Shifting incentives bring uncertainty, limit liquidity in spot California R99 markets
Summer has brought record low R99 cash prices — and nearly 3.2mn bl of vessel-supplied renewable diesel — to key California distribution hubs, but those seeking to take long-term supply positions must grapple with changing incentive programs and yet unseen consequences for supply flows.
Looking ahead to the end of 2024, the future of RD supply is murky. Changing credit eligibility could discourage the volume of imports the west coast has grown accustomed to, domestic refining margins at the US Gulf coast have been indicated on the decline for much of the year, and a volatile underlying CARB diesel basis increases participants’ exposure to price risk.
Cash prices for R99 at the head of the pipeline (hop) in Los Angeles hit their lowest level in Argus series history on 6 August, when a downturn in the underlying CARB diesel basis pressured values to just $2.35/USG. The price slide, coupled with anecdotally unworkable spreads to local rack prices, weighed heavily on activity this summer, despite a steady stream of offshore shipments.
Deliveries via vessel to northern California in August were the second highest in Argus history at an estimated 741,000 bl — the latest in steady monthly increases since June — per data aggregated from bills of lading and global trade and analytics platform Kpler. Jones Act vessels from the US Gulf coast alone accounted for 448,000 bl, while shipments ex-Singapore constituted the remaining volume.
Southern California received an estimated 847,000 bl, almost evenly split between offshore suppliers and those at the US Gulf coast.
But the future of renewable diesel supply flows into California is mired with uncertainty surrounding incentives for both importers and domestic refiners. The BTC is set to expire with the 2024 calendar year, giving way to the IRA’s Clean Fuel Production Credit. The change would heavily favor US-based renewable diesel production and reduce awards for high-volume offshore imports to the US west coast, the latest pivot for an adolescent market that has struggled to achieve supply equilibrium.
Waterborne renewable diesel deliveries to California ports
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Neste — the leading offshore supplier of US R99 — is also slated to undergo turnarounds at both its Rotterdam, Netherlands, and Singapore facilities this quarter, followed by a second short-term Singapore turnaround in the fourth quarter. But the import lineup so far does not reflect a disruption in deliveries to the US this quarter.
At home, refining margins at the US Gulf coast are indicated on the upswing after narrowing through early August.
Renewable diesel deliveries to the west coast by rail from other US regions reached a record-high of nearly 2mn bl in May, per data from the Energy Information Administration (EIA). Shipments by vessel are also trending higher, with an estimated 864,000 bl delivered to California in August — the highest since November.
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Spot R99 markets in California were little tested at the end of August, although both the Los Angeles and San Francisco markets drew support from a controversial surprise proposal to limit California Low Carbon Fuel Standard credit generation for renewable diesel made from soybean or canola oils. The California Air Resources Board will also consider a one-time tightening of annual carbon reduction targets for gasoline and diesel by 9pc in 2025, compared with the usual 1.25pc annual reduction and a 5pc stepdown first proposed in December 2023, per a 12 August release.
But an unsteady economic landscape for domestic production remains a key decision-driver among US refiners.
Vertex Energy will begin reversing a renewable fuels hydrocracking unit back to conventional fuel feedstocks this quarter at its 88,000 b/d Mobile, Alabama, refinery. The company at the time cited headwinds in the renewable fuels market that it expects to persist through 2025.
Author: Jasmine Davis, Editor, Associate Editor – Oil Products
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Viewpoint: EU ethanol supported by mandates in 2026
Viewpoint: EU ethanol supported by mandates in 2026
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Viewpoint: Japan's hybrid EV use keeps gasoline in mix
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Viewpoint: Dutch ticket move to help low-emission fuels
Viewpoint: Dutch ticket move to help low-emission fuels
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