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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Tupras agrees more than 500kt 2025 bitumen tender sales
Tupras agrees more than 500kt 2025 bitumen tender sales
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Baghdad clamps down on 'illegal' oil smuggling to Iran
Baghdad clamps down on 'illegal' oil smuggling to Iran
Singapore, 20 November (Argus) — The Iraqi government is clamping down on the "illegal smuggling" of crude, bitumen and other oil products to Iran. Iraq's foreign affairs ministry has asked Iranian authorities to stop trucks carrying "oil, black oil and other petroleum products" from entering Iran through border crossing areas in Iraq's semi-autonomous Kurdistan region unless the exports are licensed by state-owned Somo, according to a 12 November letter seen by Argus . The movement of bitumen and other oil products across the Haj Omran-Piranshahr border point have already halted because of the new directive, market sources said. "The Parwiz Khan and Bashmakh borders are still exporting bitumen, but if this letter is implemented fully, Iraq's bitumen exports will be disrupted since none of these producers possess a Somo licence," an Iraqi bitumen market participant told Argus . The restrictions are expected to remain in place until further notice, although some market participants expressed doubt about how effective the crackdown will be. The directive will also have a bearing on crude producers in Iraq's Kurdistan region, which have been relying on local sales since a key export pipeline to Turkey was shut last year. Foreign operators operating in Kurdistan said they have been trucking crude to local refineries since the closure, but Argus understands that Kurdish crude is also being smuggled — by truck — across the border to Turkey, Iran and Syria. Iraq's oil ministry said this month that it has secured a commitment from the Kurdistan Regional Government (KRG) to scale back its crude production to "agreed levels" to help bring overall Iraqi output back below its Opec+ production target. Tight supply Participants in Iraq's bitumen market note that the smuggling directive coincides with already tight domestic supply, caused by limited availability of vacuum residue feedstock. Not only are higher margins encouraging Iraqi refineries to blend vacuum residue to produce high-sulphur fuel oil (HSFO), but a prolonged roadblock between Erbil and Sulaymaniyah, which started before the Kurdish election in October, has made it difficult for bitumen producers to transport vacuum residue from refineries to their production units, market participants said. Manifest charges were decreased to $10/t last week to encourage bitumen producers to transport vacuum residue, down from $35/t when the roadblock started. But most Kurdish suppliers have refrained from offering fresh cargoes for export in the past three weeks. A few Indian importers told Argus that it has become increasingly difficult to secure Iraqi bitumen drums because of a lack of offers. Some bitumen suppliers took to the sidelines in the expectation that export values will increase in line with rising Iranian seaborne prices. The limited availability of vacuum residue has boosted production costs for Iraqi bitumen suppliers. Iraqi drums will be offered higher than $340/t fob Bandar Abbas in the coming days, compared with around $322-325/t last week, producers said. One major southern Iraq-based producer has not been offering drummed cargoes since the end of October as the higher production costs have made export prices less competitive for major consumers like India, market participants said. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Cop: EU warns on fossil fuel ambition backsliding
Cop: EU warns on fossil fuel ambition backsliding
Baku, 20 November (Argus) — The EU has warned parties at the UN Cop 29 climate summit in Baku, Azerbaijan, against going back on pledges made last year in Dubai to transition away from fossil fuels. Language on transitioning away from all fossil fuels was included in the outcome of Cop 28 in Dubai last year in a historic first, with almost 200 countries including major fossil fuel producers agreeing to the text. And the EU is pushing for the same commitment to be included in this year's outcomes. "No one should pretend that the previous Cop didn't happen," European commissioner for energy Wopke Hoekstra said today. "There is the clear expectation that once you've signed up to do something, you actually do it," he said, adding that "the last Cop was very specific about transitioning away from fossil fuels". The EU views the declaration of G20 leaders, released on Tuesday morning, as an endorsement "in its entirety" of the outcomes of Cop 28, Hoekstra said. Further enhancing mitigation — reducing emissions — policies will be a "crystal clear element" that the bloc will focus on in the coming days, he said. Failing to include language on transitioning away from fossil fuels would mean last year's Cop should be considered a failure, according to Lidia Pereira, head of the European parliament delegation in Baku. But she trusts delegates from the UAE to be strong advocates for the wording on transitioning away from fossil fuels, she said. The UAE is part of the Arab States negotiating group, which also includes Saudi Arabia, Egypt, Iraq and Libya. Work on a mitigation outcome was rescued from the brink of collapse at the start of last week but is progressing slowly. As of last night negotiators did not have a draft text on mitigation, but must deliver one to the Cop presidency for publication around midnight. If parties fail to come to a conclusion in mitigation talks, the text for a new finance goal may become the main space in which fossil fuel language could land. Its most recent draft, released on 16 November, includes references to transitioning away from fossil fuels. Negotiations on climate financing — the so-called new collective quantified goal (NCQG) — to help developing countries adapt to and address climate change are central to this year's Cop. Thorny issues have included the amount of financing, which countries should contribute, the form that the financing will take and the broadening of the contributor base. The next draft is scheduled to released around midnight on Wednesday, after negotiators have spent days working to bring parties' initial positions closer together. Hoekstra refused to be drawn on reports, raised by Bolivia's representative , that the EU is eyeing a number of $200bn/yr for the NCQG, well below the expectations of likely recipient countries. The EU prefers to focus on other elements, including progress on Article 6 and mitigation, before having a "meaningful conversation about the exact amount", Hoekstra said. Talks on finalising the details of an international carbon market under the Article 6 of the Paris Agreement continue to inch forward at Cop 29, but with key sticking points yet to be resolved. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Denmark tops 'climate change performance index'
Denmark tops 'climate change performance index'
Berlin, 20 November (Argus) — Denmark tops the latest "climate change performance index" (CCPI 2025) published on Wednesday by German non-governmental organisations (NGO) Germanwatch and NewClimate Institute. But the country only manages fourth place, with no nations doing enough to meet its climate targets under the Paris Agreement, the NGOs said. The CCPI, published annually, monitors the climate action performance of 63 countries and the European Union (EU), which collectively account for more than 90pc of global greenhouse gas (GHG) emissions. "No country deserves to be on the podium, but some countries are doing better than others," co-author Jan Burck from Germanwatch said at the presentation of the index at the UN Cop 29 climate summit in Baku, Azerbaijan. Denmark tops the league for the fourth year running, thanks to its steady and comprehensive climate policy, its strong targets and renewables deployment. Other "high performers" include the UK, which is "back on track" after having seen its ranking plummet: the UK moved up to 6th position from 20th, thanks to the new government's strong climate policy framework, and the country's successful coal phase-out. But the UK's transition away from oil and gas is progressing too slowly, the NGOs warned. India, another high performer, managed to climb the ranks to 10th place thanks to strong renewables deployment. Medium-performing countries include Germany, which has fallen two ranks to 16th despite strong renewables deployment, as the country's buildings and transport sectors struggle to reduce their emissions, and as the country plans to expand its gas consumption, and faces budgetary constraints. Medium-ranking Brazil, while improving its CCPI ranking since president Luiz Inacio Lula da Silva took office last year, fell five ranks on the year to 28th, given the country's continuously strong reliance on fossil fuels, and despite lower deforestation rates. Unlike previous editions, no EU country received an overall "very low" rating. Bulgaria, at 50th, is the worst performing EU country. The four last-placed countries in the CCPI — Iran (67th) at the bottom, Saudi Arabia, the UAE and Russia — number among the world's largest oil and gas producers.These countries not only emit high volumes of GHG, but also – largely – lack emissions policies or climate regulation, with no discernible shift away from the fossil fuel business model and a proportion of renewables in their respective energy mix that is below 3pc, according to the NGOs. Co-author Niklas Hoehne from NewClimate said that there are many signs that the world is at a turning point, and that the peak in global emissions is "within reach", though US president-elect Donald Trump could act as a "brake" on the now necessary rapid cuts in emissions. The US occupy an unchanged 57th position. Burck said that China, falling to 55th from 51st position, faces a "huge" opportunity to gain international recognition, as the country's GHG emissions appear to have almost peaked, and as it experiences an unprecedented boom in renewable energies. What is now needed is a "clear move away from fossil fuels", Burck said. This clear move is not yet apparent, but this could change with the country's upcoming new five-year plan. In this case, China could "quickly" climb up the index, Burck said. By Chloe Jardine Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
