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
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.
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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Mexico’s oil products by rail up 11pc Jan-Aug
Mexico’s oil products by rail up 11pc Jan-Aug
Mexico City, 3 October (Argus) — Mexico transported 11pc more gasoline, diesel and petrochemicals by rail in the first eight months of 2024 than in the same period a year prior. Mexico's railroads moved 11.8mn metric tonnes (t) of those products year to date August, up from 10.7mn t in the same period a year earlier, according to national railway association (ARTF) data. Year-to-date August growth slowed this year from the 12pc annual growth in the same period in 2023. ARTF said that oil and related products accounted for 13pc of the total 91mn t of cargo shipped from January-August 2024, but it did not disclose shipment data by specific product. The products share of overall cargo is just above the 12pc of all cargo shipped in the first eight months of 2023. The Tamaulipas state petrochemical hub transported most of Mexico's oil products by rail from January-August, with about 3.49mn t, or 30pc, of the total volume. The hub, adjacent to key US export centers, is home to state-owned Pemex's 190,000 b/d Madero refinery. The state of Veracruz, where Pemex operates its 285,000 b/d Minatitlan refinery, was the second-largest transporter of oil and refined products by rail, at 22pc, or 2.6mn t. Pemex typically transports around 4pc of its refined products — imported or domestically produced — by rail. Private-sector data are not available. Diesel demand for cargo transport reached 485mn l (12,600 b/d) from January-August, a 3.2pc hike from the same period last year. Meanwhile, demand for diesel used for passenger rail transport more than doubled to 4.1mn l. Passenger rail boom? Diesel consumption for passenger rail is set to rise in coming years with President Claudia Sheinbaum promising to add more than 3,000km (1,865 miles) of passenger rail during her six-year term. This is in addition to the 1,460km Maya railroad, which is expanding operations across the Yucatan peninsula. Sheinbaum, who took office on 1 October, has pledged to complete expansion of this line, introduce cargo traffic and complete projects like the Inter-oceanic railway and its extension to the Guatemala border. Other projects will connect passenger rail to key cities in central Mexico, among them the Mexico-Queretaro route . By James Young Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
California adds oilseed limits as vote nears: Update
California adds oilseed limits as vote nears: Update
Updates throughout with more detail on revisions. Houston, 2 October (Argus) — California regulators advanced stricter limits on crop-based biofuels as revisions to a key North American low-carbon incentive program drew closer to a vote. The California Air Resources Board (CARB) late yesterday added sunflower oil — a feedstock with no current approved users or previous indicated use in the program — to restrictions first proposed in August on canola and soybean oil feedstocks for biomass-based diesel. The new language maintained a proposal to make the program's annual targets 9pc tougher in 2025 and to achieve by 2030 a 30pc reduction from 2010 transportation fuel carbon intensity levels. Board decisions that could come as early as 8 November may reconfigure the flow of low-carbon fuels across North America. The state credits anchor a bouquet of incentives that have driven the rapid buildout of renewable diesel capacity and dairy biogas capture systems far beyond California's borders, and inspired similar, but separate, programs along the US west coast and in Canada. CARB staff's latest proposals, published a little before midnight ET on 1 October, offer comparatively minor adjustments to the shock August revisions that spurred a nearly $20 after-hours rally in LCFS prompt prices. Prompt credits early in Wednesday's session traded higher by $3 than they closed the previous trading day before slipping back by midday. LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels that exceed these annual limits incur deficits that suppliers must offset with credits generated from the distribution to the market of approved, lower-carbon alternatives. California's program has helped spur a rush of new US renewable diesel production capacity, swamping west coast fuel markets and inundating the state's LCFS program with compliance credits. CARB reported more than 26mn metric tonnes of credits on hand by April this year — more than enough to satisfy all new deficits generated in 2023. Staff have sought through this year's rulemaking to restore incentives to more deeply decarbonize state transportation than thought possible during revisions last made in 2019. Participants have generally supported tougher targets, with some fuel suppliers warning about potential price increases and credit generators urging CARB to take a still more aggressive approach. But proposals to limit credit generation to only 20pc of the volume of fuel a supplier made from canola, soybean and now sunflower has found little public support. Environmental opponents have argued that the CARB proposals fall short of what is necessary to add protections against cropland expansion and fuel competition with food supply. Agribusiness and some fuel producers have warned the concept, proposed in August, ran counter to the premise of a neutral, carbon-focused program and against staff's own view last spring. The proposal exceeded what CARB could do without beginning a new rulemaking, some argued. CARB yesterday proposed a grace period for facilities already using the feedstocks to continue generating credits while seeking alternatives. Facilities certified to use those feedstocks before changes are formally adopted could continue using those sources until 2028, compared to a 2026 cut off proposed in August. No facilities currently supplying California have certified sunflower feedstock, and it was not clear that any were planned. "We're not aware of any proposed pathway or lifecycle analysis for sunflower oil, so that addition is just baffling," said Cory-Ann Wind, Clean Fuels Alliance America director of state regulatory affairs. "Clearly not based in science." The latest revisions include a change to how staff communicate a new, proposed automatic adjustment mechanism (AAM). The mechanism would automatically advance to tougher, future targets when credits exceed deficits by a certain amount. Supporters consider this a more responsive approach to market conditions than the years of rulemaking effort already underway. Opponents argue such a mechanism cedes important authority and responsibility from the board. Staff proposed quarterly, rather than annual, updates on whether conditions would trigger an adjustment, and to use conditions during the most recent four quarters, rather than by calendar year. Obligations and targets would continue to work on a calendar-year basis. CARB staff clarified that verifying electric vehicle charging credits would not require site visits to the thousands of charging stations eligible to participate in the program. Staff also clarified how long dairy or swine biogas harvesting projects could continue to generate credits if built this decade, with a proposed reduction in credit periods only applying to projects certified after the new rules were adopted. California formally began this rulemaking process in early January after publishing draft proposals in late December. Regulators initially proposed adjusting 2025 targets lower by 5pc for 2025 — a one-time decrease called a stepdown — to work toward a 30pc reduction target for 2030. CARB set its sights on 21 March for adoption. But staff pulled that proposal in February as hundreds of comments in response poured in. Updated language released on 12 August proposed a steeper stepdown for 2025 of 9pc while keeping the 30pc target for 2030. Public comment on yesterday's publication will continue to 16 October. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
US dockworkers, shippers strike positions entrenched
US dockworkers, shippers strike positions entrenched
New York, 2 October (Argus) — The US dockworker strike gripping east coast and Gulf coast container terminals may not be short-lived given the wide gap between union demands and the offer from an alliance of containership owners, terminal operators and port associations. The United States Maritime Alliance (USMX) said its latest proposal for a 50pc wage increase, made on 30 September just before the strike started, "exceeds every other recent union settlement while addressing inflation". But the International Longshoremen's Association (ILA) rebuked USMX's characterization of the offer late Tuesday, saying it fails to address the many years it takes for the port workers it represents to realize the higher wages, and factors like workers being on unpaid on-call status. The last-minute timing of the 50pc wage increase offer itself undermines the USMX's position as good faith negotiators, ILA said. "[The] USMX's claim that they are ready to bargain rings hollow when they waited until the eve of the potential strike to present this offer," the ILA said. "The last offer from [the] USMX was back in February 2023." Dockworkers started to picket container terminals in New England, New York, New Jersey, Houston, Texas, New Orleans, Louisiana, and other locations on 1 October . Containership loading and unloading has come to a halt at those terminals, while no trucks where queued at unmanned loading checkpoints. The union has pointed to a perceived unfairness in record profits reported by shipping companies since the Covid-19 pandemic not being shared with ILA members who were "keeping ports open and the economy moving" during that time. The union is also sticking to demands for no new automation technology at US ports that would replace workers, describing this position as "non-negotiable", and the right to 100pc of the "container royalties" funds, a type of welfare paid out by employers to protect US longshoremen from the loss of work brought on by the containerization of cargo. No fed intervention expected US president Joe Biden continued to indicate the federal government would not intervene in the strike, saying collective bargaining between the ILA and the USMX is the best way for workers to achieve their goals. In a statement this week Biden also pointed out that the USMX "represents a group of foreign-owned [ocean] carriers" and insisted that they should "present a fair offer" to the ILA. "It is time for [the] USMX to negotiate a fair contract with the longshoremen that reflects the substantial contribution they've been making to our economic comeback," Biden said. Vice-president Kamala Harris, who is running to replace Biden, doubled-down on that position today. "This strike is about fairness," Harris said in a statement. "Foreign-owned shipping companies have made record profits and executive compensation has grown. The Longshoremen, who play a vital role transporting essential goods across America, deserve a fair share of these record profits." Few commodities curtailed for now Ports and the companies that rely on them have been anticipating the strike for many weeks . Movements of dry bulk cargo, such as coal and grains, are expected to be less affected by the work stoppage, though there could be side effects from the congestion of other products being rerouted to ports not affected by the strike. Movement of crude, refined products and many petrochemicals are not expected to be interrupted, but some polymers that are moved by container, including polyvinyl chloride (PVC), polyethylene (PE), and polypropylene (PP), could be disrupted. A segment of US steel imports could also be disrupted by the strike, as about 9pc of those imports come in via containers , according to data from Global Trade Tracker. A prolonged strike could begin to curtail some downstream manufacturing of equipment that requires parts that move by containers. By Ross Griffith Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
EU commission pushes for 12-month deforestation delay
EU commission pushes for 12-month deforestation delay
Brussels, 2 October (Argus) — The European Commission has proposed an extra 12 months' "phasing-in time" to implement the bloc's EU deforestation regulation (EUDR). The commission also published the outlines of the EUDR methodology to classify countries as low, standard or high-risk. It said a large majority of countries worldwide will be classified as "low risk". The commission said that three months ahead of the intended implementation at the end of this year, "several global partners" have repeatedly expressed concerns about preparedness and that European stakeholder preparation is "also uneven". It added that the delay in "no way puts into question the objectives or the substance of the law". German agriculture minister Cem Ozdemir last month called for the commission to "urgently" postpone the EUDR's implementation by six months . The commission can "create all the necessary conditions on its own" for a delay, without renegotiating the EUDR, he said. Parliament's largest centre-right EPP group has also pushed to delay the regulation. Officials published "additional" guidance documents and a "stronger" international co-operation framework for global stakeholders, EU states and third countries. The change requires approval from EU states and European Parliament to make the EUDR applicable from 30 December 2025 for large companies. The date would be pushed back to 30 June 2026 for small firms. A group of major firms such as Ferrero, Mars Wrigley, Mondelez International and Nestle called for no reopening of the EUDR's "substance". The group, joined by several campaign organisations including Fairtrade International, said renegotiating aspects of the EUDR would only increase uncertainty and jeopardise the investments made for application. By Dafydd ab Iago Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.