BZ Credits near 5 year high after 2023 blending

Spanish Market: Biofuels, Oil products, Petrochemicals
12/09/24

Higher volumes of ethylbenzene (EB) into gasoline blending a year ago has led to a credit shortage, pushing prices to their highest levels since March 2021.

In 2022 and 2023, US Gulf coast (USGC) naphtha inventories were long as US naphtha exports declined from 400,000-500,000b/d pre-pandemic to 100,000-200,000b/d.

Over the same span of time, refiners and blenders dropped excess naphtha, a sub-octane blendstock, into the gasoline pool. This blend of gasoline spurred demand for high-octane blendstocks like EB, toluene and mixed xylenes into gasoline blending.

The US Environmental Protection Agency (EPA) requires gasoline with benzene content above a certain threshold to be offset by a credit generated by refining compliant gasoline.

The elevated blending of EB exhausted the supply of benzene credits on the open market, which bled into 2024. Credits traded near 100¢/USG early in 2024 and rose to as high as 190¢/USG over the summer. Values now span buyer interest at 160¢/USG and seller interest at 190¢/USG.

The compliance deadline for benzene credit submission is set for 31 March 2025, in which refiners must mass-balance their production over a given year and either face a credit surplus for being over-compliant or a shortage and therefore will need to procure credits on the open market.

By Jake Caldwell and Matthew Cope

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30/12/24

Viewpoint: Crop-based feedstocks face an uphill battle

Houston, 30 December (Argus) — US biofuel producers' demand for soybean and canola oil has waned recently, a trend that looks unlikely to reverse in the near term because of domestic policy changes that prioritize lower carbon intensity feedstocks. Expectations that a US renewable diesel boom would drive up demand for vegetable oil led agribusinesses to announce new soybean crush plants and expansions in 2022. Seven new soybean crush plants have come online since then, increasing US nameplate capacity by 10pc to 2.91bn bushels/yr, but new policies have diverged from crop-based feedstocks because of their higher carbon intensity. The California Air Resources Board (CARB) voted to adopt new low-carbon fuel standard (LCFS) targets on 6 November. CARB hiked the carbon-intensity reduction target of California's transportation fuels from 20pc to 30pc by 2030, in hopes of balancing the pool of oversupplied LCFS credits, which alone reduced incentives for crop-based fuels. But more critically, the new rules will impose tighter restrictions for crop-based feedstocks, capping a company's LCFS credit generation from vegetable oil-based biofuel at 20pc/yr, starting in 2028 for existing plants. Apart from that, CARB will require producers to track the point of origin of crop-based feedstocks, adding to costs. Soybean oil-based biofuel already fetches a lower LCFS credit value in California, and the additional traceability requirement could further deter biofuel producers. Soybean oil- and canola oil-based fuel made up approximately 20pc of the biodiesel and renewable diesel traded into California during the second quarter of 2024, according to CARB's most recent quarterly data. While soybean oil is the most used feedstock in US biodiesel production, used cooking oil (UCO) leads US renewable diesel production. Biofuels produced with lower carbon-intensity feedstocks like UCO, tallow and distillers corn oil receive generous LCFS credits compared to soybean oil and canola oil. That credit premium has led to a surge in UCO and tallow imports into the US , weighing on demand for soybean oil and leading to outcry from farm groups to restrict foreign feedstocks from qualifying for the Clean Fuel Production Credit (CFPC). More challenging is the expiration of the blenders tax credit (BTC) by the end of 2024, which offers $1/USG to biomass-based diesel regardless of the carbon intensity of their feedstocks. The CFPC, also known as the 45Z credit under the Inflation Reduction Act, will replace the BTC in 2025. Unlike the BTC, the CFPC will provide a tax credit based on how low the carbon intensity of the fuel is to a baseline level of 50kg of CO equivalent/mmBTU. This means crop-based diesel fuels will receive far less credit value starting next year than they received for years under the BTC. Some renewable diesel and biodiesel producers are set to idle production in January amid a lack of clarity on how the tax credit changes will impact fuel and feedstock demand. Biofuel and agriculture groups are also waiting final guidance for "climate-smart agricultural practices" and how that would factor into the final 45Z credit for vegetable oil-based biofuels. These climate-smart practices might include no-till farming, planting cover crops, efficient fertilizer use, and more. The US Department of Agriculture [recently sent guidelines]( https://direct.argusmedia.com/newsandanalysis/article/2636843) on climate-smart agricultural crops used as biofuel feedstocks to the White House for final review, giving the industry some hope that they will qualify for a bigger federal credit under 45Z. But how much crop feedstocks will be able to close the gap with waste feedstocks is unclear. US soybean oil futures fell to 39.52¢/lb as of 27 December, down by 17pc from the start of 2024, weighed down by the prospects of a large South American soybean crop and lackluster demand from the US biofuel industry. The US Department of Agriculture's December World Agricultural Supply and Demand Estimates report projected Brazil's 2024-25 soybean production at 169mn t, 10pc higher compared to the prior year. Argentina soybean production was forecast at 52mn t, up by 7.9pc from a year earlier.Soybean planting is ongoing in both regions, with Brazil at 98pc completion as of 22 December and Argentina at 85pc as of 26 December. Some relief from falling soybean oil future prices has come from increased US soybean oil exports, driven by palm oil prices hitting their highest level since 2022.US export commitments for soybean oil were at 526,630t as of 19 December,nearly surpassing the US Department of Agriculture's currently projected level for 2024-25 marketing year. Mexico is among the major buyers of US soybean oil, but if president-elect Donald Trump imposes 25pc tariffs on imports from Mexico , retaliatory action could affect soybean oil demand. Despite the support from soybean oil export sales, the vegetable oil industry will still need support from the US biofuel industry for prices to recover. And should palm oil prices fall, US soybean oil producers will not be able to rely as much on international markets, leaving them to lean more heavily on fighting for changes in US biofuels policy. By Jamuna Gautam Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: European BD to face tighter supply in 2025

30/12/24

Viewpoint: European BD to face tighter supply in 2025

Houston, 30 December (Argus) — European butadiene (BD) supply is expected to tighten next year, according to market participants, because of scheduled steam-cracker closures and steady demand. European domestic demand this year helped spot prices maintain a 5-7pc premium to the monthly contract price (MCP) until December, when spot prices fell to parity with the MCP. But the lower BD MCP in December protected Europe's position as the lowest cost region after three consecutive price rollovers, even as US and Asian prices fell. Market sentiment is cautiously optimistic on consumer demand for early 2025. One producer noted that interest for spot volumes remains strong into early next year and export sales should remain resilient, especially once buying interest picks up after the Lunar New Year. European BD exports — which primarily flow to the Asia-Pacific region with one-offs to the US— were stable at nearly one shipment per month from April-December, although they were down from the prior year. Europe's BD exports totaled about 109,700 metric tonnes (t) so far this year, but there are ongoing discussions for one additional long-haul shipment loading in late December. That said, the spread between Europe and the US is forecast to remain closer to parity, narrowing the premium European sellers have obtained from moving shipments eastward. Both planned and unplanned cracker turnarounds in the US may raise prices there and open space for Europe's coastal producers to periodically capture preferred access to Asian buyers, independent of logistical bottlenecks. Currency, crackers may pressure demand Currency fluctuations may dent buyers' confidence in the coming year as a stronger US dollar lifts costs for imports, affecting selling prices of European-origin exports in dollar terms. The outcome of the US presidential election rallied the dollar against the euro and other currencies, as markets price in expected tariffs from the new US administration. The comparative strength of the US economy also drove the rally. Strong European domestic demand could undercut potential BD exports as the region's supplies gradually transition from net-long to more balanced, with ongoing structural changes transforming Europe's chemical business. The closure this year of two steam crackers in France and the Netherlands along with the planned shut down of two more crackers in Italy will reduce regional supply of crude C4, a key BD feedstock. Buyers in Italy will need to rely more heavily on Mediterranean imports of crude C4 in tandem with BD to maintain derivative operations. Cracker operators next year are likely to keep throughput curbed while running lighter feedslates, limiting availability of additional volumes of crude C4 and BD. Rail logistical constraints will linger into 2025 with at least three BD consumers depending more on this mode of transportation. The European market could see additional restructuring next year, with at least one producer weighing a review of its asset portfolio. Market participants also are watchful for announcements of unexpected closures. BD producers in the region are also concerned about price volatility for natural gas, citing weaker margins. Dutch TTF on a day-ahead basis averaged €44.66/MWh month-to-date in December, rising by 27pc from the same period a year earlier at €35.24/MWh. Dutch TTF on a day-ahead basis reached a year-to-date peak on 21 November at €48.58/MWh. Higher natural gas prices are partially due to continued complications in gas transport and supply and to accelerated storage withdrawals. By Joshua Himelfarb Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Braskem eyes Brazil rebound

30/12/24

Viewpoint: Braskem eyes Brazil rebound

Sao Paulo, 30 December (Argus) — Major petrochemical producer Braskem aims to recover market share in Brazil in 2025, aided by higher tariffs and new duties on imports, after nearly two years of losses. Braskem posted $935mn of losses last year, with additional losses of $440mn spread across the first three quarters of 2024. Looking ahead to 2025, Braskem expects to increase its domestic share of polyethylene (PE) and polypropylene (PP) markets in Brazil, in part through higher import tariffs. Brazil raised tariffs on imported polymers to 20pc from 12.6pc effective on 15 October. That has already benefited the company, with sales in the fourth quarter expected to increase by $30mn from the previous quarter, Braskem said in November. Additionally, with fewer imports, Braskem's operating rates for plastic resins are expected to rise in the first quarter from around 64pc during the seasonally weak fourth quarter. In addition to the higher tariffs, Braskem is asking Brazil to apply anti-dumping duties on US- and Canada-produced PE. This could reduce the amount of this material coming into Brazil, which has surged in recent years. The case is being investigated. Braskem has requested duties on PE imports of 21.4pc from the US and 26.9pc from Canada. This would mean a 20pc import tax, plus a 21.4pc provisional dumping duty, totaling a 41.4pc tax on materials purchased from the US, and 46.9pc on Canadian PE. To put the numbers in perspective, Brazil imported 1.82mn metric tonnes (t) of PE in January-November, a 45pc increase from the same period a year before. Of the total figure, 77pc was bought from the US and Canada. Brazil's PE imports in November alone fell to 106,200t, 39pc lower than October and the lowest this year, showing the initial impact of the higher import duties. Still, November PE imports were up by 6pc from the same month in 2023 despite the 20pc import duty as well as the US dollar's appreciation to the Brazilian real since October. The Argentina case Braskem has looked to neighboring Argentina to recapture part of the sales lost to imports in Brazil during the year. Braskem's PE sales to Argentina have increased monthly through October, when the company became the largest PE exporter to Argentina. Argentina PE imports in October increased by 39pc from the same month in 2023, reaching 24,300t, a boost attributed to the reduction in the country's import duty to 7.5pc from 12.6pc in September. Brazil sold 46pc of that total, leading the market. North America lost its first position, falling to 42pc in October from 54pc a year earlier. January-October PE imports into Argentina fell to 226,800t, down by 19pc from the same period in 2023, with North America's share at 44pc and South America — represented solely by Braskem — at 39pc. Executive reshuffle As part of its efforts to become more competitive, Braskem reshuffled its executive board, aiming to improve operational efficiency and cost management. The company's new chief executive, Roberto Ramos, stepped into his role in early December, succeeding Roberto Bischoff. Ramos previously served as Braskem's vice president from 2002-2010. Ramos almost immediately announced changes for the positions of chief financial officer, head of the olefins and polyolefins South America unit, Brazil and global industrial operations, and Mexico and US operations. At the time, Braskem said that changes in the board would not affect plans for a possible sale of infrastructure company Novonor's controlling share in Braskem, Novonor said. Braskem's sale is of extreme importance to Novonor as it plans to use any proceeds to repay R14bn ($2.34bn) in debt to creditors. Braskem is the largest producer of thermoplastic resins in the Americas and a leader in biopolymer production. Fellow conglomerate Novonor holds a 38.3pc stake in Braskem with 50.1pc of voting shares, while Brazilian state-controlled oil company Petrobras holds a 36.1pc share with 47pc of voting capital. The remaining 25.6pc is split among other shareholders. By Fred Fernandes Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Chancay port may increase Peru bunker demand

30/12/24

Viewpoint: Chancay port may increase Peru bunker demand

New York, 30 December (Argus) — The opening of Peru's Chancay port next year likely will boost the country's bunkering demand and drive-up competition on the Latin American Pacific coast. Able to accommodate larger ships and vessels equipped with marine exhaust scrubbers, the unveiling of the new facility — likely in the first quarter — could spur demand for very low-sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO). Chancay, which is owned by Chinese state-owned port operating company Cosco Shipping and Peruvian mining company Volcan, has a 17.8-meter depth, compared with a depth of 16 meters in El Callao part, which is south of Chancay near Lima, Peru. Chancay's depth allows it to receive container ships with a capacity of up to 18,000 twenty-foot equivalent units The larger vessels will likely take on around 3,000-5,000 metric tonnes of marine fuel in one port call, according to one source familiar with the Peruvian bunker market. "The port is gradually beginning to receive container vessels, RoRo, and bulk carriers," said Augusto Ganoza, who heads Chilean bunker supplier Agunsa's operations in Peru. "I anticipate an increase in bunkering demand at Chancay, particularly if vessels call at Callao first and then proceed to Chancay, which I believe will be the case for most." But bunker buying appetite in Chancay also will depend on marine fuel prices in China. El Callao VLSFO was assessed at a $85/t premium to Zhoushan, China, in November. That differential tightened from its peak earlier this year at $143/t in April. That differential could temper the expected increase in bunkering demand in Peru. Other market contacts from outside Peru said that any increase in demand stemming from Chancay's opening is unlikely to drag down activity in competing ports such as Panama, largely because of higher prices in Peru and better quality of bunker fuel available in Panama. The VLSFO November monthly average in El Callao was $656/t, which was an $89/t premium to Panama VLSFO. By Luis Gronda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US midcon E15 shift looms again

30/12/24

Viewpoint: US midcon E15 shift looms again

Houston, 30 December (Argus) — A potential reformulation of gasoline in eight midcontinent states to accommodate year-round 15pc ethanol gasoline (E15) could lead to shortages in midcontinent fuel supply and an increase in retail prices in 2025. Approaching the 2025 summer driving season, Illinois, Iowa, Minnesota, Nebraska, Ohio, South Dakota, Wisconsin and, now, Missouri once again await the US Environmental Protection Agency's (EPA) enforcement of compliance on their exclusion from the 1-psi rule. The one-pound waiver in the Clean Air Act allows for a 1 psi higher Reid Vapor Pressure (RVP), a more expensive specification for 9-10pc ethanol blend that allows gasoline during the summer to be 9 RVP. Opting out would lead to the production of two separate grades of gasoline, the standard summer 9 RVP CBOB and a new, non-waiver 7.80 RVP CBOB that could be blended into E15. Many of the refiners and pipelines in the region would serve states that have opted out of the waiver, and states that will remain within the waiver and the lack of uniformity in specifications across the midcontinent would likely cause difficulty in logistics for refiners and pipeline operators. This new 7.80 RVP gasoline formulation would be a boutique grade CBOB that would only be found in the midcontinent during the summer, adding to the difficulty of producing the grade. The differences between the waiver and the non-waiver grades of gasoline would be mostly contained to the summer driving season, according to participants in the US midcontinent gasoline market. American Fuel and Petrochemical Manufacturers (AFPM), a trade association for fuel makers, again petitioned the EPA to delay the midcontinent governors' request until 2026. AFPM cited a new study by US consultancy Baker and O'Brien that forecast a 131,000 b/d decrease in CBOB production if the midcontinent states were to opt out of the waiver. This would be the equivalent of a sustained refinery outage in the region and could lead to supply-cost increases of 9-12¢/USG, up from an estimated 8-12¢/USG a year earlier. Baker and O'Brien's study also indicated that supply costs could be between $700mn and $1.2bn, with the lower end using the 185 days of the summer driving season with no disruptions and the upper end of the range assuming at least a two-week regional supply shortage. The study also said that a delay until 2026 would allow for more time to implement the capital investments needed to fully accommodate the change to non-waiver gasoline in some of the states but noted that many of the improvements needed would take two years to complete. Many refiners and pipeline operators are hesitant to invest when a legislative solution could make the changes unnecessary. US Gulf coast supply lines The US midcontinent relies on the US Gulf coast to provide resupply in the event of a refinery outage in the region or to accommodate increasing demand. The Explorer Pipeline which connects from the US Gulf coast to the US midcontinent is one of the major pipelines to deliver product into the region. Transit time on the pipeline for delivery to the Chicago area is roughly two weeks. The US midcontinent in 2021-2024 averaged receipts of 1.16mn bl/month of finished gasoline during the May-September summer driving season, according to US Energy Information Administration data. The arbitrage for shipping CBOB into the US midcontinent from the US Gulf coast is already on average open across the summer. A change in formulations would likely increase the need for product. Southern US midcontinent CBOB averaged an 8.33¢/USG premium to US Gulf coast product during the summer, over the Explorer's 7.14¢/USG tariff for shipping product from Pasadena, Texas, to Tulsa, Oklahoma. Chicago's Buckeye Complex CBOB averaged a 10.10¢/USG premium to its Gulf coast counterpart, also over the 8.40¢/USG tariff for shipping. History of delays The governors of Iowa, Nebraska, Illinois, Minnesota, Wisconsin, Illinois, Kansas, South Dakota and North Dakota in 2022 requested an exclusion from the 1-pound waiver in the Clean Air Act by claiming the waiver was contributing to air pollution in those states, a request that would require blendstocks for E10 and E15 sold in those states to be reformulated. The EPA granted their request in February 2024, but delayed lifting the waiver for summer 2024, following a slew of petitions from trade associations, refiners and pipeline companies asking for delays. The measure is still pending. President Joe Biden's administration avoided a potential disruption to seasonal E15 sales by tapping emergency powers in April 2022 to allow for the sale of E15 during the approaching summer, citing supply disruptions in the wake of Russia's invasion of Ukraine. EPA issued similar emergency waivers ahead of summer in 2023 and 2024 to facilitate the sale of E15, using the waiver 9 RVP gasoline. The US Congress is considering legislation options to avoid requirements to reformulate gasoline. A stopgap government funding bill that would fund the government through March included language to extend the one-pound waiver to E15 year-round and make the shift by the eight midcontinent states and the attached reformulation unnecessary. But the E15 provision was pulled from the stopgap funding bill following criticisms from President-elect Donald Trump and Telsa chief executive Elon Musk . By Zach Appel Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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