RIN prices tumbled to the lowest levels in over three years on October 10, before the market turned cautiously bullish on concerns that a worsening margin environment would prompt run cuts and delay projects. A material decline in refined productions exports likely spurred covering during the third week of the month.
Buying appetite returned to the marketplace even amid pronounced diesel strength.
The October 19 release of the September RIN generation report showed total D4 generation eclipses the 2023 total advanced mandate by nearly 600 million credits. Should D4 generation continue at this pace the market will face a glut of nearly 2.5 billion 2023 vintage D4 credits.
Diesel strength saw the soybean oil-to-heating oil (BOHO) spread narrow to the lowest level in nearly a year $0.81/gallon on October 19. A narrower BOHO spread implies stronger biodiesel margins which is bearish the D4 RIN all else equal.
The D4 RIN rout saw renewable diesel margins tumble to the lowest levels in over three months in the first week of October. Yet diesel strength and lower feedstock costs saw renewable diesel margins rebound to the highest levels in a month.
D3 prices rallied as insufficient RIN generation, and the lack of a Cellulosic Waiver Credit (CWC) continued to buttress the market. Total D3 RIN generation is running 20% short of the cellulosic mandate. Average D3 output is up 17% on year-ago levels against a 25% year-over-year growth rate target set by the EPA.
- EPA Fuel Program Center Director, Paul Machiele, said the oversupply of D4 credits is not currently a concern at the EPA as the agency’s primary driver in setting the 2023-2025 mandates was feedstock availability, according to Carbon Pulse. Machiele noted that the surge in imported feedstock was not taken into account when considering the final Set Rule, speaking at the OPIS RFS, RINs and Biofuels Forum in Chicago. Changes to exiting mandates are unlikely to be taken up during an election year. President of Advanced Biofuels Association, Michael McAdams, cited an unnamed source that the earliest the EPA would take action is 2026.
- The US Energy Information Administration (EIA) raised its 2023 RD production forecast by 0.6% to 170,000 Bbl/d in its October Short-Term Energy Outlook. RD production for 2024 was forecast at 228,000 Bbl/d, up by 5.6% from the previous month’s estimate. The Administration previously cited lower plant utilization rates and more plant cancellations in response to the June 21st release of the Environmental Protection Agency’s (EPA) final Renewable Fuel Standard rule as a reason for trimming forecasts this summer.
- EPA officials indicated that the next opportunity for addressing the adoption of the contentious eRIN pathway would be when the agency considers blending targets for 2026, according to EPA Fuel Programs Center director Paul Machiele when speaking at the Argus North American Biofuels, LCFS, & Carbon Markets Summit in mid-September.
- September total RIN generation came in at 1.95 billion credits, down 4.4% on the previous month and marking the first time total RIN generation came in under 2.0 billion credits since April.
- D4 generation came in at under 673 million credits, down 6% from the previous month’s levels and up 34% from year-ago levels. Total D4 production reached 5.69 billion credits, overshooting the entire 2023 advanced biofuel mandate by nearly 600 million credits. Domestic and foreign renewable diesel production accounted for 56% of total D4 output, domestic and foreign biodiesel made up 44%, while SAF accounted for less than one percentage point.
- D3 RIN generation fell 12% from the previous month and is running just 17% over year-ago levels compared to a 25% growth rate used by the EPA to set the 2023 final mandate. Total D3 RIN generation of just under 505 million credits is running around 20% under the final mandate of 840 million RINs.
- September RIN generation data housed limited revisions to 2023 production levels. D6 downward revisions totaled 2,035,818 across January and September 2023. August D4 production was revised 317,132 higher. August D5 RIN generation was revised lower by 5,19,728, while August D3 RIN generation saw a downward revision of 6,876,544 credits. July D5 and D3 generation saw similarly sized downward revisions.
- December 1, 2023: Compliance Reporting Deadline for 2022
- January 31, 2024: Three-year Registration Update
- March 31, 2024: EPA Expected Deadline for 2023 Compliance
- June 1, 2024: Attest Engagement Reporting Deadline for 2022
- March 31, 2025: EPA Expected Deadline for 2024 Compliance
- A California judge ruled that P66’s 67,000 Bbl/d RD Rodeo facility may not operate until permitting issues are resolved. The largest RD refinery conversion in the country is allowed to continue construction. The original permitting work for the plant took nearly a year to complete in May 2022. P66 aims to begin RD production at Rodeo by Q1 2024.
- Airlines reported 8-10 million tons of SAF across 59 offtake agreements between January 2022 and June 2023, according to data from International Air Transport Association (Iata). The Hydro-Processed Esters and Fatty Acids (Hefa) pathway accounted for 53% of the reported offtakes and 85% of global renewable capacity. Iata reported a SAF blend ratio of 30-40% starting in 2022.
- Calumet Specialty Products reported a leak in a steam recovery system at its Montana Renewables Facility. Calumet expects to produce 8,000-8,500 Bbl/d at its Great Falls, Montana, facility during the third quarter, and aims to complete repairs in mid-September. Untreated feedstock makes up 70% of throughput at the Montana Renewables Facility, with reported margins of $1.25-$1.45/gallon for July.
- Valero’s renewable diesel arm Diamond Green Diesel (DGD), a joint venture with Darling Ingredients Inc., reported $440 million in operating income for Q2, more than doubling the $152 million recorded last year. RD sales came in at 4.4 million gallons per day, doubling last year’s output. Valero expects renewable diesel output to total 1.2 billion gallons for the year. DGD’s 470-million-gallon Port Arthur RD/SAF facility is on schedule for 2025 completion. Half of the capacity will be dedicated to SAF production.
- CVR Energy Inc. aims to startup the pretreatment unit (PTU) at its Wynnewood, Oklahoma, refinery by the end of 2023. The plant has been running soybean oil and treated corn oil until the PTU enters service. A catalyst change during the second quarter saw throughput drop to 17.8 million gallons, down from 22.4 million gallons consumed during the first quarter. CVR estimates Q3 throughput of 17-22 million gallons.
- 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.
- Marathon announced that it is on pace to complete Phase II of its Martinez Project with Neste by year end bringing total production capacity to 730 million gallons/yr. Phase I was completed during 1Q23 ramping up 260 million gallons/yr of renewable diesel capacity.
- CARB Releases Proposed 2023 Amendments in SRIA. On September 8, California’s Air Resources Board (CARB) released the Standardized Regulatory Impact Assessment (SRIA) containing ten proposed amendments for 2023. The SRIA proposed a 30% reduction in carbon intensity by 2030, including a 5% step-down in 2025. The SRIA contained an automatic acceleration mechanism (AAM) which would advance stringency for a given year when specific regulatory conditions are satisfied by advancing the carbon reduction target by two years. CARB proposed to eliminate the exemption for intrastate fossil jet fuel.
RIN markets tumbled to the lowest levels in three years as a glut of D4 credits and the narrowest BOHO spread in nearly a year sparked heavy selling early in the month. Diesel strength and lower feedstocks prices underpinned renewable diesel margins despite weaker D4 credits.
The market turned bullish during the third week of October amid concerns about run cuts and delayed projects should margins deteriorate. A material decline in refined products exports likely drove short-covering of the RVO.
Current year vintage D4 RINs shed 52c/RIN, or 37% since the start of September. The D6 market tracked the D4 rout with the D4/D6 spread spending the bulk of October at 0.1c/RIN.
A narrower D4/D6 spread indicates tightness in D6 supply. In the absence of a sufficient supply of D6 credits, D4 and D5 credits from the advanced category can be used to satisfy compliance obligations.
We expect this spread to trend lower and even reach flat on occasion as the D4 RIN will play an increasing role in compliance with the total renewable fuel mandate.
Current year D4 RIN generation is on pace to exceed the advanced mandate by 2.50 billion credits, while D6 generation is on pace to fall 572 million credits short of the mandate. Barring an upward adjustment to the advanced category, D4 RINs will make up an increasing proportion of the RIN bank moving forward.
The 2023 vintage D4 market reached as low as $0.76/RIN on October 10 as oversupply weighed on markets. The BOHO bottomed out at $0.81/gallon on October 19 after starting the month at $1.27/gallon. The BOHO spread reached $2.66/gallon on July 25, the widest spread in 14 months.
The D6 market shed 52c/RIN, or 37%, since the start of September, while the D4/D6 spread narrowed to just 0.1c/RIN. D6 RIN generation remains on pace to fall more than half a billion credits short of mandated volumes, though ample D4 RINs are available to cover the D6 compliance shortfall which will keep the D4/D6 spread near parity.
The D3 market rallied as tight supply and the lack of a CWC continued to underpin markets. The 2023 vintage D3 RINs gained 53c/RIN since the start of September to as high as $3.55/RIN by October 20. The C23/C24 spread widened to 61.5/RIN by late October after reaching as narrow as 19c/RIN in September.
D3 RIN generation held at the upper limit of the five-year average in September yet was running 20% short of the 840-million-gallon 2023 mandate. D3 generation is on pace to fall 166 million credits short of the final mandate. With no Cellulosic Waiver Credit in place and a record low RIN bank, we expect D3 RINs to remain at elevated levels barring an early implementation of eRINs and/or the issuance of a CWC under the EPA’s waiver authority.
The 2022 vintage market proved less volatile over the course of October as an approaching compliance deadline which saw inter-vintage RIN spreads stabilize.
The 2023 D4-D6 spread spent the bulk of October at 0.1c/RIN and averaged 0.2c/RIN, down from 0.4c/RIN in September. The D4 market continued to see heavy selling driven by oversupply fears and diesel strength, with the market bottoming out on October 10. The market turned bullish as concerns mounted that a deteriorating margin environment could spur run cuts and delay projects. A lack of refined production export demand likely drove short covering of the RVO.
A wider D4-D6 spread implies a looser D6 supply as the D4 credit is the next vehicle of compliance in the absence of sufficient D6 RINs or the ability to use carryover credits. Conversely, a narrow D4-D6 spread implies a tight supply of D6 RINs. The theoretical cap on the spread is parity though D6s have traded at modest premiums to D4 credits in extreme circumstances.
The inter-vintage D4 RIN spread proved less volatile over the course of October ahead of December compliance. The spread stabilized at just over 0.2c/RIN in October after shifting between 2.5c and 12.5c the month prior.
September D4 RIN generation of 672.9 million credits was down 28.7 million credits, or 6%, from August levels.
We expect further diesel strength throughout the fourth quarter to support renewable diesel and biodiesel margins despite losses in credit markets. RIN generation should remain at elevated levels even if Q4 startups are delayed or run at reduced rates. Poor margins have seen the closure of at least one, small biodiesel plant.
The 2022-2023 D6 spread flattened out following a volatile September which saw the spread collapse to 2c/RIN from 12.5c/RIN.
The 2022 D4-D6 spread averaged around 2c/RIN, down from 2.4c in September. The spread averaged 2.4c/RIN in August, 5.5c/RIN in July, 9.6c/RIN during the month of June, and 9.8c/RIN during the month of May.
EPA RIN Generation Data as of October 19:
EPA Small Refinery Exemption (SRE) Data as of September 21:
Green indicates change
Some of the price and regulatory risk in the development of the renewable fuels markets is controllable through hedging or pre-selling. Other risks require constant monitoring of pending changes to regulations and programs. AEGIS can help with both.
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