Canada's LCFS enforcement may raise MGO prices

Marine gasoil (MGO) prices for Canadian-flagged vessels traveling within Canadian territorial waters are expected to get a boost when the Canadian low-carbon fuel standards (LCFS) enter into full force next month.

Canada's Clean Fuel Regulation begins enforcement on 1 July with requirements that suppliers reduce the carbon intensity of Canadian diesel and gasoline from 2016 levels by roughly 3.3pc in 2023. LCFS programs require annual reductions to transportation fuel carbon intensity.

Suppliers and ship owners expect that Canadian MGO prices will rise between C$5-$35 ($3.8-$26.6)/metric tonne (t) after LCFS enforcement begins next month. Argus pegged Montreal, Canada, MGO at an average $772/t for 1-20 June.

Higher-carbon, conventional fuel that exceeds annual limits incur deficits that suppliers must offset with credits generated from the distribution of approved, low-carbon fuels. Regulators determine each facility and feedstock's carbon intensity.

Canada finalized its Clean Fuel Regulations (CFR) last summer. Suppliers in July start accruing deficits for the gasoline and diesel they produce for the Canadian market.

In addition to Canadian road transportation fuels, the regulation will apply to MGO sold to Canadian-flagged vessels in cabotage. The regulation excludes non-Canadian-flagged vessels and marine fuel sold to vessels with non-Canadian port destinations.

By Stefka Wechsler