California sees diesel-powered record LCFS credit build

Sinking petroleum diesel consumption in the first quarter helped produce a record first quarter build in unused California Low Carbon Fuel Standard (LCFS) credits, according to state data published today.

Credits available for program compliance grew by 1.34mn to another record 16.5mn t during the first quarter - adding pressure for the California Air Resources Board (CARB) to balance the program.

Total credit generation fell by 6.5pc from the previous quarter as renewable diesel, dairy-derived biogas, ethanol and electric vehicle charging all retreated from end-of-2022 levels. But even as deficits held steady from gasoline consumption - the source of 80pc of new deficits - diesel deficits plunged by more than 20pc from both the previous quarter and the first quarter of 2022. The combination left new deficits again short of new credit generation, and for the first time shrank petroleum diesel to less than half of the state's overall diesel pool.

Credits outpaced deficits for an eighth consecutive quarter, amassing a volume of unused credits that could satisfy 78pc of all the deficits generated in 2022 before needing another gallon of low-carbon fuel. It was the program's largest build so far of unused credits in a first quarter, a period which between 2018 and 2021 had consistently reported deficits exceeding new credits.

LCFS programs require yearly reductions in transportation fuel carbon intensity. Higher-carbon fuels that exceed the annual limit incur deficits that suppliers must offset with credits generated from approved, low-carbon alternatives. This year the program requires a 11.5pc carbon intensity reduction, up from 10pc in 2022. The program last year achieved a 12.6pc reduction, according to CARB.

Market participants offered little surprise to the latest increase in available credits. Market focus has turned to expected regulatory actions to make program targets tougher and reconsider which fuels may generate credits or deficits. Credits for the current compliance year traded several times before the report release at levels flat to the previous session.

The anticipated program changes have helped keep the LCFS price curve in contango, and in recent weeks maintained a roughly $4.50 premium for December 2025 futures to December 2024. Spot LCFS prices reached a more than six-year low of $60/t during the first quarter. Credits rose to $85/t in late May before a steady slide through June to current levels.

CARB staff have committed to a "summer" proposal and "fall" consideration by the board. Uncertainty over whether tougher targets and revisions to eligible fuels may take place as early as 2024 has influenced forward selling decisions.

Physical barrels of delivered renewable diesel increased by 8.8pc from the previous quarter to 108,000 b/d but generated fewer credits under the program. Credit generation from renewable diesel was 2.3pc lower than the previous quarter and 12.6pc larger than the first quarter of 2022. Dairy- and swine-manure derived biogas credits fell by 12.5pc from the previous quarter, though remained 32pc higher than the first quarter of 2022. Residential grid-based electric vehicle charging, a calculated figure, was reported 12.5pc lower than the fourth quarter of 2022 and 18pc higher than the first quarter of 2022.

California gasoline consumption fell by 3.6pc compared to the first quarter of 2022, according to CARB data. Total petroleum diesel demand, at 94,000 b/d, was 30pc lower over the same period.

Used Cooking Oil (UCO) and tallow made up nearly 75pc of all renewable diesel supplied during the first quarter. Soybean oil renewable diesel also rose, while corn oil-based renewable diesel supplies fell during the quarter.

By Elliott Blackburn

Public link

Please use the above public link if you want to share this noodl on another website.