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LCFS Spot Contract |
California LCFS |
Oregon LCFS |
Price November 10th, 2023 |
$ 67.00 |
$ 103.50 |
Avg. Weekly Price November 6th - November 10th, 2023 |
$ 66.30 |
$ 107.70 |
Average Monthly Price November 2023 |
$ 66.50 |
$ 110.00 |
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LCFS Futures Contract |
Pricing |
|
Dec. '23 |
$ 69.25 |
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Dec. '24 |
$ 74.00 |
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Dec. '25 |
$ 82.75 |
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The California Low Carbon Fuel Standard (LCFS) market saw modest week-over-week gains.
Prompt credits rose $0.50/t, or less than one percent, to $67.00/t. The market started the week at $65.50/t.
The forward structure remained flat heading into 2024, while contango into each subsequent quarter held at $1/t.
The prompt market had been in a choppy holding pattern since early May yet initiated a material downtrend starting in early June. LCFS strength has been driven by trader buying and strength in futures markets as the credits become more attractive options ahead of CARB’s more stringent scoping plan. Buying quickly turned to selling once the workshops concluded as traders became disillusioned with the timeline for rulemaking.
Materials provided showed CARB ahead of its last board meeting showed the regulator is considering a 30% reduction scenario with a 5% step down in 2025. A 25% reduction scenario with limitations to biodiesel use was considered but found to not displace enough fossil fuel. A 35% reduction scenario was also considered but found to be too costly.
CARB released a proposal ahead of its rulemaking which adopted a 30% carbon intensity reduction by 2030, curbed biogas contributions, and included an auto-acceleration mechanism. Traders now await the late-September board meeting for the next cues and the release of the final proposal for the state’s scoping plan.
During the August 16 workshop, California’s Air Resources Board (CARB) provided updated guidance on the timeline for its rulemaking process to usher in more stringent carbon intensity targets. The regulator aims to release a proposal after a late-September board meeting during which a non-voting LCFS item will be outlined. The proposal will face a 45-day public comment period allowing the item to be voted on at a board meeting in early 2024.
The new targets could come into effect by mid-to-late 2024, or CARB could wait till January 1, 2025. CARB clarified that it would not retroactively apply the ruling to any part of the 2024 compliance year.
The August 16 public workshop covered extensive modeling updates to its California Transportation Supply Model (CATS). The updated scenarios included material upward revisions in electrification of HDVs and MDVs, added in total out-of-state biomethane supply and built in a credit bank drawdown pathway. CARB did not factor alcohol-to-jet into the model as sufficient data was not available.
Stakeholders raised concerns that the electricity CI used in the model was too high and took issue with using total out-of-state biomethane (RNG) in the model, while not adjusting for out of state competition and restrictions.
RIN Spot Contract |
D3 |
D4 |
D5 |
D6 |
Price November 10th, 2023 |
$ 3.50 |
$ 0.85 | $ 0.85 | $ 0.85 |
Avg. Weekly Price November 6th - November 10th, 2023 |
$ 3.53 |
$ 0.82 | $ 0.82 | $ 0.82 |
Average Monthly Price November 2023 |
$ 3.53 |
$ 0.81 | $ 0.81 | $ 0.81 |
Current year vintage D4 RINs rose $0.038/RIN, or 4.6%, to end the week at $0.85/RIN. The B22/B23 spread widened to 4.2c amid the approaching December compliance deadline.
Oversupply concerns limited gains despite a deteriorating margin environment.
Fresh government data showed a mounting supply glut of D4 credits. RINs markets had been tracking higher in recent weeks amid concerns that lower RD margins would drive run cuts and the recent Rodeo ruling spurred buying. A material drop in refined product exports likely drove spot covering.
Oversupply concerns heading into the release of the EPA’s August RIN generation reported on September 21, 2023, weighed heavily on RINs last week, while recent diesel strength and tightening global distillate fundamentals are poised to add additional pressure.
September RIN generation fell under two billion credits for the first time since April. Total generation of 1.95 billion was up 13% on year-ago levels, but down 1.3% on the month prior.
D6 credits led the decline, shedding 83 million credits from the month prior to 1.18 billion credits.
D4 production was down 29 million credits from August at 673 million credits.
D3 RIN generation slipped to 59 million credits, taking total 2023 production to around 60% of the total obligation.
The EPA denied 26 small refinery exemptions covering the 2016-2018 and 2021-2023 compliance years on July 14. The move was consistent with the EPA’s blanket SRE denials under the Biden Administration. The two remaining SREs are for the 2018 compliance year.
We have been advising since last year that the Biden Administration was unlikely to approve any SREs.
SREs were carved out in the Renewable Fuel Standard (RFS) for refiners producing 75,000 b/d or less which could prove compliance with the RFS—i.e., purchasing RINs—resulted “undue economic hardship.”
The EPA retroactively overturned 69 Trump-Era SREs starting in April of last year by denying 31 SRE waivers for 2018 and then denying all SRE petitions for 2016 through 2020. Denying SREs is bullish for RINs markets as refiners must enter the marketplace to purchase RINs to cover compliance obligations which were originally waived.
Questions? Contact our team for more information: environmental@aegis-hedging.com