OPIS Headlines

June 24, 2015
CARB Issues 2nd Comment Period for LCFS Readoption

The California Air Resources Board (CARB) has issued a second 15-day notice and comment period for public input about changes to its proposed readoption of the Low Carbon Fuel Standard (LCFS). The second notice covers changes that were not incorporated in the first notice period, and comments are due on July 8.

The CARB Board is still on track to consider the readoption at its July 23-24 hearing.

In its first announcement, CARB listed 48 substantive changes, but the second set contains only seven relatively minor changes. The most significant is that CARB is proposing to streamline the recertification of previously approved "legacy" biofuels pathways by saying it will analyze previously submitted production data in the new CA-GREET 2.0 emissions model, and will ask producers for more information only on an as-needed basis. Also, to aid producers who are seeking financing for new projects, CARB will allow the transfer or sale of credits generated under temporary and provisional pathways.

"These modifications do not change implementation of the regulation or the environmental setting in any way that affects the conclusions of the draft environmental analysis that was prepared for the proposed LCFS and ADF [alternative diesel fuel] regulations," CARB stated. "The modifications consist primarily of clarifications and limited substantive changes. Those changes relate primarily to ARB's administration of the proposed program, and will not substantially alter the compliance response to the proposed regulations."

To review the second set of changes to the LCFS, go to:   http://www.arb.ca.gov/regact/2015/lcfs2015/lcfs2nd15daynotice.pdf.

Plans are well underway for the 4th Annual OPIS LCFS Workshop! Make your plans now to join us on December 10-11th at the Grand Hyatt in San Francisco. This year’s event will focus on the LCFS re-authorization and important changes it will bring – providing the critical information you need in order to stay in compliance moving forward. Visit www.opisnet.com/events/lcfs or call 888.301.2645 for more details. Reserve your seat early and save $300!

June 17, 2015
CARB Posts Final 2014 Crude CI, Unchanged from Proposed Level

Yesterday, the California Air Resources Board (CARB) posted the final 2014 Annual Crude Average carbon intensity (CI), as required under the Low Carbon Fuel Standard (LCFS).

The final 2014 CI is unchanged from the number CARB proposed in mid-May: 11.19 gCO2e/MJ. This figure is down from the 11.37 gCO2e/Mj for the individual year 2013 and 11.35 gCO2e/MJ for 2012.

To determine the average crude CI for 2014 that is reflected in refiners' emissions under LCFS, CARB uses a weighted average of the crudes used in the state in 2012-2014. Therefore, the 2014 number is 11.30 gCO2e/MJ. CARB analyzed volumes and CI of about 300 California crudes and imported crudes.

In 2014, California refiners processed 612.33 million bbl of crude, up from 588.25 million bbl in 2013. A quick comparison of crudes imported in the last two years found that use of higher-CI Canadian crudes such as Albian Heavy Synthetic and Cold Lake was down about 40% in 2014 to 6.07 million bbl, and that use of low-CI Arab Light and Arab Extra Light from Saudi Arabia was up about 50% to 93.42 million bbl.

When it announced the proposed CI, CARB added that it was using its updated OPGEE v1.1 model for the first time. This model was introduced by CARB last year and was subject to public review and comment. CARB used OPGEE v1.1 to recalculate the CIs for 2010-2013.

For crude CI lookup tables since 2010, go to: http://www.arb.ca.gov/fuels/lcfs/crude-oil/crude-oil.htm.

Plans are well underway for the 4th Annual OPIS LCFS Workshop! Make your plans now to join us on December 10-11th at the Grand Hyatt in San Francisco. This year’s event will focus on the LCFS re-authorization and important changes it will bring – providing the critical information you need in order to stay in compliance moving forward. Visit www.opisnet.com/events/lcfs or call 888.301.2645 for more details. Reserve your seat early and save $300!

June 5, 2015
CARB Seeks Input on LCFS Changes, Sets July 23-24 for Readoption

The California Air Resources Board (CARB) has published a detailed list of changes to its proposed readoption of the Low Carbon Fuel Standard (LCFS) and announced that the CARB Board will consider the readoption at its July 23-24 hearing.

The proposed changes to the LCFS come during the same week that CARB released proposed modifications of both its CA-GREET model for calculating carbon intensity (CI) of biofuels pathways and its OPGEE model for CI of crude oil used for refining transportation fuels. In addition, they come a week after CARB released proposed Alternative Diesel Fuel regulations. (See prior OPIS news article.)

The proposed modifications of the readopted LCFS can be found at http://www.arb.ca.gov/regact/2015/lcfs2015/lcfs2015.htm, and comments will be accepted until June 19.

Along with its announcement, CARB provided a summary of the 48 substantive changes in the latest proposed version of the LCFS. One of the biggest changes is CARB's plan for prioritizing the recertification of the approximately 270 existing fuel pathways that will expire on Jan. 1, 2017.

"Specifically, staff proposes to review and approve fuel pathway applications in batches based on fuel type, so that providers of the same fuel compete on equal terms, obtaining the new carbon intensity score at the same time," CARB wrote. "The proposed prioritization of fuel types (the order in which the renewals will be completed) would be: ethanol, followed by biodiesel, renewable diesel, compressed natural gas liquefied natural gas and finally by all others."

The proposed changes also clarify that the indirect land use change (ILUC) values applied to each biofuel will be incorporated into the CI calculation in the CA-GREET 2.0 model. "In the ... proposed regulation text, the inclusion of ILUC values was referenced and understood to be part of the proposal, but the ILUC values were not explicitly included as a table in the regulation," CARB stated. "Staff now proposes to include express ILUC values for six biofuels ... and to clarify that the total carbon intensity is the sum of direct CI and (if applicable) ILUC or other indirect CI."

Other substantive changes include:

--Lower baseline CIs for California Gasoline for Oxygenate Blending, California RFG and diesel;
--Clarifications of rules for cost containment, credit retirement and credit carryovers;
--Language to fix inconsistencies in rules for product transfer documents;
--Updated definitions of terms for fuels and biofuels;
--Identification of parties that are able to generate LCFS credits for use of electricity or hydrogen in transport;
--Numerous updates and additions to the crudes identified in the crude CI tables;
--Adjustments and clarifications to the refinery investment provisions, innovative crude provisions and calculations of refinery process CIs; and
--A requirement that CARB staff prepare a progress report for the CARB Board by July 30, 2017.

Plans are well underway for the 4th Annual OPIS LCFS Workshop! Make your plans now to join us on December 10-11th at the Grand Hyatt in San Francisco. This year’s event will focus on the LCFS re-authorization and important changes it will bring – providing the critical information you need in order to stay in compliance moving forward. Visit www.opisnet.com/events/lcfs or call 888.301.2645 for more details. Reserve your seat early and save $300!

June 2, 2015
Contested Gasoline Demand Numbers Hold Key to 2015 Performance

Twenty-one weeks into 2015, there is nothing resembling a clear answer to the question of precisely how much additional gasoline is being consumed in the United States thanks to the lowest motor fuel prices since the depth of the Great Recession in 2007.

If you rely on weekly data estimates from the Energy Information Administration (EIA), you might cite the 3.3% increase that has been accumulated in year-to- date data. That is most likely a flawed assessment, but it puts 2015 gasoline demand at 8.913 million b/d, compared with 8.631 million b/d through the same period a year ago.

If you prefer the higher resolution monthly data that EIA compiles, you are limited to an accounting of first quarter numbers. Those numbers show a "lumpy" performance, with a whopping 6.2% increase in January; a 0.6% decline in February; and a 4.3% increase in April. All totaled, EIA's first-quarter assessment has gasoline demand moving up 3.4% from 8.524 million b/d in 2014 to 8.813 million b/d this year.

So, whether it's weekly or monthly data, the Energy Information Administration has recorded consistently brisk demand "lift" from 2014. But if you talk to gasoline marketers, you'll get a different story, and the reports from the field talk of dramatic differences in demand often reflecting inconsistent economics and travel patterns across the country.

An OPIS survey that has expanded data points to more than 6,000 actual service stations continues to suggest that demand numbers are inflated. High placed executives for public and private chains also believe that the demand numbers are swollen, particularly for the weekly reports. Even Marathon CEO Gary Heminger, who presides over thousands of high-volume retail sites, has expressed a view in public and private settings that EIA demand numbers are "modestly overstated."

Last week's pre-Memorial day demand calculation is a case in point. EIA measured demand at 9.734 million b/d, the highest weekly number since Aug. 17, 2007. Taken at face value, demand was 424,000 b/d above the similar week in 2014, reflecting a surge of about 4.55%. A similar surge in summer driving weeks might lead to the first 10-million-b/d figure ever recorded by EIA.

The OPIS Demand Survey confirms that gasoline demand was indeed higher, but by just a fraction of the increase registered in EIA's Weekly Statistical Bulletin. OPIS data showed a pre-Memorial Day bounce of just 1% across the country, with volumes actually dropping by 1.2% in the Southwest (Texas, Oklahoma, New Mexico, and Arizona) as well as by 1.3% across the West Coast and Rockies. Very brisk lift showed up in Southeastern states, with modest "lift" across the Midwest and Northeast.

Year-to-date volumes from OPIS, meanwhile, show demand essentially flat in the first 21 weeks of the year. Southeastern locations are definitely doing well, with volumes up by about 1.9% and Western points show volume gains of 1.6%, with Southwestern stations up 1.2%. But the Northeast and Midwest sites have registered declines of 1.5% year to date with inclement weather cited by companies contributing data in the confidential report.

Notwithstanding what the retailers report, most investment banks as well as refining executives are championing the implied gains indicated by EIA, insisting that retail price points 75cts/gal to $1.00/gal below 2014 are a clear catalyst. With billions of dollars at stake in refinery valuations, this is the easiest route for suppliers and traders to choose. If motor fuel demand grows by 3%, the implied annual consumption for gasoline works out to 9.189 million b/d. If the contested surge were to come in at 4.01%, this year would break the all- time annual record of 9.286 million b/d established in 2007.

More likely, according to the OPIS survey, is a smaller increase, which may be on the order of 1%. That would be enough to push annual consumption of motor fuel to 9.011 million b/d, reflecting a disappointment for gasoline bulls, but would still result in the first 9-million-b/d year since 2007.

Note: the most recent OPIS Demand report can be accessed at:  http://www.opisnet.com/offers/reports/OPISDemandReport.pdf

The OPIS Demand Report is the only source that tracks actual store volumes from retail stations every week. Retailers can determine how well their station volumes are performing at a regional and national level - so fuel managers know exactly where they stand. The data represented within this report is diversified with a good mix of high-volume and low-volume sites. Regional chains, national chains, new era marketers, and branded retailers are all included in the dataset to provide an accurate view of the market. Learn more about the OPIS Demand Report: http://www.opisnet.com/products/retail-fuel-demand.aspx

June 2, 2015
Hawaiian Refiner Inks Oil Supply, Offtake Deal with J. Aron

Par Petroleum Corporation said on Tuesday that Hawaii Independent Energy LLC (HIE), its wholly owned subsidiary, entered into a Supply and Offtake Agreement with J. Aron & Company, the commodity trading arm of Goldman Sachs.

The agreement provides for HIE to purchase from Aron mutually agreed crude oil cargoes for use in its Hawaii refinery with a nameplate capacity of 94,000 b/d.

Aron, in turn, will purchase the refined products HIE produces at market prices.

HIE will repurchase the refined products from Aron and sell them to its customers.

The term of the agreement will run through May 2018 with two one-year extension options.

The agreement also allows for deferral of payments to Aron of up to $125 million or 85% of certain receivables and company owned inventory.

This arrangement with Aron is expected to result in approximately $20 million in additional cash and liquidity under current market conditions.

Added benefits include increased liquidity, reduction in HIE's crude acquisition costs, and increased flexibility to manage market price fluctuations.

"This agreement provides a cost-effective and flexible structure for our crude oil needs and helps to maximize the capacity utilization of our refinery. Securing this new arrangement generates additional liquidity and is an important step towards further improving the future performance of our refinery," said Joseph Israel, Par's CEO.

On May 11, the company said that it expected the outlook for its second-quarter earnings to remain favorable after posting positive quarterly earnings for two quarters in a row due to low oil prices.

The company's fourth quarter 2014 earnings gain of $31.7 million was the first quarterly net income gain since taking over the 94,000-b/d Kapolei refinery in September 2013.

Industry sources told OPIS earlier this year that the prices of crude oil and feedstocks are crucial to the Hawaiian refinery's profitability as it has to use oil products and liquid pressurized gas to generate electricity in Hawaii, which has no access to natural gas supply.

Plans are underway for the 17th Annual OPIS National Supply Summit. Join us in Houston, October 21-23, 2015 at the JW Marriott Downtown – sign up now to take advantage of the $500 discount, the largest we’ll offer. This year’s Summit focuses on the reboot of the supply chain following the oil price collapse at the end of 2014 and where the market heads from here. Get exclusive supply and demand forecasts from top oil executives and analysts, plus ample networking opportunities with your industry colleagues. Visit www.opisnet.com/events/supply or call toll-free 888-301-2645 for more details and to register.