OPIS Spot Price Assessment Methodology Commentary

The following comments on OPIS spot price methodology were received during our recent “open season” (June 19-30, 2017), which invited our customers to comment on and make suggestions for OPIS methodology.

Names and companies have been redacted to protect commenters’ identity. OPIS takes customer feedback very seriously and will take each of these comments under advisement during our regularly scheduled spot editorial meetings. Any contemplated changes or clarifications to methodology will be fully communicated out to our customers in a draft form, inviting further comment, before they are implemented.

In some cases, a suggested change to a methodology will not be accepted by the OPIS editorial team. We reserve the right to determine the applicability of each suggested change. In such cases, the commenter will be contacted by a senior spots editor to discuss the rationale behind rejecting the suggested change.

Once these comments have been fully investigated by our spot editorial team, OPIS will post its responses below each comment listed below.

Comment #26
Received June 30, 2017

Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service

As to the U.S. Midwest Ethanol pricing, [we] would request that OPIS modify the trading window of its daily assessment to more accurately reflect the ethanol trading day. The ethanol trading day occurs between 8:00 am and 1:30 pm central time. After 1:15 pm when corn has ceased trading on the CME, many of the ethanol traders cease trading ethanol for the day. As a result, after 1:15 pm, there is significantly less volume traded. With this period of light liquid ity, it creates an opportunity for unscrupulous traders to attempt to manipulate the daily assessment.

The U.S. Midwest Ethanol pricing has a minimum trade volume of 10,000 bbl, but it is noted in some instances of low liquidity, lower-volume transactions might be included. [We] would suggest that exceptions be granted on a very limited basis. Any trade that is included in OPIS’s daily assessment should be executed at a repeatable price. Otherwise, a party can try to capitalize on the low liquidity periods (e.g., after 1:15 pm central) to manipulate the daily assessment.

While the U.S. Midwest Ethanol pricing typically includes RINs that are for the current calendar year, deliveries in the first quarter of a given year may include RINs from the previous calendar year. [We] would request that this exception be modified to include only January of a given year. It is standard practice in the market for buyers to accept prior year RINs in January. However, buyers are generally unwilling to accept prior year RINs beyond January. Therefore, to ensure the daily assessment reflects the reality of the market, [our company] requests that this change be made.

OPIS response to Comment #26: The methodology changes suggested will be discussed among the editors and any changes agreed to will be proposed in a future client letter. Any changes not agreed to will be discussed with the complainant separately.

Comment #25
Received March 31, 2017

Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service

Since at least mid-2015 thru 2016 … the market spreads between Chicago and what we consider destination markets had become unstable with much more violent swings.  As we started to dig into these swings in the market, we found that some could be contributed to weather, but a big portion of them could be contributed to constraints that Chicago Argo has from a supply stand point.

First, the whole system at Argo is very rudimentary, Kinder Morgan Argo does not have a system in place to give real time data to their space holders as to where their rail cars are and when the contents of the cars will be in tank.  A person at the terminal hops in a car every day with a clipboard and hand writes what cars were brought in that day.  This makes it difficult for a marketer of physical gallons to forward plan for any sales whether that be spot or forward because even if we ship ratably there is no consistency or reliability as to when my gallons will be available.  Next, is CN/Glenn Yard/KM Argo issue.  The CN is the delivering carrier into Argo, but before those cars get pulled into Argo the cars are staged at Glenn Yard which is a staging yard in Chicago and can get very congested not only with ethanol cars for Argo, but for all products whether they are destined for Argo or for a destination beyond Chicago.  The CN trying to be as efficient as possible does not pull the cars in on a first in first out system, instead the CN only brings in what is in best position for them that day. Along with that the CN does not communicate with KM Argo as to what cars they are bringing that day. This again adds more difficulty for a supplier of physical gallons to attempt to plan and set up sales. Finally, the CN only gives KM Argo 1 RR switch per day and with that switch KM Argo can only accept 42 rail cars maximum, but even when KM Argo requests a full switch it is up to the CN to follow through with that and grant KM Argo their request and unfortunately that is not happening on a consistent basis.  If KM Argo got a full switch of cars (42) every day that would be 1,209,600 gallons of ethanol, while that is max they can take in the amount they can load out is 1,890,000 gallons and that is only calculating barges and not even including pumpovers or trucks going out.  That bottle neck is a huge concern because the market while it would/could supply that market there is a definite bottle neck in the system that slows or completely hinders the markets ability to supply the gallons.

As far as methodologies and understanding the issues and constraints at Argo RPMG has a few ideas for OPIS, but during this comment period we would like OPIS to consider some comments as they pertain to defining the daily Chicago market.  We would like OPIS to consider the pricing window that they are using to price a market today.  Currently OPIS is using a 3-10 day window to price a market today.  The problem with this is that the Chicago number that is reported via OPIS daily is pricing gallons that day so in the 3-10 day window if I have a gallon on Monday that gallons could essentially be affected or priced based on a sale that takes place the following week on Thursday.  That is too much timing for gallons that are delivered today to be affected.  As RPMG has been more active in the Chi Argo market RPMG has been questioned by not only OPIS, but others in the market because they think we are affecting the market.  The issue we have this is that OPIS and the rest of the market are not taking into account any of the constraints/issues outlined above.  The Argo market is the easiest place for a trading house to enter and attempt to make a profit with little to no risk, because as an ITT trader no physical gallon actually has to change hands.  It is just a paperwork shuffle for both the buyer and seller who each have their own position.  When RPMG attempts to sell a dated gallon within the 3-10 window over the last 6 months we have consistently been bid at a discount or under what others want to call market value.  The market wants to buy the 3-10 day window buyers call for transfer, but the problem with this is that as a participant with physical gallons moving into Argo that has constraints as far as unloading and scheduling I cannot leave my timing open to when it works best for an ITT buyer to tell me when they want their gallons.  RPMG would like OPIS to consider making their dead prompt quote based on a day of trade and move the window to 1-3 days.  This would more accurately represent the dead prompt market as it is traded and would also more accurately represent the gallons that are being priced daily because the window is much tighter.

OPIS response to Comment #25: The methodology change suggested has been investigated and a proposed change is currently being forwarded to our subscribers to gain their input and feedback.

The following comments on OPIS spot price methodology were received during our recent “open season” (June 17 – June 30, 2016), which invited our customers to comment on and make suggestions for OPIS methodology.

Names and companies have been redacted to protect commenters’ identity.

OPIS takes customer feedback very seriously and will take each of these comments under advisement during our regularly scheduled spot editorial meetings.

Any contemplated changes or clarifications to methodology will be fully communicated out to our customers in a draft form, inviting further comment, before they are implemented.

In some cases, a suggested change to a methodology will not be accepted by the OPIS editorial team. We reserve the right to determine the applicability of each suggested change. In such cases, the commenter will be contacted by a senior spots editor to discuss the rationale behind rejecting the suggested change.

Once these comments have been fully investigated by our spot editorial team, OPIS will post its responses below each comment listed below.

Comments #20, 21, 22, 23 and 24
Received mid-June through end-June, 2016

Subject: Renewable Fuels Reference
Complaint Type: Reference
Affected Reports: Ethanol & Biodiesel Information Service & West Coast Refined Spots Report.

Comment #20

I am writing to convey my concern and displeasure concerning the way OPIS is pricing spot ethanol in California, specifically changing of the base price of ethanol with an embedded 79.9 CI. My company was one of the first companies to make investments to lower the carbon intensity of our ethanol in response to CARB’s LCFS program in 2010. Since that time we have continued to find ways to lower our carbon footprint. We currently supply over 130 million gallons of clean low carbon ethanol to the California market. Changing the CI value has robbed me of over 2/3’s of the carbon value of my product. OPIS has effectively told me to stop any future investments that might produce a lower CI ethanol through their new pricing structure.

Your argument that you can’t get a bid for an unobligated ethanol molecule shows a complete lack of understanding as to how markets work. What incentive does a obligated party have to post a bid for a unobligated gallon given that OPIS is willing to post bids for a 79.9 CI embedded ethanol gallon. Please note the change in price between May 31, 2016 and June 1, 2016. Wait….. the price didn’t change, but the price I got for my carbon did… it went down. Score one for the obligated parties!!

CARB strategy behind the LCFS was to incentivizes ETHANOL PRODUCERS [emphasis from commenter] to invest in technologies that would provide a lower and lower carbon fuel. What OPIS did on June 1, 2016 has effectively put a halt on this. Rest assured that when they ask me why we have stopped such investments, I will be very clear as to the reason.

OPIS could easily rectify this by posting a price for ethanol with no CI embedded in it. Post the price, let the markets work and in the end carbon will find its own value through price discovery which is the way free markets are supposed to work.

I would very much like to visit with you about this and as one of the larger shippers of low carbon ethanol to California, feel I could add some color around carbon price discovery for you.

Comment #21

We have significant concerns with your new ethanol pricing methodology. The price should reflect the spot value of the fuel without an embedded carbon value.

Comment #22

[Commenter’s company] along with other ethanol producers and marketers have made numerous comments concerning price reporting of spot ethanol in California. These comments have fallen on deaf ears and OPIS has told the producers and marketers of ethanol that our concerns weren’t valid. Ethanol is priced as a molecule in every market except California. How can your spot assessments for ethanol be an accurate reflection of the value of the molecule. Your own postings starting June 1 would state that ethanol and carbon isn’t being properly valued in the market. CI benchmark goes down over 10 points and the price of ethanol doesn’t change? That just lowered the price of ethanol and CI by over 9 cents per gallon.

CARB has found this to be interesting. They are concerned that the petroleum industry and OPIS think it is appropriate to include CI values with the molecule and flies in the face of the intent of the LCFS. The goal of LCFS was to have a value placed on Carbon that would drive innovation to lower carbon footprint and GHG emissions in California. IF the producer of low carbon fuels isn’t able to monetize the value of carbon due to Petroleum’s tactics, the rules will need change.

Bio-Diesel is priced in California as an unobligated gallon. The value of carbon and the value of the molecule are two different items. Why is ethanol different?

OPIS has and continues to be a mouthpiece for the petroleum industry.

Comment #23

Your California assessment is wrong. You should not have an embedded CI value (79.9) for the product of ethanol. The daily price of California should be assessed for unobligated ethanol, which has the same CI value as the gas standard. Anything else is wrong, and makes a market.

You have a viable LCFS credit daily price, let that work with an unobligated daily mark for participants to determine accurate value. Otherwise, you are making a market, which is unnecessary and harmful.

Comment #24

[Introductory paragraph redacted to protect commenter’s identity]

We agree with OPIS’ recent decision to relabel the Carbon Intensity (CI) Baseline for California to 79.9 as it seems to be a reasonable approach given the makeup of the market. The baseline CI should be the point of indifference where CI is not a factor regarding a Midwest Ethanol Plant’s decision to ship to California vs another location. In other words, it’s the point where a producer should expect to start receiving value for CI.

An interesting point about the California LCFS program is that an obligated party cannot simply “buy” their way out of compliance. The obligated parties as a whole must physically supply the market with a CI that reflects the reduction in life-cycle carbon. That fact means that the parties must purchase low CI products to achieve compliance. This factor is why every customer I work with wants CI to be transferred with the product they buy. I’ve asked directly about the notion of buying non-obligated ethanol and then paying for CI for anything below the annual CARB standard. The response is one of bewilderment as the (number)s simply don’t add up.

Using Arizona or Phoenix as a proxy for the closest non-CI market and one can see that the (number)s don’t work. Looking at last month’s OPIS data (May 2016):

$1.7407 LA
$1.6714 PHX
$115.381 Carbon – $/MT
.0009 $/CI

Using the 2016 standard of 96.50, why would someone pay 15.60 cpg more (96.5-79.9 x .0009) for baseline CI ethanol vs. a generic market? The market clearly understands that everyone had the opportunity for their CI go down through the recertification process as the ILUC for corn was lowered by 10.2 CI points. Market premiums are only earned when you have something different to offer, so OPIS, you were correct to simply relabel 90.1 as 79.9 as in effect nothing really changed from an ethanol price assessment standpoint.

Another issue that keeps coming up from my customers, is that unlike RINS, California Carbon Credits do not have a unique identifier to determine the lineage of the respective credit. Once credits are in the secondary market one cannot perform any due diligence regarding the validity of the credits in question. CARB understands this and will be addressing the topic, but for now obligated parties prefer to comply mainly via CI transfer vs simply buying credit in the open market.

Conclusion:

I have personally been associated with ethanol for nearly 25 years and have been trading ethanol for 20 years. I’ve never seen someone pay for hypothetical exercises. There isn’t a market for non-obligated ethanol in California, and I don’t envision one developing anytime soon. I would urge OPIS to resist the temptation to appease certain interests who feel they aren’t receiving a proper value for their product.

In my view, companies like OPIS or Platts must simply assess products that are traded and have liquidity and transparency in the market place. A non-obligated ethanol posting for CA will be subject to influence by a few players who may use it to score political points and that is not the role of a price assessment.

I would encourage you to focus on real issues that are impacting the market today. When will there be an assessment for Oregon or the PNW that reflects what is trading in the marketplace – Oregon Midwest Default – 69.89 CI?

In addition, I would encourage you to remove from your daily assessment the Carbon compliance #s (referenced below) as they do not properly reflect the role ethanol and other factors play in achieving compliance with the LCFS program.

Carbon CPG Gasoline ($/gal) $0.04200-$0.04310 $0.04255
Carbon CPG Gasoline 90 ($/gal)$0.03780-$0.03880 $0.03830
Carbon CPG Diesel ($/gal) $0.02940-$0.03020 $0.02980
Carbon CPG Diesel 95 ($/gal) $0.02790-$0.02870 $0.02830

Thank you for the opportunity to opine on your proposal. Please let us know if we can be of any assistance.

OPIS Responses to Comments #20, 21, 22 and 23 (summarized)

We appreciate your emails voicing your concerns about our California ethanol spot price discovery.

This year we have twice offered to show a spot ethanol value without an embedded carbon value, but our market editors have been unable to find any source willing to provide non-obligated price discovery in California on a regular basis. If we had such information, I can assure you that we would be reporting it.

OPIS is a reporting agency; we report the market as it exists. We don’t make the market. We don’t create the market.

Sources supply us with prices on whatever basis the market is working off of and then we report it.

If non-obligated gallons were trading and we could find out about it, we’d report that.

We are, however, hearing transactions being done on a 79.9 CI basis.

Re: OPIS’s CPG calculation – this calculation was added to the report in response to reader requests. OPIS sees no reason to remove the CPG calculation at this time.

On June 29, 2016 OPIS issued the following letter to its subscribers:

June 29, 2016
Dear Valued OPIS Customer:

As part of its ongoing commitment to accuracy, fairness and transparency, OPIS strives to ensure its spot price methodology accurately reflects market conditions and that its spot price assessments follow that methodology consistently and in line with observed market behavior.

In a May 18, 2016, letter announcing a change to our “full obligation” Los Angeles and San Francisco spot ethanol products to a 79.9 carbon intensity (CI) proxy to conform with the California Air Resources Board’s (CARB) revised ethanol pathway CI calculation, OPIS also requested market feedback on a proposal to launch a daily “non-obligated” ethanol assessment, beginning July 1, 2016.

Subsequently, OPIS has not received any indication that sufficient liquidity exists to support a “non-obligated” ethanol assessment. Therefore, OPIS will not add a “non-obligated” ethanol assessment at this time.

Rationale:
Over the past several months, some OPIS readers noted a small, but possibly growing, number of spot deals were being transacted under so-called “non-obligated” purchases that separated the ethanol from the carbon credit issued under California’s Low Carbon Fuel Standard (LCFS).

OPIS has received a number of requests that it use such deals as the basis for its methodology. And earlier this year, we considered providing a separate daily assessment for “non-obligated” spot ethanol in Los Angeles and San Francisco, only to conclude that such a market had not matured to the point where an assessment would be viable.

In our May letter, we again asked for industry feedback on whether there is ample liquidity to support a daily assessment and whether there was sufficient commitment from market participants to provide transparent trade data. 

Neither has been forthcoming. 

As a result, we do not believe that there is enough support in the market to provide a “non-obligated” spot ethanol assessment in California at this time.

We do, however, intend to continue to closely watch developments in the market and will reconsider our position if and when it is clear that sufficient volumes of “non-obligated” ethanol are trading and represent a meaningful portion of the state’s ethanol market.

Please email any questions to the OPIS biofuels spot assessment personnel below or to the OPIS Customer Service team at energycs@opisnet.com or 1-888-301-2645.

Comment #19
Received December 28, 2015

Subject: Renewable Fuels Reference
Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service & West Coast Refined Spots Report

I would like to see more detail on LCFS published numbers….if not in the report itself, then more definition in the methodology.

Specifically, I would like to see an example of the calculations in the methodology.

It is hard to follow the calculation of $/CI and CPG for gasoline and diesel from the price per metric tonne.

Furthermore, in the methodology, there is a factor for ethanol, but nothing for biodiesel.  With the various biodiesel feedstocks having different CI’s, it is hard to determine how OPIS arrives at its diesel values.

OPIS’s response to Comment #19

Customer was sent copy of Dec. 17, 2015 methodology change letter that more fully explains the calculations for our LCFS assessments. A follow up call was scheduled to address further questions.

Comment #18
Received September 30, 2015

Subject: Renewable Fuels Reference Date: September 30, 2015
Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service is pleased to comment on the methods regarding the consistency and reliability of pricing for spot ethanol markets in the U.S.

Overall the methods appear to us as logical and timely.

We do, however have a suggestion with regards to the California ethanol daily spot pricing.

Since the adoption of AB32, CARB has limited the types of transportation fuels allowed in the state based on its calculation of greenhouse gas emission potential.

These rules are under constant change. Some of these rules and changes are difficult to understand and therefore that lack of consistency has diminished broader market participation.

As the rules stand, however, there is a simple fix to the market assessment that will accommodate many of the changes.

That fix is to remove the 90.1 designation for ethanol and replace it with “ethanol non-obligated”. This would mean any buyer of ethanol or obligated party (obligated by the LCFS) will be allowed to buy molecules of ethanol and/or tons of carbon credits.

If the obligated party wishes to buy metric tons of carbon credits they can do so in separate market where metric tons are purchased and sold quite actively. This LCFS tons market exists today and appears to be gaining activity. This is how we believe CARB has designed their LCFS system. If a buyer (or seller) wishes to buy the molecules they can do so using the LCFS annual standard posted by CARB and buy them non-obligated.

Simply put: separate the two products fully, tons and gallons.

Our reasoning is as follows:

  1. There are fewer and fewer 90.1 ethanol production facilities left. The 90.1 was used in the beginning as it was unclear how it (the posting) should look.
    a. There were two defaults in the beginning. 90.1 and 98.4.
  2. The specific “90.1 CI” posting, by default, takes the obligation decision out of the hands of buyers and sellers. At least from the annual standard and the 90.1 benchmark.
    a. The 90.1 benchmark then makes the press accountable for how a market works                      rather than the market deciding how the market works.
    b. We believe the market should decide on tons and/or molecules independent of one              another.
  3. The LCFS annual benchmark (as of 2015) is 97.96. This will continue to change but the market will be notified by CARB well in advance.
  4. The 90.1 benchmark is in actuality a “partial obligation”. This transaction is cumbersome for both buyers and sellers on every gallon sold.
  5. If a market participant or obligated party wishes to buy tons there is an active carbon credit market existing today.
  6. A 90.1 posting designating a specific CI number inhibits participants, and by default, closes the market.
  7. Biodiesel works in a similar fashion. Molecules and tons.
  8. The liquidity of the 90.1 market is desperately thin. Especially in comparison to the total volume purchased in California and other similar markets in the PNW, Arizona and Carbon credits where liquidity is much greater.
    a. This is only due, in our belief, to the confusion of a specific and nonexistent CI of
    90.1.
  9. Believes that separating the two markets fully will increase participation, ease accounting burdens of buyers and sellers, reflect more accurately the market of BOTH gallons and tons and remove the confusion that exists in the trade and balances the market more fairly between buyers and sellers.

We would respectfully request feedback regarding our comments and those of others that have commented specifically regarding the 90.1 benchmark.

OPIS’s response to Comment #18

As you noted, other companies also have expressed an interest in how OPIS will adjust our coverage of biofuels and credits in California to reflect the reauthorized LCFS.

We will look at your comments carefully. We intend to reach out to your company and others in the industry very soon to make sure we understand how the pricing structure is evolving and can be expected to operate next year. Our goal is to provide the best solution for your needs.

Comment #17
Received September 28, 2015

Subject: U.S. Natural Gas Liquids
Reference Date: September 28, 2015
Complaint Type: Pricing
Affected Reports: OPIS’s LP Americas Report

Thank you for your time today. My concern is a customer of mine likes to look at Mt. Belvieu on this government posted website (www.eia.gov).

On Monday September 14th, they show Mt. Belvieu to be $.439

My OPIS report showed almost $.10 higher.

How do I explain that? What is the difference?

OPIS’s response to Comment #17

The company’s customer was confused between OPIS rack and the SPOT prices on EIAs website, they saw a 10cts difference because they were not comparing apples to apples. This was relayed to the complainant.

Comment #16
Received September 28, 2015

Subject: West Coast Refined Products
Reference Date: September 28, 2015
Complaint Type: Methodology
Affected Reports: OPIS West Coast Spot Market Report

OPIS should consider including those deals referencing “next-day” futures settlements if it is an EFP deal.

OPIS’s response to Comment #16

OPIS applies the basis to the current day close to create an outright contractual price, and because we do not know what the next day futures trading looks like, we do not consider that trade information for inclusion today.

However, OPIS will query the market, and re-evaluate the decision to exclude those EFP trades that are based off of a “future” settlement date.

Comment #15
Received September 25, 2015

Subject: Renewable Fuels
Reference Date: September 24, 2015
Complaint Type: Methodology
Affected Reports: OPIS’s Ethanol & Biodiesel Information Service

Natural Gasoline Spot Snapshot numbers in the Ethanol Alerts are the same for the 23rd and the 24th. I compared it to the LP spot report and the numbers don’t match there either.

OPIS’s Response to Comment #15

This was an error on the part of the spot market assessor for that day. A correction was issued Sept. 25, 2015.

Comment #14
Received March 31, 2015

Subject: Renewable Fuels
Reference Date: n/a
Type: Methodology
Affected Reports: Ethanol & Biodiesel
Information Service

After California ARB finalizes the new LCFS carbon intensity pathways for 2016 will OPIS revise the quoted LA and SF benchmark ethanol down from 90.1?

[We] would be interested in the anticipated timing and magnitude of any revision.

OPIS Response to Comment #14

Figuring out how to make an adjustment is definitely on our priority list. We looked at moving off the 90.1 benchmark a few years ago, and we received a lot of resistance. We will re-examine the possibility now and if warranted, will draft a methodology change.

Comment #13
Received March 25, 2015

Subject: Natural Gas Liquids (US)
Reference Date: n/a Complaint
Type: Methodology Affected Reports: LP Report

Conway propane is liquid enough to handle a 10,000 bbl minimum for reportable deals.

OPIS Response to Comment #13

OPIS has examined the commenter’s suggestion and has determined there is inadequate rationale for altering its methodology at this time.

Comment #12
Received December 23, 2014

Subject: Renewable Fuels
Reference Date: December 18, 2014
Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service

The biodiesel price on December 18 did not reflect any of the benefit of the $1.00 per gallon Blender’s Tax Credit for 2014. This credit had been the subject of Congressional discussion and voting throughout 2014. As of December 18, it had passed Congress but had not been signed by President Obama. Because Obama was expected to sign the legislation, the tax credit should be reflected in the biodiesel price — raising it by some fraction of the anticipated $1/gal credit.

OPIS Response to Comment #12

OPIS price sources did not report any trades at the higher price. They were clear that the price was not including the credit yet. One source did report one seller asking for a higher price, but no buying interest for biodiesel at the higher price until the credit was official. On the next day (December 19), the legislation was signed, and OPIS sources confirmed trades at higher prices to reflect the tax credit.

Comment #11
Received June 27, 2014

Subject: Renewable Fuels
Reference Date: n/a
Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service

The below comments are in regards to the two week open comment period about spot-pricing methodologies. All of our comments focused strictly on the methodologies of the Renewable Fuels/RIN credits.

U.S. Atlantic Coast
It is our belief that the methodology for the spot price at NYH based solely on the barge market and not a combination of both 5X3 barges and prompt ITT’s has led to the pricing in the report to not be indicative of what is actual being seen in the market. [We] would propose dropping  the New York ITT quote, and instead use a combination of what is considered to be prompt barges as well as prompt ITT’s to get the price. This would allow OPIS to get more market points with which you can indicate a more accurate market.

U.S. Midwest
Ethanol – for the fob Kinder Morgan quote it is unclear to us why 10k bbls is the peg for what is reported when that market trades in 5k bbls lots more often than not.  In our opinion we would like to see reported trades of 5k bbls be the benchmark, because again there would be more pegs to indicate a more accurate market.

Ethanol Rule 11 – [We] would like to see a rule 11 unit train quote here for true rule 11 trains. With Railroad issues, turn times, and rail car prices the market is much more aware of what destination cars are going.  It would be beneficial to the market as a whole to see what unit trains billing out 1-10 days are trading for true generic trains with no restrictions.

Chicago Dead Prompt – Much like the ethanol above we believe that bench-mark pricing of 5k bbls would be more indicative of volumes that the market trades as well as will give OPIS more pegs with which they can benchmark.  [We] would also like to see the timing of “dead prompt” changed to 0-1 days not 0-2. Two days out in the trading realm is not really considered dead prompt.

In regards to the 90.1 benchmark. As we’ve mentioned before … it worked well in the beginning as clearly few people understood what the LCFS was and how it could be bought and sold. The 90.1 and the 98.4 we’re default pathways and quite common. However as the market became more sophisticated and more pathways were approved by CARB it became clear that the 90.1 benchmark was trying to find values on two separate and distinct products: A molecule of ethanol and a carbon credit.

It has become fairly common now for molecules of ethanol and tons to trade in separate markets. Furthermore there are fewer and fewer 90.1 plants that ship to CA and certainly not many higher CI plants.

[We propose] the benchmark be based on those two separate commodities:

1) Non obligated ethanol. This ethanol would be sold into the state by an obligated importer … The molecule would be subject to the CA LCFS annual standard. Since the annual standard is a value that every transportation fuel marketer is subject to and understands there should be little misunderstanding what CI it is. Which is the case today. (some railcars may have several CI’s within).

2) Carbon Credits. Simply as it is traded today.

In this fashion any CI value of ethanol can be sold and purchased in CA.Once that becomes clear, and it will quickly, more liquidity will be the result.

We believe this was the initial intent of the CARB staff and will convey more liquidity and more clarity to the market.

As for the RIN assessment [we] would like to see the reported volumes decreased to something that includes all parties participating in the markets this volume would be 100k or more RINs.

OPIS Response to Comment #11

Re: U.S. Atlantic Coast – On Nov. 3, 2013, OPIS took the step of assessing a separate spot price for in-tank ethanol in New York at the request of marketplace stakeholders. We feel this is the best reflection of the differences exhibited by the marketplace and deals transacted that we witness. To combine the markets once more would not suit the purpose of greater transparency.

Re: U.S. Midwest – We believe this observation to be in error. Our methodology is for “up to 10,000 bbl” and we do, in fact, include 5,000 bbl transactions in our price ranges.

Re: Ethanol Rule 11 – It is OPIS’ belief that liquidity for unit trains 1-10 days out has not yet materialized in the marketplace. We would consider adding this pricing point if the market further develops. Most deals OPIS receives are talked as shipping “this week” or less frequently “next week.”

Re: Chicago Dead Prompt – We do include 5,000 bbl deals in our range. Again, our methodology is “up to” 10,000 bbl. It is OPIS’ impression that a “dead prompt 0-2 day out” price is usually a “same day” or “next day 0-1 day” number because far less trades two days out. We do not see a need for a change in our methodology at this time.

Re: the California 90.1 benchmark –  OPIS continues to explore options for assessing a separate ethanol and carbon market price but as of yet, the majority of other stakeholders are resistant to such a change. When OPIS suggested such a change last fall, it was met with overwhelming market resistance.

Re: RINS –  OPIS has always been flexible in our RIN assessment volumes, stating “generally” a minimum of 1 million RINs for D6 ethanol credits.  The other more esoteric RINs are assessed on much smaller minimums. It is OPIS’ belief based on marketplace feedback that 100,000 is too low of a volume to include in our D6 assessment. Our minimum level was originally set to rule out the sometimes much cheaper second-tier RINs that invariably traded at lower volumes. Still, a lower minimum for D6 RINs than currently stated may be in order and will be the subject of further investigation by OPIS.

Comment #10
Received June 20, 2014

Subject: Renewable Fuels
Reference Date: n/a
Complaint Type: Methodology
Affected Reports: Ethanol & Biodiesel Information Service

For biodiesel daily spot B100 SME Chicago, I recommend that you clarify the pricing you receive is truly B100 – where the purchaser would file for and retain the full $1.00 per gallon biodiesel tax credit if it is reinstated retroactively. I have heard a lot of comments that lead me to believe most B100 pricing includes a 50/50 split on the biodiesel tax credit if it is reinstated. Any tax credit splits are not identified or reflected in your daily spot or weekly renewables reports.

OPIS Response to Comment #10

We do not count it at all when we quote B100 prices. Our reasoning is this: The tax credit is not earned at the spot level, where we gather our pricing information. The credit is earned at the blending level after the transactions we report.

We understand that 50/50 splits or any other split can be negotiated between biodiesel sellers and blenders. But we are not attempting to capture the impact of those individual agreements.

Our language to describe our methodology is this: Biodiesel: Soy methyl ester (SME) B100, ASTM specification, in rail volume not including any tax credits for blending, FOB Argo terminal, 3-15 days from the published date. Deals must generally include current calendar-year RINs transfer that correspond to the product delivery date.

The following comments on OPIS spot price methodology were received during our recent “open season” (March 17, 2014 through March 28, 2014), which invited our customers to comment on and make suggestions for OPIS methodology.

Comment #9
Received March 26, 2014

Subject: Natural Gas Liquids (US)
Reference Date: n/a
Complaint Type: Format
Affected Reports: International Feedstocks Intelligence Report (IFI)

IFI shows a Natural Gasoline value in $/mt right under the Paraffinic Naphtha assessment in $/mt but only shows River Natural Gasoline values. This is confusing.

OPIS Response to Comment #9

Although the IFI report shows only River Natural Gasoline values, the $/mt value appearing under the Paraffinic Naphtha value in IFI is Mt. Belvieu non-TET natural gasoline. OPIS does not specify that in IFI but will change the Natural Gasoline label to Mt. Belvieu Natural Gasoline for clarity. This will be addressed in the next IFI redesign.

The following comments on OPIS spot price methodology were received during our recent “open season” (Dec. 13, 2013 through Dec. 31, 2013), which invited our customers to comment on and make suggestions for OPIS methodology.

Comments #6, 7, 8
Received December 18, 19, 26, 2013

Subject: Natural Gas Liquids (US)
Reference Date: n/a
Complaint Type: Methodology
Affected Reports: LP Report

December 18, 2013 — I think the ‘end of day’ reporting period should end closer to when the market ends … very little trading happens after 2pm. I realize the … window goes on past 2pm – so maybe the cut off for deals to be included is 2:30 CST.

December 19, 2013 — On behalf of , I would like to comment on the OPIS Pricing Methodology. My comment is that we would prefer to see the daily assessment period end at 2:00 p.m. Central time rather than the current 4:00 p.m. Central time. We believe that market liquidity after 2:00 p.m. is generally not sufficient to warrant inclusion of trades executed after that time.

December 26, 2013 — After reviewing the spot methodologies for Natural Gas Liquids price reporting on your website, we would like to request that you amend your pricing timeframe to end at 3 p.m. Eastern Time (2 p.m. Central) daily to be more in line with futures trading.

OPIS Response to Comments #6, 7, 8

These suggested changes are under advisement. Since any such change in our methodology would be wide-sweeping and quite a departure from our full-day methodology, OPIS must take considerable care to solicit as much feedback from all market participants as possible before making any such change.

The following comments on OPIS spot price methodology were received during our recent “open season” (Sept. 16, 2013 through Sept. 27, 2013), which invited our customers to comment on and make suggestions for OPIS methodology.

Comment #1
Received September 19, 2013Subject: LP Report – Edmonton and Conway In-Well Propane
Reference Date: 9/11/2013
Complaint Type: Price Assessment
Affected Reports: LP Report
—————————

I just want to confirm the numbers we are seeing below. These are the numbers we get from the OPIS report that we enter into our system. There is usually a pretty large gap between Edmonton and Conway in-well. But as you can see below, they have been exactly the same for the last 6 days, starting 9/11/13. Just want to confirm. This does not look right.

 

 

 

 

 

 

 

OPIS Response to Comment #1

After consultation with the complainant, OPIS issued a correction. The error was the result of technical difficulties that have since been addressed.

Comment #2
Received September 26, 2013

Subject: EBIS
Reference Date: 9/27/2013
Complaint Type: Chicago, NYH spot ethanol
Affected Reports:
—————————
Taken by Bob Gough 9/26/13 – [Customer] wants us to consider moving our 3-10 day timeframe to 1-5 days to take into account more prompt deals.

OPIS Response to Comment #2

On Oct. 2, 2013 OPIS notified its customers that it is considering two new pricing points to address volatility in the Chicago and New York markets.

We propose, starting November 3, 2013, to include two new price points that we feel will increase price transparency:

Comment #3
Received September 27, 2013

Dear OPIS Representative,

After reviewing the spot methodologies for Natural Gas Liquids price reporting on your website, we would like to request that you amend your pricing timeframe to end at 3 p.m. Eastern Time (2 p.m. Central) daily to be more in line with futures trading.

OPIS Response to Comment #3

OPIS feels that our price reporting period allows for us to capture a large percentage of the volume of NGL trading done during the U.S. day. To narrow our window would potentially exclude many deals done just after the NYMEX close. That would include a significant number of trades used in the exchange of futures for physical.

Comment #4
Received September 27, 2013

Regarding the OPIS ethanol postings for Chicago (and possibly for your other market centers), I have the following feedback based on a general sense from my high level observations and discussions with direct participants:

OPIS Response to Comment #4

On Oct. 2, 2013 OPIS notified its customers that it is considering two new pricing points to address volatility in the Chicago and New York markets.

We propose, starting November 3, 2013, to include two new price points that we feel will increase price transparency:

Comment #5
Received September 19, 2013
Subject: Natural Gas Liquids (US)

In response to your request for industry feedback regarding OPIS methodologies we would propose the following changes to make the process more transparent:

OPIS Response to Comment #5

OPIS also includes in our report trades that are executed directly between counterparties. And depending on the day, we may include bid or ask values in our ranges. Our methodology emphasizes that completed transactions are considered the most reliable measure of a market, however, in thinly traded products or in light market days, we may not see any transactions.
We received other queries to implement a weighted average and we would consider that providing we get deal submissions from all market participants. We would need the volumes, prices and counterparties so that we could ensure that we appropriately tally the day’s transactions. I do not believe that Shell currently contributes deal information to OPIS. But, we would need your information in order to start.
We feel that our price reporting period allows for us to capture a large percentage of the volume of NGL trading done during the U.S. day. To narrow our window would potentially exclude many deals done just after the NYMEX close. That would include a significant number of trades used in the exchange of futures for physical.
We would not consider a weighted average and we want our index to reflect the full day’s activity. We are concerned that granting a smaller portion of the trading day as much weight as a longer portion could open our assessment process to attempts at manipulation by traders who would only participate at certain periods in the day.