilian climate think tank Observatorio do Clima. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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