California closes weak year for CARBOB demand

California gasoline demand last year slumped to the second-lowest volume in more than a decade, adding pressure on low-carbon fuel incentives regulators will review this year.

Weak demand for the fuel that generates nearly 80pc of new Low Carbon Fuel Standard (LCFS) deficits has helped build a record overhang of unused credits and in 2022 sank credit prices to six-year lows. The California Air Resources Board (CARB) has weighed tougher LCFS targets, changing the participating fuels and other measures to shore up the program and staunch the widening imbalance.

Implied California gasoline demand fell to roughly 887,000 b/d in December, according to the state's department of tax and fee administration. That was 1.8pc lower than the previous month and 3.8pc lower than December 2021. Fourth quarter demand was 3.2pc lower than the same quarter of 2021, and full-year 2022 demand fell by 1.4pc from 2021.

The state tax data offers an imprecise guide to CARB quarterly data on the balance of new LCFS deficits and credits. The agency will publish fourth quarter 2022 program data at the end of this month.

California gasoline demand had shown signs of recovery in 2021 after efforts to contain Covid-19 slashed state gasoline consumption in 2020. First quarter 2022 gasoline demand exceeded year-earlier levels by 6.8pc.

But retail gasoline prices driven higher by Russia's invasion of Ukraine late last February helped to blunt a normal gain in demand through the spring and summer. Taxable quarterly gasoline consumption in 2022 trailed year-earlier levels for the rest of the year, with the widest deficit for late summer driving demand in the third quarter.

California's LCFS program seeks to reduce and replace petroleum-based CARBOB consumption. But the program also relies on the fuel's current use to provide the demand for credits generated from electric vehicle charging, renewable diesel supplies and other low-carbon alternatives. LCFS spot credit prices have fallen from above $200/metric tonne in January 2021 to near $60/t in late September 2022. Some renewable fuel producers have warned that a continued low credit price will drain support for continued investment in replacing conventional fuels.

CARB staff have planned to implement changes to the program in 2024, and sought comment on tougher carbon intensity reduction targets, on limiting credit generation from sources including renewable natural gas or electric forklifts and adding deficits from intrastate jet fuel consumption. The agency may consider changes at a late summer board meeting. CARB has not yet scheduled its next workshop or other meeting on the LCFS.

By Elliott Blackburn