About $6.5 billion locked in SAF forward purchase agreements globally. SAF provides effective mechanism for carbon offsetting. Coronavirus pandemic pushes industry to "fragile" state.
Sep 15, 2020
“About 10 years ago, there was no SAF and there were big questions around it … will it hurt the engines, how will it affect aircraft performance, how do they certify it and will it be safe,” he said at the S&P Global Platts 36th Asia Pacific Petroleum Virtual Conference, or APPEC 2020.
“We’ve nearly performed about a quarter of a million of flights on SAF in the last few years,” he said, adding that while it is still a young industry, it is growing very fast and had already translated into about $6.5 billion in forward purchase agreements worldwide.
In 2009, the industry set a strategic direction entailing three steps. The first one was a pre-2020 ambition, which was to achieve 1.5% average fuel efficiency annually from 2009 to 2020. The average has been about 2.3% per annum, he said. “So, that’s good.”
The second step is to stabilize net aviation CO2 emissions at the 2020 levels with carbon neutral growth. He explained that the aviation industry is committed to not exceed its 2020 net carbon emission levels. In this regard, a positive outcome is that there is one global agreement and not what could have ended up being multiple agreements and that too by different governments, Boyd said.
The long term goal is to reduce aviation’s net CO2 emissions to 50% of what they were in 2005 by 2050, and that’s the important part for sustainable fuels.
As far as the Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, goes, SAF can also be used as a mechanism to reduce the offsetting obligations, Boyd said.
“While I don’t think SAF will be the primary compliance tool used, almost all airlines have become educated on SAF and how they can use it,” he said.
Currently, there are around 40-50 airlines with experience in using SAF, and that could easily ramp up significantly in the coming years, Boyd said, adding that other stakeholders were also increasingly participating in offtake agreements for SAF.
Amazon’s air cargo operation — Amazon Air — for example, secured up to 6 million gallons, or about 23 million liters, of SAF under a recent deal.
“The aviation industry is going through the most devastating crisis it has ever experienced … the global financial crisis in 2009 was pretty tough. But that was a blip [when compared to this],” Boyd said.
In June, air cargo volumes were down 18% year on year and passenger volumes plunged 87%, Boyd said. “So, the industry has to be mindful.”
Global revenue passenger kilometers, or RPKs, are not likely to recover to 2019 levels until about 2024, while the balance of risks and uncertainty in the industry remains tilted to the downside, he said, adding that a slightly disjointed response from different governments worldwide in opening up their borders has also been a setback.
The industry is in a “very fragile financial state” with a record net loss of $84 billion likely this year, Boyd said.
Still, there is no walking away from the environmental targets set and there is a lot of policy momentum that will underpin SAF use in the next three to five years, Boyd said.
“I think there is growing emphasis on clean, green sustainable fuels, you can see it happening in diesel, gasoline, fuel oil, and cleaner aviation fuel is next … SAF is gaining recognition in Europe and the US, and it will take time to spread globally, and for it to take off, it has to be widely recognized and accepted by the public,” an industry source said Sept. 15
SAF, however, comes at a costly price compared to fossil jet fuel. A 10% uptake of SAF in the jet fuel mix translates to an average cost of $40-$50 per passenger, Neste, the largest sustainable aviation fuel producer, said earlier in an International Air Transport Association webinar.
According to Platts data, the price spread between SAF in Northwest Europe and FOB Singapore jet fuel/kerosene stood at $153.05/b at the Sept. 14 close.
“Previously, the emphasis on SAF was not that serious [in Asia], but in recent months, we have been hearing major companies turning their business direction to renewables and non-fossil fuel businesses,” another industry source said.
“So, I guess COVID-19 has actually expedited some reactions in this aspect. As consumers, safety is the main consideration [on the aviation front],” he added.
Jun 16, 2020
Kpler data shows US exports of gasoline and diesel to Mexico and Brazil, the region’s largest buyers, fell to 3.66 million barrels and 5.16 million barrels, respectively, in May, from 19.78 million and 12.03 million barrels in January. US Gulf Coast inventories have swelled, with diesel stocks roughly 30% above the five-year average.
Sep 17, 2020
US Gulf Coast market players looking to get light naphtha barrels off their hands, a hungry Asian market and weakened freight is the perfect arbitrage recipe. But with shipowners reluctant to move their ships East, where the freight market is weak, the balance has been delicate.
Sarah Raslan, US naphtha editor, and Marieke Alsguth, US clean tankers editor, chat with Americas Oil Markets Editorial Director Director Richard Swann to dissect the ingredients that have set the table for this arbitrage opportunity.
Our latest featured announcement is the launch of the first sustainable aviation fuel price assessments in America.
Don’t miss a beat, with the latest news, videos and podcasts on our rapidly changing industry.EXPLORE INSIGHTS
A post-pandemic economic recovery would see global CO2 emissions return to 2018 levels by 2022, according to Platts Analytics Scenario Planning Service, whose data and forecasts are visualized here. After 2022, growth in CO2 emissions essentially flattens to 0.2% a year before peaking in 2032. By 2040 emissions remain around 3 Gt above 2020 levels, […]
Jun 22, 2020
After 2022, growth in CO2 emissions essentially flattens to 0.2% a year before peaking in 2032. By 2040 emissions remain around 3 Gt above 2020 levels, as abatement efforts are offset by the continued use of coal for power generation in Asia’s growth economies.
The largest incremental emissions reductions will be realized in power sector decarbonization and alternative transport fuels in the OECD.
Related story: Global carbon emissions from energy to plateau this decade: S&P Global Platts Analytics
The seven countries and regions shown account for 77% of global carbon emissions from energy use. Of these emissions, 48% derive from coal, 32% from oil and 20% from gas use, based on 2019 data. (Toggle countries to isolate or combine them in the visual)
There is rising supply for European diesel and while demand is recovering it is still short of last year’s levels, the pronounced contango this is prompting comes when many clean tankers are choosing to stay in the region, meaning the stars are aligning for floating storage. Middle distillates expert Virginie Malicier and clean tanker specialist […]
Sep 15, 2020
There is rising supply for European diesel and while demand is recovering it is still short of last year’s levels, the pronounced contango this is prompting comes when many clean tankers are choosing to stay in the region, meaning the stars are aligning for floating storage. Middle distillates expert Virginie Malicier and clean tanker specialist Chris To tell Joel Hanley the latest.
Sep 14, 2020
While the world could witness peak demand for transportation fuels by 2035, India’s demand growth for those fuels would continue for a much longer period, creating the need to pursue both greenfield and brownfield refinery expansions, Vaidya said.
“India will be the growth center for oil in the long run. Post COVID-19, we are revisiting the numbers but I can say that the peak is yet to come. The Indian subcontinent will need more refineries to fulfill the appetite of transportation fuels. For IOC refineries, we have planned brownfield expansions. We will also have a couple of grassroots refineries,” he added.
But Vaidya added that with oil product cracks remaining low, having a model integrated with petrochemicals is the only way forward. “Over the long term, the focus will be on capacity augmentation, and getting into the areas of niche petrochemicals with further forward integration into textiles.”
IOC has annual petrochemicals capacity of 3.2 million mt and the ongoing projects would enhance it by more than 70% by adding another 2.3 million mt, he added.
“Crude-to-chemicals is a technology frontier to capture the opportunity presented by the immense potential in petrochemicals demand, but it comes with very high capex demand. IOC is carefully evaluating various options to take forward our oil-to-chemicals ambition,” he added.
The comments from India’s biggest state-run refiner on pursuing refinery expansion come at a time when many of the world’s top oil companies are looking to cut their oil portfolio while embracing cleaner forms of energy to reduce the carbon footprint.
Vaidya added that with India’s energy consumption being just about one-third of the world average, their would be room for all kind of fuels. “It’s not a question of this fuel versus that fuel.”
He said although the world had witnessed an unprecedented oil price crash, contraction in energy demand, steep cuts in energy investments, asset restructuring and bankruptcies, the need for digitalization and the thrust on green initiatives could potentially accelerate the pace of energy transition.
“Lower prices of fossil fuels, eagerness for a faster recovery, consumer preference for personal vehicles over public transport, increased use of disposables, deterioration in the geopolitical backdrop and overall reduction in energy sector investments could act as reverse forces,” Vaidya said.
He added that natural gas would play a key role in India’s energy transition process as the country aims to increase the share of the cleaner fuel in the energy mix to 15% by 2030, from around 6.2% currently, although it was a challenging task at hand.
“Natural gas is the most promising in the Indian context in the short term, given that it is the only option that can be scaled up in line with India’s growing energy demand. We are also eyeing opportunities like small-scale LNG dispensing and mobile CNG dispensing for promoting gas as a greener transportation fuel,” he said.
Historically, limited domestic gas resources, the absence of transnational pipeline imports and lack of domestic cross–country pipeline infrastructure had constrained the natural gas sector, Vaidya said.
India’s domestic gas production, which had stagnated for many years, is expected to double by 2030. LNG storage and regasification capacity of 42.5 million mt is already available in India, which is likely to go up to 63.5 million mt by 2024, Vaidya said.
Vaidya said there was an ongoing global momentum to usher in the hydrogen economy across various sectors, with Asia-Pacific taking a leading role in that segment.
“For a country like India, hydrogen has unique advantages in terms of higher energy density, flexibility of production pathways, wide range of applications and higher fuel cell efficiencies, making it a promising option to meet the energy demands in the future,” Vaidya said, adding that IOC was pushing ahead with its hydrogen research program.
“Hydrogen-spiked compress natural gas is one of the patented technologies. IOC has undertaken extensive research on fuel cells to offer low cost solutions. With refineries presenting a very attractive case for acting as the hydrogen production and supply centers, IOC is going to pioneer deployment of fuel cell technology in the country,” Vaidya added.
IOC is working on technology to develop hydrogen-spiked CNG, or H-CNG, which would involve partly reforming methane and CNG, Vaidya said. Under this process, the entire CNG of a station passes through this new reforming unit and part of the methane gets converted into hydrogen, with the outlet product having 17%-18% hydrogen.
In addition to hydrogen, IOC was stepping up efforts to expand into biofuels, such as compressed biogas and 2G ethanol, Vaidya said. “I see IOC in the next 5-10 years having a more diversified fuel offering bouquet for sure, with growing space for transition fuels.”
Sep 15, 2020
The coronavirus had hit demand a “great deal,” head of global demand and Asia analytics at S&P Global Platts Kang Wu said. This accentuated the plight of an industry, which was already reeling from lower demand due to a variety of other factors such as seasonal weather patterns and a weak global macro-economic backdrop, he said.
While a recovery was in sight, the coronavirus continued to cloud this recovery. Even as of August, S&P Global Platts Analytics estimated that global oil demand was more than 8 million b/d below that of last year, Wu added.
General manager of the crude oil and tanker department at Japanese refiner Cosmo Oil, Mitsuyasu Kawaguchi, said that the industry was facing tremendous short-term challenges as from demand destruction and was also grappling with long-term hurdles due to the energy transition.
Back in March-April, a huge contango emerged and then prompt cargoes were being traded at a hefty discount. So refineries and traders with extra storage space capitalized on it to the tune of tens of millions of dollars, Kawaguchi said.
However, that was no longer the case, he said. “There is some contango emerging but it’s not simply not as we witnessed back in April.”
Complex refineries were facing a hard time as reforming, cracking and coking margins were depressed, he said. The API spread was depressed too and had occasionally flipped to a minus, he added.
“US shale structural production decline is a concern. But delivered in the Atlantic Basin, demand recovery is going to lag behind the Asia-Pacific,” Kawaguchi said.
“So, I hope and I am expecting that we Asian refineries could grab some opportunity to bring cheaper barrels, particularly lighter grades, sweeter grades in coming months…That’s how we are trying to survive through the short-term challenge,” he added.
China’s oil demand was still growing compared with last year, though at a smaller pace due to the coronavirus, head of the research and strategy department at Unipec, Fairy Wang Pei, said.
China imported huge volumes of crude grades over April-June, with imports averaging 11 million b/d over January-July, translating into 11.5% year-on-year growth, according to data from the General Administration of Customs.
Low crude oil prices attracted huge buying interest, especially from independent refineries, which has used up almost their entire annual quotas by the middle of the year.
Meanwhile, China’s product exports, which had been increasing year on year for the past five years, started to fall this year due to lack of export profits, she said.
As a result, in January-July, China’s net oil products exports dropped by about 7% year on year, she added.
Still, compared with refineries in other countries, China’s refineries were “really lucky” to have had good refining margins throughout the pandemic, she said.
Oct 15, 2020
The S&P Global Platts 10th Annual NGLs Conference brings you timely information to help you understand the short and long-term outlooks on NGL supply, demand, pricing & trade at the global, regional and country level.
Join us as we take an in-depth look at the state of the industry and answer your questions about oversupply, production, infrastructure, export capacity, new fractionation facilities, petrochemical demand and pricing factors, and much more.
2019 was a bearish year for the petrochemicals industry. With weaker-than-expected demand, additional global capacity coming online and shifting trade flows – how have petrochemicals been impacted?
Hear expert perspectives on the latest issues and opportunities:
— NGLs and petrochemicals: Global economic trends and market drivers
— North America NGLs: State of industry beyond Coronavirus
— Energy transition: Market conditions and investment opportunities
— Pricing and supply/demand dynamics: A focus on propylene and ethylene, plus biodegradable plastics
— Outlooks: NGLs market beyond 2020, supply, midstream and more
— Infrastructure update
Network with a diverse group of industry professionals made up of producers, pipeline operators, refiners, traders, analysts, financiers, midstream players, buyers, consultants and more.
Sep 21, 2020
D4 Renewable Identification Numbers have reached multi-year highs amid rallies in soybean oil, the most common feedstock for biodiesel in the US, while California Low Carbon Fuel Standard credits have hovered between $190/mt and $210/mt for the past two years. The reinstatement of the $1/gal federal biomass-based diesel tax credit through the end of 2022 has added additional value to entice refiners.
Renewable diesel (RD) and sustainable aviation fuel (SAF) both generate RINs, LCFS credits and qualify for the federal tax credit.
“With the decline in oil demand plaguing refineries, it should be no surprise that refiners have directed more attention toward producing sustainable aviation fuel (SAF) and other low carbon fuels,” said Corey Lavinsky, advisor for global biofuels analytics with S&P Global Platts Analytics.
The combined value of those credits was over 390 cents/gal for RD and over 370 cents/gal for SAF sold in California as of Sept. 21, based on current prices for RINs, LCFS credits and the $1/gal tax credit.
Production costs for RD and SAF, meanwhile, have hovered between 350 cents/gal and 375 cents/gal in recent weeks, according to Platts analysis.
That means if a seller separated and kept all available credits, the price of a gallon of SAF could be negative.
Platts valued California SAF with all credits attached at 366.369 cents/gal Sept. 21, on the first day of publication for the price, while California SAF with credits detached was minus 4.949 cents/gal.
Biofuels market participants frequently negotiate splits of available credits. In the biodiesel market, producers typically separate RINs before selling the fuel and keep the tax credit, allowing them to offer product at steep discounts.
A negative price for a fuel may entice buyers, but buying a biofuel without credits could leave buyers in a difficult position if they need the credits to demonstrate compliance with renewables fuels mandates. That leaves buyers to consider whether to negotiate for the seller to keep certain credits and lower the cost of the fuel, while paying for the credits they need.
LCFS credits make up approximately 150 cents/gal of the additional value for the distillates, based on average carbon intensities published by the California Air Resources Board and analyzed by Platts. The remaining 220-240 cents/gal has created avenues for producers to sell RD and SAF outside of California, though California remains the largest single consumer of the fuels.
The state consumed over 130 million gallons of renewable diesel in the first quarter of 2020, according to California Air Resources Board data. In the fourth quarter of 2019, the state consumed nearly triple the volume of RD as biodiesel at nearly 165 million gallons.
With more refiners announcing plans to convert conventional production to renewable distillates capacity, Platts launched SAF prices in the US on Sept. 21 to bring transparency to this emerging product while continuing consultations with the market on RD.
As SAF is an emerging market with low production volumes, Platts’ US SAF value uses inputs and yields from Platts Analytics and existing Platts assessments to build valuations.
Platts publishes US SAF prices with environmental and government credits – RINs, California Low Carbon Fuel Standard (LCFS) credits and the federal biomass-based diesel blender’s tax credit (BTC) – and without credits to reflect a ceiling and a floor for the SAF market.
The value without credits reflects the sky-high prices those credits currently command, which has motivated more and more refiners to convert conventional production capacity to renewable diesel and SAF.
Valero and BP were early movers in the renewable diesel space, but Phillips 66, PBF Energy, CVR Refining, HollyFrontier and Marathon have also announced plans to convert capacity to renewable distillates, drawn by the added value from credit as oil refining margins tumble.
Though recent prices have pushed credits above the cost of SAF production, the amount of renewable diesel and SAF capacity coming online in the next five years is expected to lower the value of California LCFS credits and RINs, bringing the with credits and without credit values closer together. Platts Analytics forecasts 3.088 billion gallons of available RD production capacity in the US by 2023.
“The cumulative value of state and federal incentives for blending these fuels is eye-popping,” Lavinsky said. “Few expected that the value of these credits would be higher than the cost to produce SAF, but that’s where we are today for SAF sold into the California market.”