Happy late Thursday friends! Here’s my weekly take on the five most interesting developments in future fuels and vehicles trends over the last week:
The theme of this morning’s policy forum at the Advanced Biofuels Leadership Conference in Washington, DC was around the industry’s collective objective to assure the 2017 Renewable Volume Obligations (RVO) stay finalized under the Renewable Fuels Standard (RFS) and get the 2018 RVO rulemaking out for public comment by June of this year. On the panel were Brent Erickson of BIO, Mike McAdams of the Advanced Biofuels Association (ABA), Anne Steckel of the National Biodiesel Board (NBB), Brooke Coleman of the Advanced Biofuels Business Council and Kathleen Roberts of Bergeson & Campbell (representing renewable chemicals stakeholders). A major point of discussion concerns the move by billionaire investor and Trump advisor Carl Icahn’s request to the Administration to switch the point of obligation for the RFS from the refinery to retail. Following are key comments from the session:
“Let’s reset for a second and think about where we are. The RFS was easy to implement until 2013. Everything changed in 2013 with higher RIN prices. Among the scary news, don’t forget about what happened. We pounded through a two-year period to get the RFS back on track. The same happened in November in 2016. What does it mean? We got the waivers that we didn’t like out of the rule, and got robust volumes on the advanced side across the board.” — Brooke Coleman
“There a lot of drama and all the excitement [in the Administration] is a sign of things to come this year. We need to remember the big picture, we all support advanced biofuels. We will continue to work together to implement RFS and grow volumes.” — Anne Steckel
“The House is thinking of legislating on RFS, but not Senate. The president supports the RFS. It takes nerve to invest and advocate for the industry, but we are making progress and part of the discussion should be on progress.” — Brooke Coleman
“Our priority this year is to get the producer tax credit for biodiesel.” — Anne Steckel
“The bottom line: I’ve never seen Washington in the place it is right now on every level. So that means we all have to be even more diligent and engaged. We have to be more civil whether we are Democrats or Republicans to get the right answer for our countrymen and the people we represent. We have a whole range of experience engaged with across the federal agencies. I think there is a lot of confusion about priorities. I would like to suggest four priorities. It is incumbent that the Administration finalize the 2017 RVOs as published and make it final so that the market knows there’s an obligation. Folks that support moving the point of obligation were ‘too cute by half’ and it was one step forward and three steps back. We need to capture that. There will be a letter circulated by SIGMA (the association that represents the gasoline marketers in the U.S.) that all will sign. This is key and one of the unspoken pieces. For the RFS, all real estate and all the political power are the with jobbers. When the jobbers get screwed above and below the rack, they will no longer support the program. They will not support the program. Merchant refiners will capture the value [at their expense]. Once we’re done with the 2017 rule, we need to get the 2018 RVO rule out. We cannot deal with another three-year lapse of suspended animation for this industry. There are two pieces that also need to be dealt with that are important to cellulosic and have to be dealt with. First, there needs to be a biointermediate solution so people who can take cellulosic materials and strip sugars out can turn it into fuel when not co-located which is a barrier to entry for viable technologies we need online. Two, there are trees all over the U.S. and it’s absurd that the paper industry turns these trees into pellets and sends them to Germany. However, they can’t take that same tree and turn it into diesel or jet fuel. The regulations allow willow and poplar as feedstocks, which are trees we don’t have, instead of pine, which we do. We need to change that. If we can get those four things done, that’ll give a lot of hope and a lot of reach and a good future for the industry.” — Mike McAdams
“What happened this week with point of obligation goes back to Carl Icahn who’s been railing against the point of obligation and RIN transparency for some time. He did double his holdings in CVR right after the election, which is interesting. Valero joined the Renewable Fuels Association (RFA), which is another part of the puzzle. I think they were approaching different associations and offering to join if they change their view on the point of obligation. RFA thought this was a done deal and was forced to agree to it and it was a quid pro quo for RVP. There’s a lot of rumors swirling around about an executive order from the White House and different opinions on whether that’s true. Senator Chuck Grassley (R-Iowa) became concerned and was told by the White House that this was ‘fake news.’ But something’s going on. I can’t tell you whether there is an executive order. It’s safe to say that the Office of Management and Budget (OMB) and the Administration are doing a review and there’s a learning curve, that’s part of what’s going on. There are those outside Administration trying to create the narrative that it’s a done deal and you guys better get on board.” –Brent Erickson
“On the RINs issue I think we need to send a letter to Securities and Exchange Commission (SEC) and ask whether there’s been market manipulation. When $134 million in stock value happens after an article appears in the press…there’s a potential for the appearance of impropriety at minimum. When I was in the oil industry we were frequently investigated about market manipulation, so this is not unusual. This has to be on the table. Clearly there are efforts to straightjacket the EPA Administrator before his seat even gets warm. We had a rulemaking and we all commented on that rulemaking, it was totally transparent, let’s let new Administrator look at the facts and statements and make a ruling on what this is, a denial of the waiver. If he were to want to move the point of obligation, then he has to republish rule for comment. I don’t remember the last time the oil, biofuels, advanced biofuels, rail all opposed [this request to change the point of obligation]. There’s a huge coalition against this rule. These folks made a bad tactical mistake and as a result, the people that now handle this, the people in the Administration, clearly understand what a third rail looks like. We all must do our due diligence on this issue. It’s a must. We must stay in front of the EPA Administrator. [Making this change] would turn the RFS upside down, and as EPA said, it would harm the cellulosic and advanced biofuels sector.” — Mike McAdams
“Infrastructure is a big part of the [Administration’s] push this year. If we are not careful, infrastructure will be for legacy products only. We must make a strong case that distribution is important. That includes pipelines, roads, trains.” — Brooke Coleman
“When you look at the majors, we had whole compliance divisions across the board, at the refineries, at the racks. The jobbers are small entrepreneurs. The compliance obligations under the RFS are way beyond their wherewithal. Look at what happened after AB32 [California’s climate change program] happened. Pilot and Love left the rack in California because of the compliance costs. There was a massive exodus of competition at the rack. There was a 30-40% increase in gas prices. The wrong people were asked to take an obligation that they couldn’t afford to take.” — Mike McAdams
“I would be shocked if Congress does tax reform in 2017. This is an issue where, the more you chew on this, the bigger it gets. I think Trump made a mistake strategically. He should have focused on infrastructure first and built momentum with Democrats and Republicans.” — Brent Erickson
“The California LCFS allowed the biodiesel market to grow substantially. There will not be a nationwide LCFS. That’s politically hard to get across the finish line. But it does make sense to have state LCFS’. We support that.” — Anne Steckel
According to a report in Handelsblatt (subscription required), Beijing has decided to relax its ambitious quotas for electric and hybrid car production after holding high-level discussions with Germany. Chancellor Angela Merkel and Chinese Premier Li Keqiang discussed the issue in a telephone conversation, and Berlin had also sent a high-level delegation to Beijing for talks on a compromise. China’s ministry of industry is now drawing up plans to ease the quotas with a result expected in the coming week. It looks like the compromise will be a one-year delay and generous deadlines to meet quotas.
Beijing had originally planned to require automakers in China to shift 8% of their production to electric and hybrid vehicles in 2018. The quota would then increase to 10% the following year and 12% the year after that. German automakers complained the quotas would put them at a competitive disadvantage in China because they couldn’t meet the targets so quickly. The Chinese automobile industry association CAAM had also warned Beijing that some Chinese automakers couldn’t meet the quotas that fast.
First, what is PPMC? PPMC is an initiative to integrate the sustainable development and climate change agenda for the transport sector before the UN Framework Convention on Climate Change process and was created prior to the Paris Agreement negotiations in 2015. And now it’s moving forward with a global roadmap on decarbonizing transport. Read more about the roadmap here.
EIA commissioned a study from Argus Media group to better understand China’s consumption of methanol and its derivatives. EIA says the estimates developed in the study have now been incorporated into EIA’s historical data and forecasts of petroleum and other liquids consumption in China. In short, there’s more methanol being used in fuel products in China than was previously thought. With the auto industry’s reluctance to embrace methanol in part because of concerns over corrosion in vehicles, the interesting thing to me is with all this methanol blending and use, there doesn’t seem to be widespread consumer issues, impact or outcry ― at least in the media. The figure below shows methanol consumption in China from 2000-2015.
EIA notes China is the global leader in methanol use and has recently expanded methanol production capacity. Since the early 2000s, China’s methanol consumption in fuel products has risen sharply and is estimated to have been more than 500,000 barrels per day (b/d) in 2016, according to EIA. Most of China’s methanol supply is from domestic production. About two-thirds of China’s methanol feedstock is produced from coal and the remainder from coking gas and natural gas.
China’s largest city, Shanghai, and 13 of China’s 23 provinces have approved local standards for methanol blends ranging from 5% to 100% methanol. China has a national quality standard for methanol blends of 85%, and a national standard for a 15% blend of methanol in gasoline is pending approval by the government. MTBE is also blended into gasoline in China to increase octane levels. Consumption of MTBE and other derivatives in China was estimated at 230,000 b/d in 2016.
Methanol can also be converted directly to gasoline, and in China this conversion occurs much less often than the blending of methanol or its derivatives into gasoline. China built its first methanol-to-gasoline (MTG) plant in 2010, and since then, another 10 MTG plants have come online. MTG units involve high capital costs and are only cost-competitive when oil prices are high. Lower oil prices since late 2014 have reduced China’s MTG plant operating rates and have created uncertainty for investment in new MTG plants.
For blending into liquefied petroleum gases such as propane, China uses methanol to create dimethyl ether (DME). Despite an official ban on the use of DME in LPG cylinders, EIA notes some DME has been blended into LPG delivered to China’s residential sector. Over the past two years, though, two factors—stronger enforcement of the DME ban and lower price competitiveness of DME relative to LPG—have reduced the level of DME blending.
This week IRENA released the latest in its series of technology briefs on different aspects of renewable energy, this one on electric vehicles. It outlines the “technological and policy advances that are still needed for EVs to help drive the transition to a sustainable global energy future.” Read more about it here.
