Viewpoint: US midcon E15 shift looms again

: Biofuels, Oil products
24/12/30

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 salesby 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

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25/01/02

Pakistan's NRL issues tender to sell January bitumen

Singapore, 2 January (Argus) — Pakistani refiner NRL is offering bulk and drummed bitumen cargoes totalling 8,000t for loading over January, in their latest export tender. The refiner is seeking fixed price bids on a fob Karachi basis for 2,000t of pen 80/100 drummed bitumen cargo and 6,000t of pen 60/70 bulk bitumen cargo. The drummed cargo tender is expected to be closed on 9 January and loaded within 30 days from the date of award, while the bulk cargo tender will close on 6 January, sources involved with the tender process said. The refiner had awarded its December-loading cargo to Switzerland-based trading firm Element Alpha, after withdrawing two previous tenders for loading over October and November. Pakistani cargoes are typically sought by international bitumen traders for delivery into South Africa. By Sathya Narayanan Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Viewpoint: USGC gasoline oversupply unlikely to ease

24/12/31

Viewpoint: USGC gasoline oversupply unlikely to ease

Houston, 31 December (Argus) — Refinery closures and increased export opportunities in the US Gulf coast (USGC) will likely do little to alleviate an oversupply of regional gasoline in early 2025 as refining capacity in Mexico expands. LyondellBasell's 264,000 b/d Houston refinery tentatively plans to shut down during the first quarter of 2025 after previously delaying an end to production from the final quarter of 2023. Though some refiners welcome refinery shutdowns to provide a lift to falling margins , market participants have suggested that the upcoming closures will not considerably reduce the oversupply of product in the region. The Gulf coast's weekly average output totaled 2.2mn b/d in 2024, over one-fifth of the US's 9.7mn b/d weekly average. LyondellBasell's Houston refinery closure could cause total weekly production in the region to contract by as much as 12pc if it goes as planned. Product supplied, a proxy used by the US Energy Information Administration (EIA) for finished motor gasoline demand nationwide, has not recovered to pre-pandemic levels. Demand had fallen to fresh lows of 8.15mn b/d in 2020, when Covid-19 pandemic restrictions limited travel, but marginally regained strength after those measures were lifted. In the five years prior to the pandemic, gasoline product supplied ranged between a yearly average of 8.86mn-9.34mn b/d. In 2024, it averaged 8.85mn b/d, just below the pre-pandemic five-year average, but has grown for a second consecutive year after hitting a record low of 8.1mn b/d for 2022. In its energy outlook for 2025, the Louisiana State University's (LSU) Center for Energy Studies said it expected domestic demand to remain relatively flat, but that increased US net exports could shave off excess supply. Gulf coast gasoline stockpiles have exhibited steady growth since 2022, largely outpacing demand for the product, EIA data indicates. In the five years prior to the Covid-19 pandemic, weekly inventory averages ranged between 75mn-83mn bl. After hitting a record weekly average of 86.9mn bl in 2020, stockpiles have hovered above the pre-pandemic range for every year since, with 2024 weekly average inventory levels totaling 83.1mn bl. Gasoline prices peaked in 2022 due to rebounding gasoline demand since the pandemic. Though prices remain above the $2/USG mark since 2020, cash prices for 87 conventional finished gasoline in 2024 averaged 68¢/USG lower than in 2022 and 23¢/USG less than 2023's average, further depressing refining margins from a year earlier. Exports: a closing door Both exports to Latin America and domestic shipments to the US east coast have historically absorbed excess supplies of Gulf coast gasoline, but increased refining capacity and a potential trade war between the US and Mexico could choke off exports to Latin America. Market participants point to exports as a favorable outlet for excess gasoline supply with export data showing a strong correlation with the stock build in the Gulf coast since 2022. The US Gulf coast exported an average of 251,000 b/d in 2024 after four consecutive years of gains, according to trade analytics firm Kpler. Export levels out of the region are more than double the pre-pandemic four-year average of 121,750 b/d. However, Pemex's 400,000 b/d Dos Bocas refinery in Mexico is projected to come on line in late 2025 and will likely reduce the Gulf coast's share of the gasoline export market. Mexico imports nearly 90pc of its gasoline from the US , while roughly 82pc of Gulf coast exports land in Mexico, according to separate Kpler data. Mexican president Claudia Sheinbaum has continued expanding Mexico's energy independence, with 2024 marking the closest in nine years that gasoline production has approached import levels . Furthermore, US president-elect Donald Trump's potential 25pc tariff on imports from Canada and Mexico, including oil and gas, could spark retaliatory tariffs from Mexico, previously threatened by Sheinbaum. Should Trump go through with the tariffs when he takes office on 20 January, the tariffs between both countries would cut off gasoline exports and leave stockpile levels in the Gulf coast significantly higher. By Hannah Borai Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Changing incentives shift RD and SAF in 2025

24/12/31

Viewpoint: Changing incentives shift RD and SAF in 2025

Houston, 31 December (Argus) — Federal guidance on the US Inflation Reduction Act's (IRA) 45Z production tax credit will be a lifeline for domestic renewable fuels producers and a key determinant of production splits from 2025 onward, with the largest awards currently earmarked for aviation fuels. Although preliminary guidance and registration protocols were released earlier in 2024, the industry awaits the impending signal that will replace the IRA's section 40B blender's tax credit. The expiring blender's tax credit (BTC) was instrumental in the ramp-up of US renewable diesel production in recent years. Renewable diesel comprised about 65pc of California's overall diesel pool by the first quarter of 2024, but that growing availability has come at the expense of the value of several of the fuel's financial incentives. Valuation of California's prompt Low Carbon Fuel Standard (LCFS) credits has trended lower across the past four years. Prices in May reached an almost nine-year low of $41/t and remained depressed through the summer, during which both renewable diesel imports and domestic production hit all-time highs. Preliminary guidance on the 45Z credit proposes aviation fuels earn $1.75/USG while the maximum for road fuels would reach only $1/USG. Fuels with lower carbon intensity measured by the complete production process will receive greater rewards, in contrast to the expiring blenders tax credit (BTC). This new opportunity, originally announced in 2022, signaled the possibility of increased SAF production and innovation. A flurry of developers have moved forward with SAF projects since, while major renewable fuel producers eye converting RD capacity to SAF. With similar refinery tooling, catalysts, and feedstock requirements, the ability to produce both fuels and toggle between the two has the potential to re-inflate producers' margins. Another opportunity enabled by SAF production as opposed to road fuels is the ability to monetize SAF certificates (SAFc) as a part of the production process. To offset the costs associated with production and act as an added profit generator, existing SAF producers partner with corporate clients and public sector entities looking to offset emissions from business activities like air travel. Under SAFc agreements, a producer will sell the physical fuel to the air carrier, while the environmental attributes go to the corporate client. The physical commodity and certificates are decoupled using a "book and claim" scheme, which creates a digital registry that tracks associated emissions. Renewable diesel production is for now concentrated among biorefineries throughout the US Gulf coast, Midwest and west coast. US capacity trended higher in 2024, largely on the back of conversions, and the supply balance from 2025 onward will likely hinge on domestic output as the new credit scheme removes key incentives for imports. Global Clean Energy in mid-December reached commercial operations of about 5,900 b/d of RD at its Bakersfield, California, conversion. But some refiners have begun to pump the brakes on renewable diesel expansion, citing a degradation in economics that could worsen without the BTC's guaranteed $1/USG. Vertex Energy in the third quarter finished reverting a renewable fuels hydrocracking unit back to processing fossil fuel feedstocks at its 88,000 b/d Mobile, Alabama, facility. Renewable diesel market participants otherwise expect refiners will bring forward into early 2025 planned maintenance, and potentially curb output, as the market overall awaits clarification on 45Z eligibility and award levels. As of 2024, the US Environmental Protection Agency's monthly reporting of renewable fuel production through RIN generation data breaks out renewable jet fuel. The data show a three-fold increase in the amount of SAF produced in the US versus 2023, but also a large boom in imports, mostly from Asia to the US west coast. The expiring BTC enabled the influx of imports, as refiners were able to bring finished neat SAF onshore, blend it with conventional jet fuel, and receive the tax credit, valued at roughly $1.50/USG. With no BTC, import trade flows will be in jeopardy, because new policy aims to support domestic production. In the short term, this would drastically reduce the amount of SAF available in the US, with imports making up roughly 62pc of supply in 2024. These new domestic producers, padded by a new SAF production tax credit, will have ample opportunity to meet US market demand. As airlines look to buy SAF in areas beyond California, having an expansive infrastructure and logistical framework including producers across the US will keep airlines well positioned to increase SAF consumption. By Matthew Cope and Jasmine Davis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US Supreme Court tees up more energy cases

24/12/31

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Supply concerns drive RSO backwardation

24/12/31

Viewpoint: Supply concerns drive RSO backwardation

London, 31 December (Argus) — Strong export estimates for Australian and Ukrainian rapeseed and canola could offset lower projected levels from Canada, but EU crushers are wary about a supply shortfall for the rest of their 2024-25 crop year. The European Commission forecasts EU 27 rapeseed production at around 17mn t for 2024-25, down from average of 18.2mnt in the previous four crop years. With the EU 27 average rapeseed crush at around 25mn t, based on data from vegetable oil association Fediol, the bloc will need to find 7mn t of rapeseed and canola on the import market for its needs, which include RSO production for transformation into biodiesel. Australia, Ukraine to fill the gap? Australia, which typically delivers 50-70pc of its canola exports to the EU, is forecast to export 4.1mn t in 2024-25, according to the country's agriculture department Abares. Estimates for EU rapeseed imports from major exporter Ukraine vary. The USDA FAS Kyiv earlier this year forecast rapeseed exports from the war-torn country at around 3.6mn t in 2024/25 — a 22pc increase from 3mn t in 2023-24 partly due to expectations of decreased domestic crush levels. Argus estimates this slightly lower, at 3.4mn t — a 6pc increase from its 2023-24 export forecast of 3.22mn t — all of which is likely to make its way to EU countries. But canola production in Canada, one of the EU's key suppliers, is forecast by Statistics Canada at the lowest since 2021-22 at 17.8mn t, probably resulting in an export shortfall compared with previous years. Increased domestic crush levels and rising demand in non-EU countries such as China, Japan and Mexico, which "generally have a willingness to pay more for quality product" according to the USDA — referring to non-GMO treated canola — could reduce EU-bound flows in the coming months. Current- and new-crop RSO in steep backwardation The forward structure between rapeseed oil (RSO) fob Dutch mill current-crop 2024-25 contracts — comprising spot 5-40 days loading and February-March-April (FMA) and May-June-July (MJJ) RSO strips — and the August-September-October (ASO) new-crop contract for 2025 has moved into an unusually steep backwardation in recent months, driven by concerns about rapeseed availability before the start of the 2025-26 crop year. Argus' assessments for the ASO strip were at an average discount of around €80/t ($84/t) to FMA and MJJ contracts as of 13 December. This compares with a curve that saw current- versus new-crop contracts in contango through December 2022 and 2023. This means biodiesel producers will probably have to continue to work with thin margins. Although rapeseed oil methyl ester (RME) fob ARA range prices have followed RSO prices higher, comparatively larger gains on the feedstock outlay have pressured operations. The price spread between spot RME and RSO prices averaged $150/t in the first of half of December, compared with around $200/t in the same period of 2023. Looming agricultural trade barriers Global agricultural trade barriers that have either begun or are planned will be decisive drivers of global vegetable oil prices and trade flows in the new year. China said in September it would start an anti-dumping investigation into canola from Canada. Canola exports from Canada to China are usually between 2mn-4mnt. Indonesia plans to introduce a B40 biodiesel blending mandate in 2025 and has already introduced export permit requirements on palm oil residues, which has sent Malaysian palm oil futures to multi-year highs. In the US, president-elect Donald Trump's announcement about the imposition of 25pc tariffs on all US imports from Canada and Mexico has lead to volatility in the wider vegetable oil complex as well. By Madeleine Jenkins EU rapeseed imports by country of origin mn t Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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