Debate over Brazil ethanol import tariff heats up

: Biofuels
20/08/04

Debate over Brazil's tariff-free ethanol import quota is heating up ahead of a 31 August expiry.

Brazil imposed a 20pc import tariff on ethanol imports in August 2017 in the face of rising imports from the US, with a 600mn liters/year (10,339 b/d) tariff-free quota. Amid pressure from Washington, the tariff-free quota was raised to 750mn l last year.

Brazilian authorities are currently reviewing whether to extend or alter the tariff.

"If the quota is renewed, everyone should have access," Sergio Araujo, president of the fuel importers association Abicom, told Argus, referencing a government decision last year to limit access to the tariff-free quota exclusively to biofuels producers, shutting out importers and distributors that had access to the quota in past years.

Araujo added that ethanol imports are needed no matter what happens to the tariff. "There is a structural production deficit," he said.

In a controversial development last week, the US ambassador to Brazil Todd Chapman met with Brazilian congressman Alceu Moreira, head of the congressional agricultural caucus, to discuss the tariff. According to Moreira's account to local media, Chapman told him that ending the import tariff is "very important" for US president Donald Trump's re-election campaign. A spokesperson for Moreira confirmed the meeting with Chapman but would not comment on the content of the discussion.

Moreira's remarks prompted senior US Democratic lawmakers Eliot Engel and Albio Sires to demand an explanation from Chapman about the allegations that he used his position to seek to benefit Trump's political campaign, which would contravene a US law prohibiting its diplomats from getting involved in US domestic politics. The US embassy in Brasilia denied the allegations, and the State Department in the past year routinely ignored inquiries and subpoena requests from the majority-Democratic House of Representatives.

Sugar deal

Meanwhile, sugar and ethanol producers in northeastern Brazil are demanding that the US expand its tariff-free sugar quota in exchange for maintaining the 750mn l ethanol import quota.

Renato Cunha, head of the sugar, ethanol and bioenergy producers' association Novabio, has argued that Brazil should suspend the tariff-free quota so that negotiations between the two countries can take place in a more organized fashion.

In the first six months of 2020, Brazil imported 821mn l of ethanol, of which 739.5mn l came from the US. Paraguay – the second-largest ethanol supplier – is part of the Mercosur customs agreement, which means it is exempt from the 20pc tariff.

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24/12/30

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 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: US midcon E15 shift looms again

24/12/30

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.

Viewpoint: Consolidation looms in US methanol

24/12/27

Viewpoint: Consolidation looms in US methanol

Houston, 27 December (Argus) — The sale of Netherlands-based OCI's methanol production assets to rival producer Methanex is set to shift the market, with US methanol production most affected by the move. Methanex in the third quarter of 2024 announced the $2bn acquisition, which is expected to close in the first half of 2025. The boards of directors of both companies and OCI's shareholders approved the transaction, but it is subject to regulatory approvals. OCI operates the 1mn t/yr OCI Beaumont plant and is a 50:50 partner in Natgasoline, a 1.7mn t/yr joint-venture plant between OCI and Proman. Methanex operates three plants in the US, all in Geismar, Louisiana. These plants carry a collective 4mn t/yr capacity and represent one-third of total US methanol capacity. At front and center of the acquisition is the Natgasoline plant in Beaumont. Natgasoline, when operational, represents 14pc of domestic production. The plant opened in 2018, and throughout those six years, the plant has seen its share of operational issues. The most recent was a fire at the reformer unit in early October, resulting in a complete shutdown lasting nearly three months. When the deal was announced, Methanex made it clear that the transaction was subject to approvals by OCI shareholders, as well as a pending legal decision between OCI and Proman. "If it is not settled within a certain period, Methanex has the option to carve out the purchase of the Natgasoline joint venture and close only on the remainder of the transaction," the company said in September. Methanex and OCI declined to give further details, as the deal is still pending. Proman did not respond to a request for comment. If it goes through, the acquisition would result in the exodus of OCI from the US methanol market. But the issue of liquidity in the US spot barge market is also looming. Market participants said OCI is a frequent buyer when the Natgasoline plant goes down. In October, when Natgasoline was completely shut down, 340,000 bl of methanol moved for delivery at ITC, the terminal on the Houston Ship Channel where methanol is exchanged, according to Argus data. Market participants expect liquidity to be about the same until some time after the deal closes. When a plant goes down, a producer will emerge in the spot market for purchases. In the longer term, there are some questions around international distribution and where US methanol exports find a home. Methanex is a major exporter to Asia, whereas OCI sells into the European market. The low-carbon methanol sector will also experience some shakeup. OCI is a major participant in the bio-methanol space, selling volume into Europe. Methanex produces carbon-captured methanol, also known as blue methanol, which has not penetrated the EU market. By Steven McGinn Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: SE Asian IMO2 MRs to rise on EU policy

24/12/27

Viewpoint: SE Asian IMO2 MRs to rise on EU policy

London, 27 December (Argus) — Rates for specialised Medium Range (MR) tankers in southeast Asia will be driven up in 2025 by changes in EU policy on deforestation, higher biofuels blending mandates, and new mandates in the aviation sector, all of which will support exports of biodiesels, feedstocks and palm oil. Demand for specialised MRs in southeast Asia is ruled by exports of palm oil to Europe and the US Gulf coast. Palm oil does not usually need to travel on IMO2 ships and can be moved on IMO3 vessels. But it is often moved as a part-cargo of between 5,000-15,000t so is often picked up by IMO2 or IMO2/3 vessels, which are more suitable as they have a higher number of segregated tanks. Kpler data show around 6.3mn t of palm oil was exported from Indonesia and Malaysia to the US Gulf and Europe in the January-November 2024 period. Palm oil deliveries from southeast Asia have been trending lower since 2020 with the product becoming less popular in Europe because of deforestation issues. On 4 December, an agreement was reached between the European Council and the European Parliament to delay the application of the EU Deforestation Regulation (EUDR) by one year. This means larger companies will not be required to prove that their products, such as palm oil, did not contribute to deforestation until 30 December 2025. This has averted a potential rapid loss in palm oil exports to Europe in 2025 but there will probably be a substantial decline in exports later in the year as businesses prepare for the EUDR. In the short term, the decision to postpone the EUDR will probably boost cargo numbers heading to Europe as traders had been holding off for clear regulatory guidance. This will support freight rates for IMO2 MRs in the new year by pulling more IMO2/3s and IMO3s away from the market and by increasing the number of part cargoes available for IMO2s. Feedstock exports ramp up Indonesia and Malaysia also export many specialised products that require IMO2s, such as waste based feedstocks palm oil mill effluent (POME), palm fatty acid distillate (PFAD) and used cooking oil (UCO), as well as finished biodiesels like Ucome. Kpler puts exports of these products to Europe at around 2.8mn t in the first 11 months of 2024, with POME cargoes making up 42pc of all shipments or around 1.2mn t. POME was included in Annex IX Part A of the EU's renewable energy directive (RED), meaning member states can count it twice towards their renewable energy goals. Exports of feedstocks and biodiesels to Europe will probably rise in 2025 as blending mandates rise and because of a reduction in the carryover of emissions tickets in Germany and the Netherlands. Argus estimates European demand for biodiesel Pomeme to rise by around 36pc on the quarter in first three months of 2025 to around 3.5mn litres. Higher requirements for biofuels and feedstocks in Europe should push up demand for products like POME, PFAD, and UCO from Malaysia and Indonesia and support higher IMO2 demand in southeast Asia. But this could be tempered by an Indonesian ruling to include an export permit for POME and PFAD that requires participants to fulfil their cooking oil domestic market obligation. SAF mandates begin in Europe Exports of HVO and SAF from Singapore to Europe also make up part-cargo demand for IMO2 MRs. Argus forecasts European HVO demand will rise by 85pc on the quarter to 2,582mn l in the first three months of 2025. New 2pc SAF mandates in the EU and UK in 2025 will provide a sizable rise in SAF demand. This should spur a jump in cargoes loading from Singapore — driving up demand for part-cargo space on IMO2 MRs. By Leonard Fisher-Matthews Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Policy doubts hit Australia's biofuel sector

24/12/27

Viewpoint: Policy doubts hit Australia's biofuel sector

Sydney, 27 December (Argus) — Australia's biofuels sector has garnered significant interest during the first 2½ years of the current federal Labor government, but uncertainty over key policy support measures has stymied investment and led developers to question whether 2025 will be a year of reform. Labor secured its first majority government since 2007 in the mid-2022 election and subsequently pledged to cut Australia's greenhouse gas emissions by 43pc on 2005 levels by 2030. But the country is not on track to meet this ambitious target because of slow progress decarbonising its electricity and transport sectors. Biofuels have become increasingly popular, given decarbonising hard-to-abate transport industries is seen as key to reaching the 2030 goal. Canberra has committed to a low carbon liquid fuels (LCLF) standard, which the industry views as crucial to enabling investment in processing, refineries and new feedstock crops. In its May 2024 budget, the federal government expressed a desire to develop sustainable aviation fuel (SAF) and renewable diesel (HVO) industries. The outcomes of consultations are expected to be released imminently. On the demand side, a regulatory impact analysis of the costs and benefits associated with mandates for LCLF has been promised, but no timeframe has been released. Domestic refiners Ampol and Viva, as well as BP at its former Kwinana refinery, have expressed interest in biofuel production but all require certainty on demand and supply-side support mechanisms. Australian bioenergy developer Jet Zero and a consortium including major airlines aim to build a 113mn litres/yr plant in the northern part of Queensland state, but initial engineering for the concept has not yet been completed. The consortium plans to convert bioethanol from domestic agricultural byproducts like sugarcane molasses into SAF and HVO through the alcohol-to-jet pathway, with production expected to start in 2027. Jet Zero is also planning to produce SAF through the Hydrotreated Esters and Fatty Acids (HEFA) production pathway in a 50:50 joint venture with Aperion Bioenergy. But the project, which is still in its feasibility stage, is facing hurdles in pricing the feedstock offtake agreements or term contracts. Complicating the picture, heavy transport is now showing greater signs of electrification, as demonstrated by iron ore producer Fortescue's major order for new electric haul trucks. Regardless, the introduction of new safeguard mechanism laws requiring large emitters to reduce pollution has led Australia's fuel companies to increase HVO sales, with 500,000l contracts now signed on a regular basis despite the higher costs. Australian coal mining firm Stanmore has tested a 20pc HVO blend at its Bowen basin Poitrel mine, demonstrating an increasing acceptance of biofuels by customers. Ampol and Viva both sell fatty acid methyl esters (Fame) based biofuel blends at 5pc, 10pc and 20pc. Ampol has two projects in the pipeline: a co-processing facility that would supply up to 60mn l/yr by 2026 and the Brisbane renewable fuels joint venture, which would be a larger project of 0.5bn-1bn l/yr and is due for a final investment decision by late 2025. Viva has been less forthcoming about its plans for biofuel production since it announced a new biofuel blending venture at its 120,000 b/d Geelong refinery in 2023. There will be a federal election no later than mid-May 2025 and both major parties are keen to enhance their green image while supporting regional communities and manufacturing jobs. New regulatory support is crucial if Australia is to transition from supplying significant quantities of feedstock for biofuels to other countries, particularly tallow and canola seed, to producing its own renewable fuels. Australia's increasing reliance on imported oil products and foreign crude, along with a worsening geopolitical backdrop, has started to raise concerns in Canberra. This could be the deciding factor in whether the government will create the required regulatory environment for a local biofuels industry to thrive. By Tom Major and Tom Woodlock Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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