EU agrees on shipping sector GHG fuel intensity cuts

Market: Biofuels, Emissions, Fertilizers, Hydrogen, Natural gas, Oil products
23/03/23

The European Parliament and EU member states have today agreed that the greenhouse gas (GHG) intensity of fuels used in ships over 5,000 gross tonnage (GT) should be cut by 80pc by 2050, from a 2020 baseline, increasing the sector's contribution to the wider EU emissions target.

The parliament and council also agreed that the GHG intensity of fuels in the shipping sector needs to decrease by at least 2pc from 2025, 6pc from 2030, 14.5pc from 2035, 31pc from 2040 and 62pc as of 2045. The regulation would double count GHG cuts from renewable hydrogen and green ammonia.

The targets cover CO2, methane and nitrous oxide emissions over the full lifecycle of the fuels, according to the commission. It applies to energy used on board ships, in or between EU ports and to 50pc of the fuel used "on voyages where thee departure or arrival port is outside of the EU or in EU outermost regions".

All GHG cuts are relative to a defined 2020 GHG level of 91.16g of CO2 per MJ. The agreement also sets out that if the commission reports that the share of renewable fuels of non-biological origin (RFNBOs), including hydrogen, accounts for less than 1pc of the shipping sector fuel mix in 2031, a 2pc RFNBOs fuel use target will be set from 2034.

The commission put forward the legal proposals in July 2021 to mandate an average GHG intensity cuts for energy used in the shipping sector by 6pc by 2030, by 49pc by 2050 and by 75pc by 2050, all from 2020 levels.

It is charged with reviewing the rules by 2028, and if appropriate, proposing extending the GHG intensity cuts to smaller ships, or increasing the 50pc coverage of GHG cuts for non-EU journeys.

The political agreement, which needs to be formally approved by EU member states and the whole parliament, obliges containerships and passenger ships to use on-shore power supply from 2030 and in the rest of EU ports from 2035.

Waterborne transport accounted for 3-4pc of the bloc's total CO2 emissions in 2021, according to the EU, which said that the new targets will give the legal certainty that ship operators and fuel producers need and support production of sustainable maritime fuels on a large scale.

Swedish centre-right EPP member Jorgen Warborn said the regulation will guarantee the shipping sector long-term rules and predictability. And EU transport commissioner Adina Valean said the agreement sets a long-term signal to shipowners, operators, fuel producers, shipyards and equipment manufacturers to invest in sustainable maritime fuels and zero-emission technologies.

But German green Jutta Paulus said the compromise falls "far short" of what is "technically possible and necessary" from a climate policy perspective. "The EU limits itself to microscopic quotas for the 2020s and provides no incentives for additional investments in sustainable synthetic fuels," Paulus said, pointing to a "Swiss cheese" law with numerous exceptions.

"This is the beginning of the end for fossil fuels in shipping," said Faig Abbasov, director of shipping at campaign group Transport & Environment (T&E). "LNG is still a compliant fuel for some time," he added, noting less room for LNG to more stringent GHG reduction targets, mandates and mulitipliers for RFNBOs like hydrogen and green ammonia.

EU energy ministers had previously faced difficulties agreeing among themselves on the GHG reduction targets for the maritime sector and the on-shore power supply (OPS) requirements, penalties and geographical scope.

The European Community Shipowners' Associations (ECSA) had pushed — unsuccessfully — for member states to accept mandatory requirements on fuel suppliers so as to ensure that shipowners are not "unduly penalised" if the sustainable fuels necessary for compliance are not delivered.

ECSA secretary general Sotiris Raptis told Argus earlier this month that if fuel suppliers were not included in the regulation there would "no guarantee that there will be sufficient quantities of renewable and low carbon fuels".

The International Maritime Organization (IMO) is currently only targeting a 70pc cut in CO2 emissions intensity by 2050 from a 2008 baseline, with a target to reduce total annual GHG emissions by at least 50pc by 2050. IMO member countries are focusing on "revising" their initial 2018 strategy by mid-2023.

By Dafydd ab Iago

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31/12/24

California H2 fueling deployment falls behind target

Houston, 31 December (Argus) — California this year fell even further behind ambitious goals set for fuel-cell electric vehicle (FCEV) deployment, beset by, among other factors, permitting delays, the loss of planned refueling locations and unreliable hydrogen supplies. Executive Order B-48-18 established in 2018 a goal of 200 hydrogen fueling stations by 2025. The network is now projected to reach 129 stations by 2030, a longer timeline than forecast last year, the California Air Resources Board (CARB) said in its 2024 annual hydrogen evaluation. As of July, hydrogen fueling stations fell by four from 2023 to 62. Four new stations opened, including two in Oakland, one in Orange County, and one in Riverside, but those gains were offset by the permanent closure of seven stations owned by Shell. Of the 62 stations, some were listed as temporarily out-of-order or available by reservation only. "Progress has proven slow and not kept pace with prior near-term projections," the report said. California has earmarked billions of dollars to spur the development of a zero-emissions vehicle network, mandating that 100pc of all new car and light truck sales by 2035 are electric. Most of the funding for building hydrogen infrastructure is administered through the Clean Transportation Program (CTP) and the Low Carbon Fuel Standard (LCFS) program. Assembly Bill 126 directs the state's energy commission to allocate at least 15pc of CTP base funds per year for hydrogen infrastructure, resulting in $15mn set aside for the year 2024-2025. While the development of stations has always faced challenges, the last year was more difficult than most, CARB said in its report. Stations, especially in Southern California, have experienced supply interruptions as the cost of producing hydrogen has risen. As station reliability has fallen, so too has demand for FCEV, with auto manufacturers reporting historically low sales in a CARB survey and a slower pace of growth going forward than previously expected. Updated on-road vehicle projections for 2030 is 20,500 FCEVs compared with a previously reported estimate of 62,600 on-road FCEVs for 2029. By Jasmina Kelemen Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: USGC gasoline oversupply unlikely to ease

31/12/24

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31/12/24

Viewpoint: USGC gasoline oversupply unlikely to ease

Houston, 31 December (Argus) — Refinery closures and increased export opportunities in the US Gulf coast (USGC) will likely do little to alleviate an oversupply of regional gasoline in early 2025 as refining capacity in Mexico expands. LyondellBasell's 264,000 b/d Houston refinery tentatively plans to shut down during the first quarter of 2025 after previously delaying an end to production from the final quarter of 2023. Though some refiners welcome refinery shutdowns to provide a lift to falling margins , market participants have suggested that the upcoming closures will not considerably reduce the oversupply of product in the region. The Gulf coast's weekly average output totaled 2.2mn b/d in 2024, over one-fifth of the US's 9.7mn b/d weekly average. LyondellBasell's Houston refinery closure could cause total weekly production in the region to contract by as much as 12pc if it goes as planned. Product supplied, a proxy used by the US Energy Information Administration (EIA) for finished motor gasoline demand nationwide, has not recovered to pre-pandemic levels. Demand had fallen to fresh lows of 8.15mn b/d in 2020, when Covid-19 pandemic restrictions limited travel, but marginally regained strength after those measures were lifted. In the five years prior to the pandemic, gasoline product supplied ranged between a yearly average of 8.86mn-9.34mn b/d. In 2024, it averaged 8.85mn b/d, just below the pre-pandemic five-year average, but has grown for a second consecutive year after hitting a record low of 8.1mn b/d for 2022. In its energy outlook for 2025, the Louisiana State University's (LSU) Center for Energy Studies said it expected domestic demand to remain relatively flat, but that increased US net exports could shave off excess supply. Gulf coast gasoline stockpiles have exhibited steady growth since 2022, largely outpacing demand for the product, EIA data indicates. In the five years prior to the Covid-19 pandemic, weekly inventory averages ranged between 75mn-83mn bl. After hitting a record weekly average of 86.9mn bl in 2020, stockpiles have hovered above the pre-pandemic range for every year since, with 2024 weekly average inventory levels totaling 83.1mn bl. Gasoline prices peaked in 2022 due to rebounding gasoline demand since the pandemic. Though prices remain above the $2/USG mark since 2020, cash prices for 87 conventional finished gasoline in 2024 averaged 68¢/USG lower than in 2022 and 23¢/USG less than 2023's average, further depressing refining margins from a year earlier. Exports: a closing door Both exports to Latin America and domestic shipments to the US east coast have historically absorbed excess supplies of Gulf coast gasoline, but increased refining capacity and a potential trade war between the US and Mexico could choke off exports to Latin America. Market participants point to exports as a favorable outlet for excess gasoline supply with export data showing a strong correlation with the stock build in the Gulf coast since 2022. The US Gulf coast exported an average of 251,000 b/d in 2024 after four consecutive years of gains, according to trade analytics firm Kpler. Export levels out of the region are more than double the pre-pandemic four-year average of 121,750 b/d. However, Pemex's 400,000 b/d Dos Bocas refinery in Mexico is projected to come on line in late 2025 and will likely reduce the Gulf coast's share of the gasoline export market. Mexico imports nearly 90pc of its gasoline from the US , while roughly 82pc of Gulf coast exports land in Mexico, according to separate Kpler data. Mexican president Claudia Sheinbaum has continued expanding Mexico's energy independence, with 2024 marking the closest in nine years that gasoline production has approached import levels . Furthermore, US president-elect Donald Trump's potential 25pc tariff on imports from Canada and Mexico, including oil and gas, could spark retaliatory tariffs from Mexico, previously threatened by Sheinbaum. Should Trump go through with the tariffs when he takes office on 20 January, the tariffs between both countries would cut off gasoline exports and leave stockpile levels in the Gulf coast significantly higher. By Hannah Borai Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Changing incentives shift RD and SAF in 2025

31/12/24

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31/12/24

Viewpoint: Changing incentives shift RD and SAF in 2025

Houston, 31 December (Argus) — Federal guidance on the US Inflation Reduction Act's (IRA) 45Z production tax credit will be a lifeline for domestic renewable fuels producers and a key determinant of production splits from 2025 onward, with the largest awards currently earmarked for aviation fuels. Although preliminary guidance and registration protocols were released earlier in 2024, the industry awaits the impending signal that will replace the IRA's section 40B blender's tax credit. The expiring blender's tax credit (BTC) was instrumental in the ramp-up of US renewable diesel production in recent years. Renewable diesel comprised about 65pc of California's overall diesel pool by the first quarter of 2024, but that growing availability has come at the expense of the value of several of the fuel's financial incentives. Valuation of California's prompt Low Carbon Fuel Standard (LCFS) credits has trended lower across the past four years. Prices in May reached an almost nine-year low of $41/t and remained depressed through the summer, during which both renewable diesel imports and domestic production hit all-time highs. Preliminary guidance on the 45Z credit proposes aviation fuels earn $1.75/USG while the maximum for road fuels would reach only $1/USG. Fuels with lower carbon intensity measured by the complete production process will receive greater rewards, in contrast to the expiring blenders tax credit (BTC). This new opportunity, originally announced in 2022, signaled the possibility of increased SAF production and innovation. A flurry of developers have moved forward with SAF projects since, while major renewable fuel producers eye converting RD capacity to SAF. With similar refinery tooling, catalysts, and feedstock requirements, the ability to produce both fuels and toggle between the two has the potential to re-inflate producers' margins. Another opportunity enabled by SAF production as opposed to road fuels is the ability to monetize SAF certificates (SAFc) as a part of the production process. To offset the costs associated with production and act as an added profit generator, existing SAF producers partner with corporate clients and public sector entities looking to offset emissions from business activities like air travel. Under SAFc agreements, a producer will sell the physical fuel to the air carrier, while the environmental attributes go to the corporate client. The physical commodity and certificates are decoupled using a "book and claim" scheme, which creates a digital registry that tracks associated emissions. Renewable diesel production is for now concentrated among biorefineries throughout the US Gulf coast, Midwest and west coast. US capacity trended higher in 2024, largely on the back of conversions, and the supply balance from 2025 onward will likely hinge on domestic output as the new credit scheme removes key incentives for imports. Global Clean Energy in mid-December reached commercial operations of about 5,900 b/d of RD at its Bakersfield, California, conversion. But some refiners have begun to pump the brakes on renewable diesel expansion, citing a degradation in economics that could worsen without the BTC's guaranteed $1/USG. Vertex Energy in the third quarter finished reverting a renewable fuels hydrocracking unit back to processing fossil fuel feedstocks at its 88,000 b/d Mobile, Alabama, facility. Renewable diesel market participants otherwise expect refiners will bring forward into early 2025 planned maintenance, and potentially curb output, as the market overall awaits clarification on 45Z eligibility and award levels. As of 2024, the US Environmental Protection Agency's monthly reporting of renewable fuel production through RIN generation data breaks out renewable jet fuel. The data show a three-fold increase in the amount of SAF produced in the US versus 2023, but also a large boom in imports, mostly from Asia to the US west coast. The expiring BTC enabled the influx of imports, as refiners were able to bring finished neat SAF onshore, blend it with conventional jet fuel, and receive the tax credit, valued at roughly $1.50/USG. With no BTC, import trade flows will be in jeopardy, because new policy aims to support domestic production. In the short term, this would drastically reduce the amount of SAF available in the US, with imports making up roughly 62pc of supply in 2024. These new domestic producers, padded by a new SAF production tax credit, will have ample opportunity to meet US market demand. As airlines look to buy SAF in areas beyond California, having an expansive infrastructure and logistical framework including producers across the US will keep airlines well positioned to increase SAF consumption. By Matthew Cope and Jasmine Davis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Power demand could bolster RGGI allowances

31/12/24

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31/12/24

Viewpoint: Power demand could bolster RGGI allowances

Houston, 31 December (Argus) — Regional Greenhouse Gas Initiative (RGGI) CO2 allowances in 2025 could get a boost from a projected increase in electricity demand, despite uncertainty over the RGGI states' ongoing program review. Allowance prices hit record highs this past year, particularly during the summer as high temperatures raised expectations for emissions, increasing compliance demand. The first three auctions of 2024 cleared at record levels, draining the cost containment reserve (CCR) — a mechanism where additional allowances are released to temper rising prices — during the March auction . Prices followed suit in the secondary market, reaching multiple all-time highs before peaking on 20 August, with Argus assessing December 2024 and prompt-month allowances at $27.82/short ton (st) and $27.31/st, respectively. The increases have been fueled by anticipated growth in electricity demand as states work to implement policies promoting electrification in the transportation, industrial and heating sectors. In New England alone, peak power demand is forecast to double from 27,000MW to 55,000MW by 2050, according to an Acadia Center report . But the biggest source of this demand — and the steady climb in RGGI allowance prices since late-2023 — is the rapid expansion of data centers, according to University of Virginia professor William Shobe, who studies emissions market and auction design. New CO2-emitting sources such as natural gas-fired plants must factor rising allowance prices into the future cost of electricity in the long-run, Shobe said. As prices rise, other cleaner sources of energy, such as offshore wind and small modular reactors, will become more competitive, he said. Review the review The member states of RGGI launched a review of the program in February 2021. As power demand creates a potential for a bullish RGGI market, the review remains a source of uncertainty for participants and volatility in the secondary market. The program review includes considerations for a more ambitious emissions cap plan beyond 2030. But it has faced a number of delays and was originally scheduled to wrap up last year . Member states have provided few updates on the status and timeline of the review, leaving participants and environmental groups alike on tenterhooks over how a finalized program review — and with it, an updated emissions cap plan — will affect the future supply of allowances. Participants "are always thinking about future scarcity", said Shobe. "The more information we can give them about the future path of scarcity (of allowances) now, the more efficient their own behavior can be." The latest updates were released in September. They included an emissions cap plan that combined two previously floated proposals where the allowance budget starts at about 70mn st, declining at a rate consistent with a zero-by-2035 goal from 2027-2033 and a lower rate consistent with a zero-by-2040 goal from 2033-2037. Member states are also considering adding a second CCR and eliminating the emissions containment reserve (ECR), a market mechanism designed to respond to falling prices by withholding allowances. The review is planned to end in early 2025. A draft rule with additional modeling was to be released in the fall, but there have been no updates regarding another change in timeline. RGGI has not responded to requests for comment. States in limbo The status of Virginia — which left RGGI in 2023 — and Pennsylvania as potential members is another point of uncertainty as those states' participation are under legal scrutiny in their respective courts. Virginia's Floyd County Circuit Court in November ruled that regulation enabling the state's exit from RGGI was unlawful since it was enacted without legislative approval. Governor Glen Youngkin's (R) administration intends to appeal to the Supreme Court of Virginia sometime in 2025, but has declined to specify when. While it is unlikely Virginia will rejoin RGGI in the interim, its participation would increase demand for allowances and put an "upward pressure on price", Shobe said. Much of this demand would be fueled by data center expansion, as northern Virginia is the largest market for data centers in the world, with 25pc of all reported data center operational capacity in the Americas and 13pc globally, according to a report by a state legislative commission. The Supreme Court of Pennsylvania is also reviewing a lower-court decision striking down CO2 trading regulation allowing the state to participate in RGGI. Governor Josh Shapiro (D) has reluctantly defended Pennsylvania's membership in the program as an issue of preserving executive authority, and Republican state lawmakers have been attempting to revive legislation that would cement the state's exit from RGGI. The state's high court could issue a decision sometime in 2025. But Governor Shapiro also proposed a state-specific power plant CO2 cap-and-trade program earlier this year — another development participants should keep an eye on. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: US Supreme Court tees up more energy cases

31/12/24

News

31/12/24

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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