Gatun Lake to reach all-time high in Dec: Panama Canal

Spanish Market: Freight, LPG, Natural gas
08/11/24

Water levels at Gatun Lake that supplies the Panama Canal will reach an all-time high in December, according to forecasts from the Panama Canal Authority (ACP).

This is a significant shift from the start of the year, when water levels were at the lowest January level since 1965 following an extensive El Nino induced-drought in 2023 (see chart).

ACP expects water levels at the lake to hit 88.9ft on 7 December and then 89ft on 18 December, which if confirmed would break the 88.85ft record registered on 5 December 2022.

This time last year water levels were in an 80-82ft range, the lowest on record for the November-December months, which prompted ACP to enforce rigorous transit restrictions that sent shockwaves through LPG and other shipping markets.

The change in water levels reflects the transition from El Nino to La Nina, which typically brings more rainfall to Panama.

Higher water levels from the onset of the rainy season in May allowed the ACP to gradually lift transits back to full capacity by August. This has helped keep auction prices for transits at the larger Neopanamax locks near initial $100,000 bidding levels — and even outpace demand, with many slots turned away without receiving any bids.

Argus' average weekly auction prices have ranged from $112,900 to $209,389 since July, settling at $136,750 by last week. This is a complete turnaround from a year earlier, when shippers paid as high as nearly $4mn for a single transit. On average, Neopanamax auction prices cost $2.1mn in November 2023.

This probably helped support Panama Canal's profits in its financial 2024 year, to $3.45bn from $3.2bn a year earlier despite a 20pc fall in transits because of water-saving restrictions implemented. The ACP said the results reflected strategies such as the "freshwater surcharge, improved water yield through structural and operational upgrades, system enhancements for reservations and auctions, and maritime service operations."

Water levels are forecast to gradually decrease again from 23 December with the start of the dry season, which usually lasts by May.

By Yohanna Pinheiro

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24/12/24

Viewpoint: California dairy fight spills into 2025

Houston, 24 December (Argus) — California must begin crafting dairy methane limits next year as pressure grows for regulators to change course. The California Air Resources Board (CARB) has committed to begin crafting regulations that could mandate the reduction of dairy methane as it locked in incentives for harvesting gas to fuel vehicles in the state. The combination has frustrated environmental groups and other opponents of a methane capture strategy they accuse of collateral damage. Now, tough new targets pitched to help balance the program's incentives could become the fall-out in a new lawsuit. State regulators have repeatedly said that the Low Carbon Fuel Standard (LCFS) is ill-suited to consider mostly off-road emissions from a sector that could pack up and move to another state to escape regulation. California's LCFS requires yearly reductions of transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limits incur deficits that suppliers must offset with credits generated from the distribution to the state of approved, lower-carbon alternatives. Regulators extended participation in the program to dairy methane in 2017. Dairies may register to use manure digesters to capture methane that suppliers may process into pipeline-quality natural gas. This gas may then be attributed to compressed natural gas vehicles in California, so long as participants can show a path for approved supplies between the dairy and the customer. California only issues credits for methane cuts beyond other existing requirements. Regulators began mandating methane reductions from landfills more than a decade ago and in 2016 set similar requirements for wastewater treatment plants. But while lawmakers set a goal for in-state dairies to reduce methane emissions by 40pc from 2030 levels, regulators could not even consider rulemakings mandating such reductions until 2024. CARB made no move to directly regulate those emissions at their first opportunity, as staff grappled with amendments to the agency's LCFS and cap-and-trade programs. That has meant that dairies continue to receive credit for all of the methane they capture, generating deep, carbon-reducing scores under the LCFS and outsized credit production relative to the fuel they replace. Dairy methane harvesting generated 16pc of all new credits generated in 2023, compared with biodiesel's 6pc. Dairy methane replaced just 38pc of the diesel equivalent gallons that biodiesel did over the same period. The incentive has exasperated environmental and community groups, who see LCFS credits as encouraging larger operations with more consequences for local air and water quality. Dairies warn that costly methane capture systems could not be affordable otherwise. Adding to the expense of operating in California would cause more operations to leave the state. California dairies make up about two thirds of suppliers registered under the program. Dairy supporters successfully delayed proposed legislative requirements in 2023. CARB staff in May 2024 declined a petition seeking a faster approach to dairy regulation . Staff committed to take up a rulemaking considering the best way to address dairy methane reduction in 2025. Before that, final revisions to the LCFS approved in November included guarantees for dairy methane crediting. Projects that break ground by the end of this decade would remain eligible for up to 30 years of LCFS credit generation, compared with just 10 years for projects after 2029. Limits on the scope of book-and-claim participation for out-of-state projects would wait until well into the next decade. Staff said it was necessary to ensure continued investment in methane reduction. The inclusion immediately frustrated critics of the renewable natural gas policy, including board member Diane Tarkvarian, who sought to have the changes struck and was one of two votes ultimately against the LCFS revisions. Environmental groups have now sued , invoking violations that effectively froze the LCFS for years of court review. Regulators and lawmakers working to transition the state to cleaner air and lower-emissions vehicles will have to tread carefully in 2025. By Elliott Blackburn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US ethane to be oversupplied for 2025

24/12/24

Viewpoint: US ethane to be oversupplied for 2025

Houston, 24 December (Argus) — US ethane production growth will likely continue to outpace exports and domestic demand into the first half of 2025, keeping US inventories of the natural gas liquid in record territory until export capacity expands late next year. Ethane, which is widely used for ethylene production at US steam crackers, has emerged as the lowest-cost petrochemical feedstock worldwide, spurring infrastructure investments in Asia, particularly China, to receive US ethane exports. Still, US ethane production from gas processing continues to outpace the country's ability to ship it into demand centers in Europe, India and China. Mont Belvieu, Texas, EPC ethane spot prices fell relative to natural gas in 2024 due to record ethane production, leaving ethane stocks oversupplied entering 2025. EPC ethane's premium to its fuel value in Nymex natural gas at the Henry Hub averaged 3.25¢/USG during 2024, 54pc lower than in 2023. It also averaged a 1.75¢/USG premium to its fuel content in the second half of 2024, 77.5pc lower than the same period last year, as spot ethane prices fell on ample supplies. Cheaper natural gas in the Permian basin spurred higher rates of ethane recovery from the natural gas stream and led to a disproportionate rise in ethane production. Spot prices for natural gas at the Waha hub in west Texas across the year averaged -$0.10/mmBtu, with prices remaining negative for eight of nine months from March-November. Prices were consistently positive in 2023, averaging $1.66/mmBtu across the year. Negative Permian gas prices allow ethane recovery from the gas stream at a much lower cost. US natural gas production in 2024 is poised to be steady to slightly down, having averaged 3.14tcf in monthly production from January to September, according to US Energy Information Administration (EIA) data. Meanwhile, ethane production is set to reach a record high for the 11th consecutive year, with monthly production averaging 2.78mn b/d over the same period, up from a 2.65mn b/d average over the whole of 2023. Waha gas prices turned positive in the second half of November and spiked to a multi-month high of $2.56/mmBtu on 2 December, pushing ethane prices to a 13-month high of 25.625¢/USG the following day as downstream buyers bid higher to fulfill contracts for the month . Ethane's rally was brief, however, with Mont Belvieu prices falling to 22.5¢/USG over the next week even as Waha climbed further. Record ethane inventories Ethane inventories hit record highs in 2024, according to EIA data, including a peak of 80.89mn bl in July, 79.5mn bl in August and 77.23mn bl in September. Mont Belvieu ethane has also been in backwardation in December, with January prices at a 2-4c discount to prompt December prices, encouraging selling interest. Sustained cold weather and additional surges in natural gas spot prices may further draw down ethane supplies as higher volumes are rejected into the gas stream, market participants suggest, but as it stands, ethane supplies are likely to remains at or near record highs for the first part of the new year. In the EIA's most recent Short Term Energy Outlook (STEO), the agency projects ethane inventories to end 2024 at 74.1mn bl , which would be a year-end record following a seasonal draw down, and 12.6pc higher than a year earlier. In that same report, including projections for the fourth quarter, domestic consumption of ethane is estimated to be 2.26mn b/d in 2024, up by about 98,000 b/d on the year, and net exports are estimated at 483,000 b/d, up by around 13,000 b/d, whereas production of ethane from natural gas processing is expected to be 113,000 b/d higher at 2.77mn b/d. Playing catch-up If projections are accurate, 2024's record end-of-year ethane supply will exceed the peak previously set in 2020 of 69.6mn bl, based on EIA data. The first VLEC loadings at Energy Transfer's 180,000 b/d Nederland, Texas, export terminal began in January of 2021, resulting in year-end inventories reaching a relative trough in 2022 at 53.55mn bl before rebounding by nearly 50pc in the last two years. Domestic ethane consumption growth has kept pace with or fallen behind growth in production since 2020. Conversely, ethane exports in 2021 jumped by 98,000 b/d to 369,000 b/d on the opening of the Nederland terminal and grew more slowly in 2022 and 2023. Exports of US ethane are limited by infrastructure at receiving terminals abroad and the specialized vessels required to ship the lighter feedstock. Overseas markets are gearing up to take ethane imports over the next few years , and US ethane inventories are likely to continue building ahead of of an expansion to domestic export infrastructure as US production grows further. Enterprise's Neches River export terminal in Beaumont, Texas, is the next scheduled US expansion and is set to complete its first phase in the third quarter of 2025 , adding 120,000 b/d of ethane export capacity. Completion of the second phase in the first half of 2026 would take this capacity to a total of 180,000 b/d. The project, if it remains on track, should curtail ethane inventory growth at the back end of 2025. Until then, abundant supply probably will continue to weigh on spot prices, and the first half of 2025 may see ethane prices fall further, both outright and relative to natural gas, especially since the EIA's outlook also forecasts gas prices to rise through the winter. By Joseph Barbour Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Логистика сухих грузов - Союз ОВС: договорились с РЖД о снятии ограничений

24/12/24

Логистика сухих грузов - Союз ОВС: договорились с РЖД о снятии ограничений

Moscow, 24 December (Argus) — Объем строительства грузовых вагонов по итогам 2024 г. ожидается на уровне 75 тыс. единиц, или на 18% больше, чем годом ранее. Участники рынка опасаются серьезного спада в 2025 г. ввиду ограничений на вывод нового подвижного состава на сеть со стороны РЖД в рамках плана по сокращению рабочего парка на путях общего пользования. Впрочем, отраслевой ассоциации удалось договориться с перевозчиком о совместной работе по выходу нового парка с производственных предприятий. О спросе на вагоны, а также о вызовах, стоящих перед отраслью, рассказал Argus исполнительный директор Союза Объединение вагоностроителей (ОВС) Евгений Семенов. — Сколько вагонов построили российские заводы с начала года? Как изменилось производство по сравнению с 2023 г.? — В 2024 г. вагоностроительная отрасль продолжала наращивать объемы производства: по итогам января — ноября было построено 67,3 тыс. грузовых вагонов, на 17% больше, чем за аналогичный период прошлого года. Спрос на парк оставался устойчивым на протяжении всего года, несмотря на внушительные цены, а также высокую и постоянно повышающуюся ключевую ставку Центрального банка России. Доля выпуска инновационного парка составила 28% — по итогам 11 месяцев было выпущено 19,2 тыс. вагонов с улучшенными характеристиками, на 15% больше, чем годом ранее. Считаем, что это отличный показатель, особенно если принять во внимание тот факт, что один из основных производителей такого подвижного состава, Уралвагонзавод (Свердловская обл.), сейчас работает не на полную мощность по выпуску такой продукции. — На какие вагоны в этом году спрос оказался наиболее высоким? — В процентном выражении наиболее существенный прирост зафиксирован в сегменте цистерн — на 49%, до 11,4 тыс. единиц, из которых 1,7 тыс. бочек были с улучшенными характеристиками, что на 75% больше, чем в январе — ноябре прошлого года. Российские заводы выпустили 8,3 тыс. нефтебензиновых цистерн — на 75% больше, чем годом ранее, и 2,4 тыс. химических — прирост к аналогичному периоду 2023 г. составил 94%. Кроме того, было построено около 700 цистерн для перевозки сжиженных углеводородов. По этому сегменту фиксируется падение на 57% к показателям прошлого года. Общая доля вагонов-цистерн составила 17%, что на 4 процентных пункта больше, чем годом ранее. Отлично выступили производители полувагонов, построившие за 11 месяцев 26,2 тыс. единиц, в том числе 11,2 тыс. инновационных вагонов, на 23% больше, чем годом ранее. Активно рос спрос на крытый подвижной состав, таких вагонов было выпущено 5,2 тыс. — доля в общем объеме производства составила около 8%, прирост к 11 месяцам 2023 г. составил 23%. Хопперы, как и прежде, занимают заметную долю — более четверти — на рынке вагоностроения, однако относительно прошлого года объемы выросли незначительно, на 4%, до 17,6 тыс. единиц. В основном это были вагоны для перевозок зерновых грузов — 15,4 тыс. единиц, или на 24% больше, чем годом ранее. Выпуск минераловозов в этом году снизился на 52%, до 1,9 тыс. единиц, а цементовозов — на треть, до примерно 300 штук. Спрос в указанных сегментах, включая вагоны как для перевозок сухих грузов, так и для налива, был обусловлен общерыночными тенденциями, главным образом — замедлением оборачиваемости подвижного состава. Это потребовало большего числа вагонов даже при сохранении объемов грузовой базы — чтобы не попасть на штрафы по ранее заключенным договорам с грузоотправителями, собственникам приходилось наращивать объемы парка. В сегменте платформ в январе — ноябре произошло падение производства на 36%, до 6,8 тыс. единиц. В том числе было построено 5,8 тыс. фитинговых платформ для перевозок крупнотоннажных контейнеров, на 16% меньше, чем годом ранее, а также 1 тыс. универсальных платформ — снижение составило 71%. Это связано с крупными объемами строительства фитинговых платформ в предыдущие годы, рынок насыщен таким парком. Что касается сегмента универсалок, операторы заявляли о сложившемся профиците парка во втором полугодии. — С какими вызовами отрасль столкнулась в уходящем году? — В этом году, как мы считаем, вагоностроителям удалось решить кадровую проблему. С ней отрасль столкнулась еще в 2022 г., но по-настоящему мы ее прочувствовали в 2023 г. Разумная кадровая политика, организация работы по обучению новых сотрудников — как студентов, так и состоявшихся специалистов, которым требовалась переквалификация в техникумах и непосредственно на предприятиях, применение вахтового метода работы — эти и прочие меры позволили отрасли увеличить суммарные возможности выпуска вагонов до 75 тыс. единиц в год по сравнению с 63,5 тыс. единиц годом ранее. Однако полная реализация этого потенциала пока под вопросом. — Повлияли ограничения со стороны РЖД? — Разумеется. Текущих мощностей безусловно хватает, чтобы построить в декабре почти 8 тыс. вагонов и выйти на 75 тыс. единиц по году. Однако для этого вновь построенный подвижной состав должен покидать производственные площадки и выходить на сеть РЖД. По состоянию на 12 декабря 4,2 тыс. новых вагонов оказались запертыми на заводах — госкомпания не согласовывала их перемещение за пределы предприятий. — Какие перспективы для отрасли видите в наступающем году? — Мы рассматривали на 2025 г. несколько сценариев. С одной стороны, вагоностроительные заводы слышат своих клиентов и продолжают вкладываться в развитие, наращивание мощностей. Скажем так, отрасль готова удовлетворить спрос рынка на уровне 85 тыс. вагонов всех родов в год. С учетом тенденций рынка, грузовой базы и объемов списания устойчивый спрос в период 2025—2026 гг., на наш взгляд, сохранится в сегментах цистерн, полувагонов, крытого парка и хопперов. В частности, заводы уже заключили контракты на производство примерно 15 тыс. цистерн, включая нефтебензиновых и химических. С другой стороны, ограничения со стороны железнодорожной госкомпании пока еще сохраняются. Ввиду этого мы рассматривали различные сценарии: от 50—60 тыс. единиц до 20 тыс. штук — но последний уже откровенно апокалиптический. Здесь уже затрагиваются интересы не только владельцев железнодорожной инфраструктуры и вагоностроителей, но и грузоотправителей из большого числа отраслей, которые рискуют недополучить парк под погрузку и сократить объемы вывоза продукции. Остро ощущалась необходимость сесть за стол переговоров и обсудить дальнейшую стратегию РЖД — отсутствие внятного планирования грозило негативно сказаться на всех участниках рынка грузоперевозок. — Встреча все же состоялась и закончилась, насколько известно, на позитивной ноте? — Да, в середине декабря мы провели встречу с руководством РЖД, по итогам которой удалось достигнуть компромиссов по большинству вопросов. Обсудили необходимость обеспечения непрерывного допуска новых грузовых вагонов, их регистрации и направления адресатам. По состоянию на 19 декабря число новых вагонов, запертых на предприятиях, достигло 5,8 тыс. единиц, однако уже 23 декабря на сеть вышло более 1,4 тыс. вагонов, планирование их отправки с заводов осуществляется в ежесуточном режиме. Согласно предварительному прогнозу по итогам встречи с РЖД, в 2025 г. в России может быть построено около 70 тыс. новых грузовых вагонов. В рамках договоренностей с госкомпанией вагоностроители и собственники подвижного состава сформируют детальный план для обеспечения своевременного выхода их на сеть с учетом имеющихся ограничений пропускной способности железнодорожной инфраструктуры и приоритетов перевозок. — Высок ли уровень диверсификации заводов? Есть ли возможность у вагоностроительных предприятий временно сменить профиль, если что-то пойдет не так? — Маловероятно. С учетом специфики оборудования одним из немногих вариантов является производство контейнеров и танк-контейнеров. И такие попытки уже были. Но в этом сегменте, к сожалению, мы абсолютно неконкурентоспособны с китайскими производителями, у которых в силу огромных объемов производства достаточно низкие цены, которые окупаются уже при первой отправке с импортными грузами в Россию. Хочу отметить и разность подходов к отечественной и импортной продукции: если к танк-контейнеру российского производства предъявляются требования по соответствию техническому регламенту Таможенного союза ТР ТС 032/2013, то для импортного контейнера такие требования не соблюдаются, и он поступает на российский рынок, как тара с грузом, и в дальнейшем здесь эксплуатируется. Мы уже обращали внимание регуляторов на эту проблему, сейчас идет рассмотрение вопросов о разделении кодов ТН ВЭД (товарная номенклатура внешнеэкономической деятельности Евразийского экономического союза) по группам контейнеров для возможности дальнейшего установления требований по проверке соответствия импортных контейнеров ТР ТС 032, чтобы уравнять ситуацию. Отсутствие необходимости подтверждения соответствия указанному техрегламенту для импортного контейнера также сильно уменьшает его себестоимость. В целом текущая ситуация не располагает к выпуску контейнеров в нашей стране: рынок перенасыщен, транспортно-логистические центры в Московском регионе перегружены, ящики некуда девать. Еще одна эфемерная альтернатива — выпуск комплектующих, однако объемы рынка сбыта здесь ограниченны. Так что будем оптимистами: надеемся, что РЖД справится со своими вызовами, увеличит пропускные мощности там, где необходимо, сеть поедет быстрее, и ограничения будут сняты. Со своей стороны мы готовы сотрудничать на всех возможных площадках и оказывать необходимое содействие коллегам. Евгений Семенов Родился в 1980 г. в Москве. В 2002 г. окончил Московский государственный университет путей сообщения по специальности Технология машиностроения. Обучался по президентской программе подготовки управленческих кадров для организаций народного хозяйства России. С 2002 г. по 2012 г. прошел путь от мастера до главного инженера на Люблинском литейно-механическом заводе. С 2012 г. по 2013 г. работал в должности заместителя главного инженера Вагонной ремонтной компании — 1 (ВРК-1), одной из крупнейших по ремонту грузовых вагонов. С 2013 г. по 2016 г. занимал должность начальника управления развития продукции вагоностроения Уралвагонзавода (Нижний Тагил, Свердловская обл.). С 2016 г. по настоящее время является исполнительным директором Союза Объединение вагоностроителей. Союз Объединение вагоностроителей Создан в 2001 г. Объединяет 28 организаций, среди которых ведущие отечественные вагоностроительные предприятия — лидеры на постсоветском пространстве, производители комплектующих и запасных частей к подвижному составу, а также организации ремонтного и научно-исследовательского комплекса. Константин Мозговой Вы можете присылать комментарии по адресу или запросить дополнительную информацию feedback@argusmedia.com Copyright © 2024. Группа Argus Media . Все права защищены.

Viewpoint: US LPG cargo premiums poised to fall

23/12/24

Viewpoint: US LPG cargo premiums poised to fall

Houston, 23 December (Argus) — The booming US LPG export market has fueled record spot fees this year for terminal operators that send those cargoes abroad, but those fees are poised to fall next year as additional export capacity comes online. US propane exports surged over the past two years, hitting an all-time high of 1.85mn b/d in the first quarter of this year, according to data from the US Energy Information Administration (EIA). Terminal fees for spot propane cargoes out of the US Gulf coast hit an all-time high of Mont Belvieu +32.5¢/USG (+$169.325/t) in mid-September. US propane production is expected to grow by another 80,000 b/d in 2025 to 2.22mn b/d while the outlook for domestic consumption is fairly steady, at 820,000 b/d next year — meaning even more propane will be pushed into the waterborne market. But that is dependent on US infrastructure keeping up with the pace of production. US export terminals in Houston, Nederland and Freeport, Texas, have run at or above capacity for the last two years given the thirst for cheaper US feedstock, largely from propane dehydrogenation (PDH) plant operators in China. This demand has created bottlenecks at US docks, and midstream operators like Enterprise, Energy Transfer, and Targa have rushed to ramp up spending on both pipelines and additional refrigeration to stay ahead of the wave of additional production. US gas output spurs LPG exports As upstream producers have ramped up natural gas production ahead of new LNG projects, most producers are counting on LPG demand from international outlets in Asia to offload the ethane and propane the US cannot consume. For the past four years, Asian buyers have been more than happy to oblige. US propane exports to China rose from zero in 2019, when China imposed tariffs on US imports, to an average of 1.36mn metric tonnes (t) per month in January-November 2024, according to data from analytics firm Kpler, making China the largest offtaker of US shipments. US exports to Japan averaged 480,000t per month throughout most of 2024, and exports to Korea averaged 460,000t per month in the first 11 months of 2024. China, Korea, and Japan received 52pc of US propane exports in 2024, up from 49pc in 2020, according to data from Vortexa. Strong demand in Asia has kept delivered prices in Japan high enough to sustain an open arbitrage between the US and the Argus Far East Index (AFEI). Forward-month in-well propane prices at Mont Belvieu, Texas, have remained well below delivered propane on the AFEI. In 2020, Mont Belvieu Enterprise (EPC) propane averaged a $143/t discount to delivered AFEI — a spread that has only widened as additional PDH units in Asia have come online. During the first 11 months of 2024, the Mont Belvieu to AFEI spread averaged a hefty $219/t, leaving plenty of room for wider netbacks in the form of higher terminal fees for US sellers, especially as a wave of new VLGCs entering the global market has left shipowners with less leverage to take advantage of the wider arbitrage. The resulting wider arbitrage to Asia has kept US export terminals running full for the last two years. So when a series of weather-related events and maintenance in May-September limited the number of spot cargoes operators could sell and delayed scheduled shipments, term buyers willing to resell any of their loadings could effectively name their price. This spurred the record-high premiums for spot propane cargoes in September. New projects may narrow premium An increase in US midstream firm investments in additional dock capacity and added refrigeration in the years ahead could narrow those terminal fees, however. Announced projects from Enterprise and Energy Transfer, in particular, will add a combined 550,000 b/d of LPG export capacity out of Houston and Nederland, Texas by the end of 2026. Enterprise's new Neches River terminal project near Beaumont, Texas, will add another 360,000 b/d of either ethane or propane export capacity in the same timeframe. These additions are poised to limit premiums for spot cargoes by the end of 2025. Already, it appears the spike in spot cargo premiums to Mont Belvieu has abated for the rest of 2024. Spot terminal fees for propane sank to Mont Belvieu +14¢/USG by the end of November. The lower premiums come not only as terminals resume a more normal loading schedule, but at the same time a surplus of tons into Asia ahead of winter heating demand has narrowed the arbitrage. The spread between in-well EPC propane at Mont Belvieu fell from $214.66/t to $194.45/t during November. A backwardated market for AFEI paper into the second quarter of 2025 means US prices are poised to fall more in order to keep the spread from narrowing further. By Amy Strahan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US tax fight next year crucial for 45Z

23/12/24

Viewpoint: US tax fight next year crucial for 45Z

New York, 23 December (Argus) — A Republican-controlled Congress will decide the fate next year of a federal incentive for low-carbon fuels, setting the stage for a lobbying battle that could make or break existing investment plans. The 45Z tax credit, which offers greater subsidies to fuels that produce fewer emissions, is poised to kick off in January. Biofuel output has boomed during President Joe Biden's term, driven in large part by west coast refiners retrofitting facilities to process lower-carbon fats and oils into renewable diesel. The 45Z tax credit, created by the 2022 Inflation Reduction Act (IRA), was designed to extend that growth. But Republicans will soon control Washington. President-elect Donald Trump has dismissed the IRA as the "Green New Scam", and Republicans on Capitol Hill, who had no role in passing Biden's signature climate legislation, are keen to cut climate spending to offset the steep cost of extending tax cuts from Trump's first term. Biofuels support is a less likely target for repeal than other climate policies, energy lobbyists say. But Republicans have already requested input on 45Z, signaling openness to changes. Republicans plan to use the reconciliation process, which enables them to avoid a Democratic filibuster in the Senate, to extend tax breaks that are scheduled to expire in 2025. "I want to place our industry in a place to make sure that the biofuels tax credit is part of reconciliation," said Kailee Tkacz Buller, president of the National Oilseed Processors Association. But lawmakers "could punt the biofuels discussion if stakeholders aren't aligned." A decade ago, biofuel policy was a simple tug-of-war between the oil and agriculture industries. Now many refiners formerly critical of the Renewable Fuel Standard produce ethanol and advanced biofuels themselves. And the increasingly diverse biofuels industry could complicate efforts to present a united front to Congress. Farm groups worry about carbon intensity scoring hurting crop demand and have lobbied to curtail record-high feedstock imports, to the chagrin of some biorefineries. Those producers are no monolith either: Biodiesel plants often rely more on local vegetable oils, while ethanol producers insist on keeping incentives that do not discriminate by fuel type and some oil majors would back subsidizing fuels co-processed with petroleum. Add airlines into the picture, which want greater incentives for aviation fuels, and marketers frustrated by 45Z shifting subsidies away from blenders — and the threat of fractious negotiations next year becomes clear. There are options for potential compromise, according to an Argus analysis of comments submitted privately to Republicans in the House of Representatives, as well as interviews with energy lobbyists and tax experts. The industry, frustrated by the Biden administration's delays in clarifying 45Z's rules, might welcome legislative changes that limit regulatory discretion regardless of what agency guidance eventually says. And lobbyists have floated various ways to appease agriculture groups without kneecapping biorefineries reliant on imports, including adding domestic content bonuses, imposing stricter requirements for Chinese-origin used cooking oil, and giving preference to close trading partners. Granted, unanimity among lobbyists is hardly a priority for Republican tax-writers. Reaching any consensus in the restive caucus, with just a handful of votes to spare in the House, will be difficult enough. "These types of bills always come to down to what's the most you can do before you start losing enough votes to pass it," said Jeff Navin, cofounder of the clean energy advocacy firm Boundary Stone Partners and a former House and Senate staffer. "Because they can only lose a couple of votes, there's not much more beyond that." And the caucus's goal of cutting spending makes an industry-wide goal — extending the 45Z credit into the 2030s — even more challenging. "It is a hard sell to get the extension right away," said Paul Winters, director of public affairs at Clean Fuels Alliance America. Climate costs Cost concerns also make less likely a simple return to the long-running blenders credit, which offered $1/USG across the board to biomass-based diesel. The US Joint Committee on Taxation in 2022 scored the two-year blenders extension at $5.5bn, while pegging three years of 45Z at less than $3bn. An inconvenient reality for Republicans skeptical of climate change is that 45Z's throttling of subsidies based on carbon intensity makes it more budget-friendly. Lawmakers have other reasons to not ignore emissions. Policies elsewhere, including California's low-carbon fuel standard and Europe's alternative jet fuel mandates, increasingly prioritize sustainability. The US deviating from that focus federally could leave producers with contradictory incentives, making it harder to turn a profit. And companies that have already sunk funds into reducing emissions — such as ethanol producers with heavy investments in carbon capture — want their reward. Incentives with bipartisan buy-in are likely more durable over the long run too. Next time Democrats control Washington, liberals may be more willing to scrap a credit they see as padding the profits of agribusiness — but less so if they see it as helping the US decarbonize. By Cole Martin Tax credit changes 40A Blenders Tax Credit 45Z Producers Tax Credit $1/USG Up to $1/USG for road fuels and up to $1.75/USG for aviation fuels depending on carbon intensity For domestic fuel blenders For domestic fuel producers Imported fuel eligible Imported fuel not eligible Exclusively for biomass-based diesel Fuels that produce no more than 50kg CO2e/mmBTU are eligible Feedstock-agnostic Carbon intensity scoring incentivizes waste over crop feedstocks Co-processed fuels ineligible Co-processed fuels ineligible Administratively simple Requires federal guidance on how to calculate carbon intensities for different feedstocks and fuel pathways Expiring after 2024 Lasts from 2025 through 2027 Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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