Biofuels decisions, costs piling up for new EPA chief

Spanish Market: Biofuels, Crude oil, Oil products
11/03/21

Record compliance costs driven by urgent and overdue fuel policy decisions will press newly confirmed US Environmental Protection Agency administrator Michael Regan from the first day on the job.

Pending decisions on how much renewable fuel to require refiners and importers to blend into the US transportation supply have helped drive costs associated with federal fuel blending mandates under the Renewable Fuel Standard (RFS)to their highest levels in the history of the program.

The former top environmental regulator of North Carolina, a state without any tilt toward refining or agribusiness-based biofuels, must give both those industries clarity on what — if any — adjustments the new administration will make to those requirements following a year of depressed global fuel demand.

Regan last month promised a Senate confirmation hearing that the agency would be transparent in its decisions. But the administrator did not pledge haste, noting the number of renewable fuels needs under litigation and market scrutiny.

"What I can promise you is we will take a no-surprise approach," Regan told the Senate Environmental and Public Works Committee.

EPA must set overdue minimum renewable fuel blending requirements for 2021, and by December set those requirements for 2022. The agency must also by December set blending requirements for 2023 as EPA for the first year takes greater authority over the RFS without specific Congressional targets.

And EPA remains dogged by past decisions and deferrals. Governors asked that the agency waive blending requirements for 2020 in light of the steep drop in fuel demand forced by global movement restrictions to limit the spread of Covid-19. Legal challenges to the former administration's use of mandate waivers for refineries processing less than 75,000 b/d of crude a year now stretch all the way to the US Supreme Court. EPA remains under court orders to find some way to add 500mn USG of blending requirements reduced in 2016 back into a future mandate. And a host of proposed advanced biofuels still wait for approval.

Costs to comply with the RFS have climbed over the past 13 months to surpass 16¢/USG, based on Argus assessments. That cost represents the price of the various credits needed to comply with the federal program for every gallon of gasoline and diesel added to the US road fuel supply. Those costs started last year at about 2.6¢/USG.

Regan may have little history with biofuels regulation, but President Joe Biden's administration also brings back prominent officials very familiar to program participants. Janet McCabe, nominated as deputy EPA administrator, from 2013 to 2017 was acting assistant administrator for EPA's Office of Air and Radiation — the office directly responsible for administering RFS. Gina McCarthy, former president Barack Obama's EPA administrator during that period, is Biden's national climate advisor.

By Elliott Blackburn

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23/12/24

Viewpoint: Europe’s refiners eye support from closures

London, 23 December (Argus) — Another tranche of European refining capacity will close for good next year, but the reprieve for margins in the region may only be temporary. Nearly 400,000 b/d of capacity, around 3pc of Europe's total, is scheduled for permanent closure in 2025, comprising Petroineos' 150,000 b/d Grangemouth refinery in Scotland, Shell's 147,000 b/d Wesseling refinery in Germany and a third of the capacity at BP's nearby 257,000 b/d Gelsenkirchen refinery . Around 30 refineries have closed in Europe since 2000. Among the most recent was Italian firm Eni's 84,000 b/d Livorno refinery in northern Italy earlier this year. And only this month, trading firm Gunvor announced it is mothballing its small upgrading refinery in Rotterdam . The Rotterdam facility had already stopped processing crude in 2020, leaving it peculiarly exposed to the margins between intermediate feedstocks and finished fuels. The refinery has been hit by a 25pc increase in operating costs in the last four years and a squeeze on margins, the latter the result of competition from new refineries outside the region, Gunvor said. Outside Europe, the world has added more than 2.5mn b/d of crude distillation capacity in the last three years. Three brand new refineries have come on stream in the Middle East in that time — Saudi Arabia's 400,000 b/d Jizan, Kuwait's 615,000 b/d Al-Zour with Oman's 230,000 b/d Duqm refineries. More recently, Nigeria's 650,000 b/d Dangote refinery, Mexico's 340,000 b/d Olmeca refinery and Yulong Petrochemical's 400,000 b/d refinery in China's Shandong province started up, all of which are likely to ramp up throughput in 2025. Refinery closures tend to support margins for those that remain. But European refiners' costs continue to rise while demand for their products falls, which means next year's closures are unlikely to be the last. Simpler and smaller refineries are prime candidates for closure as they usually achieve weaker margins. Europe also has plenty of refineries built before 1950 that are still running. These older plants can be more at risk of accidents and breakdowns. And repairs can sometimes cost so much that they tip a refinery into the red. An ongoing concern for European refiners is the trend towards lighter and sweeter crude slates , driven by supply-side dynamics, which is resulting in higher naphtha yields at a time when demand for naphtha from Europe's petrochemical sector is under pressure from a contraction in cracking capacity. But many in the market expect the greatest pressure in 2025 will fall on those coastal refineries in Europe that were built to maximise gasoline output. If, as expected, Dangote continues to shrink Nigeria's demand for gasoline imports , these refineries will be hit hardest. Any refinery that cannot desulphurise all of its gasoline output to the 10ppm required for UK or EU usage will be under intense pressure, as west Africa is presently among the only outlets for European high-sulphur gasoline. Strike support One of the strongest supports for European refining margins in 2025 could come in the form of industrial action if new capacity cuts or closures were to be announced. Refinery workers in the region have shown willing and able in the past to organise large-scale strikes, most emphatically in France. The highest diesel refining margins Argus has ever recorded came in October 2022, when the entire French refining system was shut down by strikes. Another trend to watch out for next year is the continuing shift in the ownership structure of Europe's refining sector. The large integrated oil companies that have dominated the industry for so long have been steadily selling European refining assets to independents and trading firms. The latter are nimbler and able to cut costs more ruthlessly. And with many of them not publicly listed, they are less susceptible to pressure regarding their environmental footprints. There could be more instalments in this story in 2025. Sweden's Preem started accepting bids for its Swedish refining assets in the summer of 2024 and Russia's Lukoil is considering bids for its Burgas refinery in Bulgaria. By Benedict George Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US House votes to avert government shutdown

20/12/24

US House votes to avert government shutdown

Washington, 20 December (Argus) — The US House of Representatives voted overwhelmingly today to extend funding for US federal government agencies and avoid a partial government shutdown. The Republican-controlled House, by a 366-34 vote, approved a measure that would maintain funding for the government at current levels until 14 March, deliver $10bn in agricultural aid and provide $100bn in disaster relief. Its passage was in doubt until voting began in the House at 5pm ET, following a chaotic intervention two days earlier by president-elect Donald Trump and his allies, including Tesla chief executive Elon Musk. The Democratic-led Senate is expected to approve the measure, and President Joe Biden has promised to sign it. Trump and Musk on 18 December derailed a spending deal House speaker Mike Johnson (R-Louisiana) had negotiated with Democratic lawmakers in the House and the Senate. Trump lobbied for a more streamlined version that would have suspended the ceiling on federal debt until 30 January 2027. But that version of the bill failed in the House on Thursday, because of opposition from 38 Republicans who bucked the preference of their party leader. Trump and Musk opposed the bipartisan spending package, contending that it would fund Democratic priorities, such as rebuilding the collapsed Francis Scott Key Bridge in Baltimore, Maryland. But doing away with that bill killed many other initiatives that his party members have advanced, including a provision authorizing year-round 15pc ethanol gasoline (E15) sales. Depending on the timing of the Senate action and the presidential signature, funding for US government agencies could lapse briefly beginning on Saturday. Key US agencies tasked with energy sector regulatory oversight and permitting activities have indicated that a brief shutdown would not significantly interfere with their operations. But the episode previews potential legislative disarray when Republicans take full control of Congress on 3 January and Trump returns to the White House on 20 January. Extending government funding beyond 14 March is likely to feature as an element in the Republicans' attempts to extend corporate tax cuts set to expire at the end of 2025, which is a key priority for Trump. The Republicans will have a 53-47 majority in the Senate next month, but their hold on the House will be even narrower than this year, at 219-215 initially. Trump has picked two House Republican members to serve in his administration, so the House Republican majority could briefly drop to 217-215 just as funding for the government would expire in mid-March. Congress will separately have to tackle the issue of raising the debt limit. Conservative advocacy group Economic Policy Innovation Center projects that US borrowing could reach that limit as early as June. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US government agencies set to shut down

20/12/24

US government agencies set to shut down

Washington, 20 December (Argus) — US federal agencies would have to furlough millions of workers and curtail permitting and regulatory services if no agreement is reached by Friday at 11:59pm ET to extend funding for the government. US president-elect Donald Trump and his allies — including Tesla chief executive Elon Musk — on 18 December upended a spending deal US House of Representatives speaker Mike Johnson (R-Louisiana) had negotiated with Democratic lawmakers in the House and the Senate. Trump endorsed an alternative proposal that Johnson put together, but that measure failed in a 174-235 vote late on Thursday, with 38 Republicans and nearly every Democrat voting against it. Trump via social media today indicated he would not push for a new funding bill. "If there is going to be a shutdown of government, let it begin now, under the Biden Administration, not after January 20th, under 'TRUMP,'" he wrote. There was little to indicate as of Friday morning that Trump, Republican congressional leadership and lawmakers were negotiating in earnest to avert a shutdown. The House Republican conference is due to meet in the afternoon to weigh its next steps. President Joe Biden said he would support the first funding deal that Johnson negotiated with the Democratic lawmakers. "Republicans are doing the bidding of their billionaire benefactors at the expense of hardworking Americans," the White House said. Any agreement on funding the government will have to secure the approval of the House Republican leadership and all factions of the Republican majority in the House, who appear to be looking for cues from Trump and Musk on how to proceed. Any deal would then require the support of at least 60 House Democrats to clear the procedural barriers, before it reaches the Senate where the Democrats hold a majority. The same factors will be in play even if the shutdown extends into early 2025. The Republicans are set to take the majority in the Senate when new Congress meets on 3 January. But their House majority will be even slimmer, at 219-215, requiring cooperation of Democratic lawmakers and the Biden administration. What happens when the government shuts down? Some agencies are able to continue operations in the event of a funding lapse. Air travel is unlikely to face immediate interruptions because key federal workers are considered "essential," but some work on permits, agricultural and import data, and regulations could be curtailed. The US Federal Energy Regulatory Commission has funding to get through a "short-term" shutdown but could be affected by a longer shutdown, chairman Willie Phillips said. The US Department of Energy, which includes the Energy Information Administration and its critical energy data provision services, expects "no disruptions" if funding lapses for 1-5 days, according to its shutdown plan. The US Environmental Protection Agency would furlough about 90pc of its nearly 17,000 staff in the event of a shutdown, according to a plan it updated earlier this year. The Interior Department's shutdown contingency plan calls for the Bureau of Land Management (BLM) to furlough 4,900 out of its nearly 10,000 employees. BLM, which is responsible for permitting oil, gas and coal activities on the US federal land, would cease nearly all functions other than law enforcement and emergency response. Interior's Bureau of Safety and Environmental Enforcement, which oversees offshore leases, would continue permitting activities but would furlough 60pc of its staff after its funding lapses. The US Bureau of Ocean Energy Management will keep processing some oil and gas exploration plans with an on-call group of 40 exempted personnel, such as time-sensitive actions related to ongoing work. The shutdown also affects multiple other regulatory and permitting functions across other government agencies, including the Departments of Agriculture, Transportation and Treasury. By Haik Gugarats Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: More changes for Dated crude benchmark ahead

20/12/24

Viewpoint: More changes for Dated crude benchmark ahead

London, 20 December (Argus) — The crude market has adjusted to the presence of US WTI in the Dated basket, but the past year has revealed some hiccups, suggesting more changes will be needed to the benchmark's structure. WTI has been a part of Dated for more than a year, in which time it has bought much-needed liquidity to a shrinking amount of physical crude underpinning the benchmark, and has encouraged a return of some old, long-absent market participants and the entry of a few new ones. WTI has introduced more transparency to Dated, making it much more easily accessible. While some traders feared the grade would arrest any volatility, which is necessary for trading companies to thrive, this has not happened. Instead, WTI has effectively tied the European market to the US one, with European Ice Brent futures following WTI Nymex futures very closely. But recent months have exposed some flaws, suggesting some more changes to the benchmark are needed. European refiners run as much as 4.5mn b/d of light sweet crude, Vortexa data show. Dated was designed to represent the price moves of this large market via a few crudes produced, and mostly consumed, in the region. But production of several component grades have shrunk because of natural decline at North Sea fields. Production of Brent, the benchmark's namesake grade, has fallen from above 400,000 b/d in 2001 to just 38,000 b/d this year. Forties' exports dropped from more than 600,000 b/d to 175,000 b/d in the same time. Therefore it seemed fair when Dated was set by WTI nearly half of the time, as it is the single largest crude that European refiners buy, accounting for around 14pc of all their supplies. The situation reversed in the last weeks of 2024. WTI has not set Dated since 11 October, with that duty mostly shared between Oseberg, Ekofisk and Troll. But values of these grades — especially Oseberg and Troll — are rather theoretical, due to low liquidity of just 2-5 cargoes a month. It is not uncommon to see bids for those grades in the window, when the scarce supplies loading on the dates covered by bids are already placed. The same applies to Brent, for which loadings range between just 1-2 cargoes every month. WTI and Forties have greater liquidity, allowing them to be more representative of Europe's light sweet market, but their recent marginal role in setting the benchmark price raises a question if grades like Brent, Oseberg and Troll need to be in the basket at all. QPs an almighty relic of the past It might feel counterintuitive that smaller and more expensive grades affect the price of Dated — which is set by the cheapest grade in the basket. But Oseberg, Ekofisk and Troll, which are typically more expensive on a fob basis than is WTI on a delivered-Europe basis, are adjusted by quality premiums (QPs) for benchmarking purposes. QPs are calculated at 60pc of the difference between each grade and the most competitive of the six benchmark grades in the second month prior to the month of loading. The mechanism was made for a basket of crudes that originate in the North Sea and trade on a fob basis. Inclusion of WTI, which in turn is adjusted by intra-European freight to make it a fob price in the North Sea, has widened QPs for the three grades. With price spreads between pricier and cheaper benchmark grades increasingly dependent on volumes of WTI coming to Europe, such an adjustment does not seem to serve its purpose anymore. By Lina Bulyk Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Shell and Prax call off deal on German refinery stake

20/12/24

Shell and Prax call off deal on German refinery stake

Hamburg, 20 December (Argus) — Shell's planned sale of its 37.5pc stake in Germany's 226,000 b/d Schwedt refinery to UK energy firm Prax has fallen through. "Both parties have taken the decision not to proceed with the transaction," Prax said, without elaborating. The refinery will continue to operate as normal, it said. Shell said the companies had reached the end of an agreed timeframe for closing the deal. It said it is still looking to sell the stake. The deal with Prax, which was announced a year ago , was initially due to be completed in the first half of 2024. Shell owns its stake in Schwedt through the PCK joint venture, which also includes Italy's Eni and Rosneft Deutschland, one of the Russian firm's two German subsidiaries. Shell previously attempted to sell its PCK share to Austria-based Alcmene in 2021 but that deal failed to complete after Rosneft Deutschland exercised its pre-emption rights later that year. Rosneft was unable to buy the stake after the German government placed its two German subsidiaries under trust administration in 2022 in the wake of Moscow's invasion of Ukraine, forcing Shell to seek an alternative buyer. In October, a court in Germany rejected a complaint by Rosneft Deutschland against Shell's plan to sell its PCK stake to Prax. By Svea Winter Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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