October a record month for AOM Ucome trading

Spanish Market: Biofuels
01/11/24

Used cooking oil methyl ester (Ucome) had its strongest month yet on the Argus Open Markets (AOM) deal initiation platform in October, with 107,000t changing hands.

Ucome activity more than quadrupled on the month after only 26,000t traded in September. Ucome traded in October made up 19.6pc of total Ucome volumes traded in 2024 so far.

For all three products combined — RME, Ucome, and Fame 0 — October 2024 was the most active month of trading since August 2023, and before that, July 2022. RME trade totalled 145,000t, a 150pc increase from September, and 104,000t of Fame 0 changed hands, a 108pc increase. In total, 356,000t of biodiesel was traded in October, up from 134,000t in September and 143,000t in August.

The rise in activity aligned with the start of the new quarter and some major news for the market. At the end of September, Germany proposed a draft bill that would prevent excess greenhouse gas (GHG) quota tickets from being carried into 2025 and 2026. GHG quota tickets are the compliance mechanism for the GHG reduction mandate that governs biofuels usage, and the market is heavily oversupplied at the moment, pressuring down prices and encouraging companies to buy and use tickets rather than physical biofuels. By starting from scratch for 2025, participants except demand to pick up substantially, although until the end of 2024 tickets will remain the cheaper option.

The immediate response to the announcement of the draft bill in Germany was a surge of activity in the related paper markets for the fourth quarter, a final piece encouraging physical trading. As of the last day of the October contract, open interest stood at 1,742 lots for Ucome, 1,167 lots for Fame 0, and 2,472 lots for RME. Total open interest for the fourth quarter was 4,655 lots for Ucome, 4,396 lots for Fame 0, and 7,529 lots for RME, according to Ice data. Many companies with strong paper positions will manage exposure by trading some portion of the total volume in the spot market.

The Dutch government confirmed that the country's ticket carry-over levels will be reduced, which should also increase biofuels demand next year. Biofuels mandates throughout Europe go up at the start of the new year, along with the introduction of ReFuel mandates for aviation and shipping.

This all combines for a much more positive outlook for 2025 demand than the market expected, as well as stronger competition for supply. The increase in trading started a quarter ahead, as companies look to take advantage of the changes, prepare for 2025, and still cover any shorts until the end of this year.

European producers have been struggling with low production margins, which has slowed down production levels. European supply has tightened because of this and imports are down because of provisional anti-dumping duties on China, which may have also encouraged some companies into the window to find product.

In the macroeconomic environment, volatility in energy markets following increased tensions in the Middle East also prompted some trading, as the Ice gasoil contract underpins European biodiesel prices and has closely followed military developments. Some participants reported an overall higher risk appetite for the fourth quarter after several months of very subdued market activity.

By Simone Burgin

Monthly AOM trade volumes t

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31/10/24

US biofuel feedstock use dips in August

New York, 31 October (Argus) — Renewable feedstock usage in the US was down slightly in August but still near all-time highs, even as biomass-based diesel production capacity slipped. There were nearly 3.5bn lbs of renewable feedstocks sent to biodiesel, renewable diesel, and sustainable aviation fuel production in August this year, up from fewer than 3bn lbs a year prior, according to the US Energy Information Administration's (EIA) latest Monthly Biofuels Capacity and Feedstocks Update report. August consumption was 0.4pc below levels in July and 0.5pc below record-high levels in June. US soybean oil consumption for biofuels rose to 39.3mn lbs/d in August, up by 2.1pc from a year earlier on a per-pound basis and up 6.9pc from a month prior. The increase was entirely attributable to increased usage for renewable diesel production, with the feedstock's use for biodiesel slipping slightly from July. Canola oil consumption for biofuels hit 14.2mn lbs/d, up by 58.1pc from a year prior on a per-bound basis but still 19.4pc below record-high levels in July. Distillers corn oil usage, typically less volatile month-to-month than other feedstocks, bucked that trend to hit a high for the year of 13.6mn lbs/d in August. That monthly consumption is up 13.6pc from a year earlier and 20.9pc from a month earlier. Among waste feedstocks, usage of yellow grease, which includes used cooking oil, rose to 22.4mn lbs/d in August, up 13.8pc from levels a year prior and 5.8pc from levels in July. Tallow consumption for biofuels was at 18.6 mn lbs/d over the month, an increase of 27.8pc from August last year but a decrease of 13.4pc from July this year. Production capacity of renewable diesel and similar biofuels — including renewable heating oil, renewable jet fuel, renewable naphtha, and renewable gasoline — was at 4.6bn USG/yr in August, according to EIA. That total is 24.1pc higher than a year earlier and flat from July levels. US biodiesel production capacity meanwhile declined to fewer than 2bn USG/yr over the month, down by 4.3pc from a year earlier and 1.3pc from a month earlier. US biomass-based diesel production capacity has expanded considerably in recent years, but refiners have recently confronted challenging economics as ample supply of fuels used to comply with government programs has helped depress the prices of environmental credits and hurt margins. The industry is also bracing for changes to federal policy given this year's election and a new clean fuel tax credit set to kick off in January. That credit, known as "45Z", will offer a greater subsidy to fuels that produce fewer greenhouse gas emissions, likely encouraging refiners to source more waste feedstocks over vegetable oils. That dynamic is already shaping feedstock usage this year, with Phillips 66 executives saying this week that the company's renewable fuels refinery in California is currently running more higher carbon-intensity feedstocks ahead of a shift to using more waste early next year. By Cole Martin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US court set to weigh biofuel blend mandates

31/10/24

US court set to weigh biofuel blend mandates

New York, 31 October (Argus) — A US court on Friday will weigh some novel issues that could affect enforcement of the Renewable Fuel Standard (RFS), the federal program that sets minimum biofuel blending levels for domestic motor fuel supplies. The Environmental Protection Agency (EPA) in last year's RFS regulation required refiners and importers to blend increasing volumes of renewable fuel from 2023-2025. But the rule differed from past obligations in a crucial way. While the RFS law set annual volume targets of cellulosic, advanced and conventional biofuels through 2022, it tasked EPA with setting volumes in subsequent years by balancing factors such as the environmental impacts of biofuels, energy security, expected production and consumer costs. In a consolidated case to be heard Friday by the US Court of Appeals for the District of Columbia Circuit, environmental groups and oil refiners are separately challenging aspects of how the EPA applied those factors in setting 2023-25 volumes. The court has previously affirmed the legality of many RFS rules. "Past cases always give you some perspective on how the DC court might see it," said Susan Lafferty, a partner at law firm Holland & Knight. "But the DC court could also say, ‘not relevant anymore because this is a different part of the statute that we are working with.'" Refiners say EPA misapplied the criteria, upping compliance costs more than necessary by setting targets for cellulosic and conventional biofuels too high and targets for advanced biofuels too low. They also challenge EPA's balancing of potential impacts, noting that the agency assumed that all parties can easily pass the costs of compliance on to consumers. In a separate case this year, the DC Circuit discarded EPA rejections of program waiver petitions, in part because judges disagreed that refiners can easily pass on the cost of Renewable Identification Number (RIN) credits used to show compliance with the RFS program. EPA used this pass-through theory in the 2023-2025 rule "like a magic wand, waving it around to dismiss any argument that the rule will cause harm", the American Fuel and Petrochemical Manufacturers and small refineries said in a case filing. Lafferty expects the judges at Friday's hearing to probe the extent to which EPA's volumes relied on this pass-through theory, "a policy that now this very court has gutted." Environmentalists have similarly targeted EPA's cost analysis, arguing that the agency downplayed the environmental drawbacks of growing crops for energy. The Center for Biological Diversity and the National Wildlife Federation argue that EPA has legal discretion to set post-2022 volumes for corn- and soybean-derived biofuels as low as zero. EPA counters that the court owes the agency deference in evaluating scientific data and making predictive judgments. And biofuel groups that have intervened argue that the program is designed to require more biofuel production even if there are no formal volume requirements in law anymore. While EPA's post-2022 authority to set blend mandates is a new issue, the DC Circuit has handled various cases about EPA's implementation and has generally been deferential to the agency's volume decisions. The court this year upheld 2020-2022 targets. In a 2019 decision, the court kept volumes in place , despite telling EPA to more deeply weigh endangered species impacts. While the court might take issue with some aspects of EPA's latest rule, including the agency's lateness in finalizing volumes, judges could again be reluctant to upend fuel markets if they find only small oversights. Depending on how skeptical judges appear about EPA's arguments on Friday, the case could cause concern for biorefineries. A decision is expected next year, meaning any order for EPA to better justify its decisions or go back to the drawing board would likely fall to the next president's administration. On the panel for Friday's hearing are two judges familiar with the program: Democratic appointee Cornelia Pillard, who wrote the opinion this year upholding 2020-2022 blend mandates, and Republican appointee Gregory Katsas, who dissented and said those volumes were excessive. The third judge on the panel is Democratic appointee J. Michelle Childs. RINcrease or decrease RIN market activity has thinned as participants await the results of the court case and November's presidential election. In its latest rule, EPA aimed to provide a clearer picture over a longer timeline by finalizing volumes over multiple years. But the agency underestimated the growth in renewable diesel production, partly because of unexpectedly high feedstock imports. The result has been persistent oversupply, which took D4 biomass-based diesel credit prices from around 150¢/RIN in spring last year to as low as 42¢/RIN a year later according to Argus assessments. Multiple refiners have consequently dialed back biofuel production. In the past, RIN prices have proven sensitive to legal developments as traders anticipate supply and demand shifts. Prices softened this summer after the DC Circuit vacated small refinery waivers, leaving it unclear whether many facilities would have to buy RIN credits at all. By Cole Martin and Matthew Cope Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cepsa rebrands to Moeve to reflect sustainability shift

30/10/24

Cepsa rebrands to Moeve to reflect sustainability shift

Madrid, 30 October (Argus) — Spain-based integrated energy company Cepsa has changed its name for the first time in its 95 years of existence, to Moeve (pronounced Moo-eh-vey). The change reflects Cepsa's transition "in which the majority of profits will come from sustainable activities by the end of this decade," said chief executive Maarten Wetselaar. Cepsa has sold nearly 70pc of its oil and gas production over the past two years, including its stakes in upstream assets in Abu Dhabi , in Peru and in Colombia . It has retained stakes in light crude and gas production in Algeria, which has a significantly lower carbon footprint. The company reported provisional working interest crude production of 36,000 b/d in July-September, down from 80,000 b/d in the same period of 2021. Since then it has announced an €8bn ($8.65bn) investment strategy to decarbonise much of its business through ventures such at the planned 2GW Andalusian Hydrogen Valley , announced at the end of 2022, together with second-generation biofuels, biomethane and renewables development. Cepsa, or Compañia Espanola de Petroleos SA, was founded in 1929. It has been been majority controlled by Abu Dhabi sovereign wealth investors IPIC and Mubadala Investment Company since 2011. US investment fund Carlyle acquired 37pc of the firm in 2019. By Jonathan Gleave Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Rodeo renewable jet unlikely in 4Q: Phillips 66

29/10/24

Rodeo renewable jet unlikely in 4Q: Phillips 66

Houston, 29 October (Argus) — Phillips 66's renewable fuels refinery in Rodeo, California, plans to start producing renewable jet fuel by the first quarter of next year and is now running higher carbon intensity (CI) feedstocks to produce renewable diesel (RD). "We're currently running off higher CI feedstocks for the plant as we prepare for the production tax credit next year," Phillips 66's executive vice president of marketing and commercial Brian Mandell said on an earnings call today, referring to the Inflation Reduction Act's (IRA) 45Z tax credit . He said it was not likely renewable jet fuel would be produced before year-end. The plant successfully produced sustainable aviation fuel (SAF) in September, chief executive Mark Lashier said on the call. "We will fully intend to be a supplier of sustainable aviation fuel to the marketplace," he said. The company's renewable fuels business logged a $116mn loss in the third quarter compared to a profit of $22mn in the same three months of 2023, according to earnings released today . Still, Phillips 66 thinks renewable refining margins have room to widen "into the fourth quarter and beyond," Mandell said. Low feedstock prices, limited imports to the US, a tight fossil diesel market on the west coast and "stronger" credit markets will widen RD margins, according to Mandell. By Nathan Risser Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

China-Strait bulk UCO price spread hits record high

28/10/24

China-Strait bulk UCO price spread hits record high

Shanghai, 28 October (Argus) — The fob-basis price spread between biofuels feedstock used cooking oil (UCO) from China and Malaysia has widened to a record high of almost $80/t, as UCO fob Strait of Malacca rose, while UCO fob China reached a nine-month low. The UCO fob Strait of Malacca assessment trended upwards from late September onwards to reach a one-year high of $895/t on 14 October. The increase in Strait of Malacca UCO has been fuelled by high palm oil prices and increasing export restrictions on palm oil residues and UCO from Indonesia , making collection costs higher. Malaysian crude palm oil futures settled at their highest in over two years at the end of last week, driven by concerns over reduced output from the largest global producer Indonesia and a depreciating local currency. Palm oil prices are now well above values for waste oils, which tends to tighten supplies of UCO in southeast Asia as there is less incentive for restaurants and factories to sell their oil to collectors after minimal frying. In contrast, the UCO fob China price fell to a nine-month low of $815/t on 15 October and remained at this level for over a week, before subsequently rising slightly. The fall widened its discount to the UCO fob Strait of Malacca to a record high, although this also takes into consideration the cheaper freight rate from Malaysia compared with China to Europe. The EU's provisional anti-dumping duties (ADD) on Chinese biodiesel and hydrotreated vegetable oil (HVO) effective from 16 August have weighed on Chinese UCO prices, even though the feedstock is not subject to the duties. Some Chinese UCO methyl ester (Ucome) producers have ceased production in light of a closed arbitrage with their main buyers and have hence reduced feedstock collection activities, increasing UCO availability in China. Furthermore, buying interest from the US market — which has become an even bigger export destination for China's UCO than Netherlands — has slowed down while biofuels producers there wait for pending guidance from the Environmental Protection Agency on the "45Z" producer tax credit , which could prevent biofuels made from imported feedstocks from receiving incentives from 2025. Concerns have also emerged among some buyers over the new use of a process known as "glycerolysis" in China, which has made some buyers more cautious about buying China-origin UCO, in turn weighing on prices. Some market participants reported that glycerolysis has been used by some companies in China to lower the free fatty acids (FFA) of low-quality UCO artificially, while also destroying the triglycerides that are needed for good Ucome yields. Some buyers are now asking for a guarantee of minimum 85pc triglycerides for Chinese UCO cargoes to try to protect against this. But a rise in demand from European biodiesel producers ahead of higher mandates next year and improving Ucome biodiesel production margins have driven firmer UCO buying interest from Europe over the past week. And the considerable price discount for Chinese UCO has caused buyers to purchase there instead of in Malaysia. The UCO fob China price has since risen, and in the latest assessment on 25 October, regular bulk China UCO increased by $15/t to a midpoint of $830/t fob compared with the nine-month low, narrowing the spread to Strait of Malacca to $30/t. UCO fob China vs fob Strait of Malacca $/t Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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