Premiums yet to spur Oregon diesel overhaul
Oregon lacks the storage and transportation capacity to quickly increase renewable diesel use, trucking and fuel companies have warned as state-driven demand for the fuel has climbed.
Businesses described insufficient access to the fuel as the state considered additional mandates for low-carbon diesel. Oregon's low-carbon fuel standard (LCFS) program credit bank has drained as the state's sustained premium to the California market has not yet driven a boost in supply.
"We have people that want it, so it's not from a sense of not wanting the program to go forward," said Jeff Rouse, executive vice president of Oregon fuels and lubricants supplier Carson. "For us, it just really does absolutely come down to supply."
State legislators held hearings this month on a proposal to effectively mandate renewable diesel. Oregon trucking and fuel distribution associations said renewable diesel demand was rising, but not its availability. New mandates could impede their operations, they said.
Oregon lacks the storage, delivery and, ultimately, market size of neighboring California, market participants said. Oregon's total diesel demand was roughly a quarter of California's through the first nine months of 2022.
Federal labeling requirements and state credit programs require segregating renewable diesel volumes from petroleum diesel to precisely track blending. That means renewable diesel that is chemically identical to petroleum diesel needs distinct storage tanks added through construction or conversion of petroleum infrastructure. Without the tanks, truck transportation of the fuel from Portland-area terminals makes renewable diesel uncompetitive with petroleum diesel volumes shipped south across Kinder Morgan's 114-mile Oregon Line connecting Portland to Eugene.
Kinder Morgan could move batches of renewable diesel on the pipeline system with adequate supporting storage along the route, Daniel Sanborn, the company's vice president of business development and regulatory affairs for products pipelines, told Argus.
"We continue to look for opportunities with our customers to convert petroleum-based diesel tankage to renewable diesel tankage to accommodate those moves," Sanborn said.
Premium grade
Both Oregon and California operate LCFS markets — state programs that use penalties on petroleum fuels to promote lower-carbon alternatives. The programs have enticed new renewable diesel production, biomethane harvesting and support electric vehicle charging infrastructure.
California's LCFS has over the past decade driven the share of petroleum diesel in the state's fuel supply down to nearly half, as renewable diesel and biodiesel blends take hold.
The value of Oregon's Clean Fuels Program credits moved to a premium to California's LCFS nearly a year ago. Removing a metric tonne of carbon from Oregon transportation fuels generated a credit worth at least $50/t more than the same credit in the California program since September last year, as a glut of credits in the larger state's program has weighed on LCFS prices. Oregon-approved soybean-based renewable diesel — which offers the smallest carbon reduction and fewest credits among approved Oregon renewable diesel feedstocks — averaged a 39¢/USG premium in Oregon in 2022, and has averaged a nearly 42¢/USG premium this year so far.
Oregon lacks the cap-and-trade costs that factor into decisions to supply fuel to California and Washington. Carbon costs associated with the program cut Oregon's premium to California by an average 22¢/USG in 2022.
The premium has yet to attract the infrastructure investments needed to overcome the physical supply hurdles. Even with the difference in incentives, California consumed more renewable diesel in three days than Oregon used for the entire third quarter. Oregon reported more deficits than credits in the first three quarters of 2022.
California has demonstrated that LCFS programs will drive the changes needed to adopt low-carbon fuels, Oregon Department of Environmental Quality market analyst Bill Peters said in response to questions on the shrinking credit reserve.
"Our targets will be increasing rapidly over the next few years," Peters said, "and we fully expect that fuel suppliers will make the changes in supply and distribution that they need in order to comply with our clean fuels standards."
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Europe 2.6°C above pre-industrial temperature in 2023
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US funds $28mn iron, steel decarbonization
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US biodiesel faces poor production economics
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