Federal versus State Growth Prospects for US Renewable Fuel Consump;on Heather Zhang 1
PRIMA: Award Winning Biofuel Analy;cs Real 5me Daily Weekly Bespoke 2
Philosophy ques;ons or market ques;ons? Who am I? Where did I come from? Where am I going to? What are the demand for renewable fuels? Where did the fuels come from? Where the market/program may go? 3
Demand - GHG saving GHG saving effect 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% Current GHG saving results: RFS: 2% lower than 2015 LCFS: 4% lower than 2015 1% 0% 3% 1% 4% 2% 6% 24% 2015 2016 2017 2018 2019 2020 2021 2022 9% 27% 10% 31% 36% 39% RFS: Volume Standards as Set Forth in EISA year 2018 26 2019 28 2020 30 2021 33 2022 36 Renewable fuel (bn gal) LCFS RFS 4
Demand: Ethanol and other Cellulosic biofuels RFS: Cellulosic Biofuels and other renewable fuels LCFS: Ethanol bn gal 16 15,5 15 +4% YoY 0,034 +5% YoY 0,12 0,331 +???% YoY bn gal 1,6 1,6 1,5 1,5-2% - 3% YoY, following gasoline demand -9.5% of na^onal volume 14,5 14 13,5 0,09 14,05 0,123 0,230 14,5 15 1,4 1,4 1,3 1,3 1,33 1,38 1,43 1,47 1,51 1,56 13 2015 2016 2017 2018 Ethanol and others in D6 Cellulosic Biofuel Ethanol D5 1,2 2015 2016 2017 2018 2019 2020 Ethanol and others in D6 5
Demand: Bio-mass based diesel RFS: Bio-mass based diesel LCFS: Bio-mass based diesel bn gal 2,80 2,60 2,40 2,20 +26% YoY +15% YoY 0,51 +???% YoY 2.000 1.800 1.600 1.400 1.281 1.922 60,00% 50,00% 40,00% 2,00 1,80 0,01 0,29 mn gal 1.200 1.000 800 25,34% 854 30,00% 1,60 1,40 1,20 1,73 1,9 2 2,1 600 400 200 292 365 569 20,00% 10,00% 1,00 2015 2016 2017 2018-2015 2016 2017 2018 2019 2020 0,00% Bio-Mass based diesel in D4 Bio-mass based diesel in D5 Ethanol and others in D6 YoY growth 6
LCFS Credit balances Breakeven case by 2020 mn MT credits 25 20 15 10 LCFS Credit balances Breakeven *Ethanol: 2-3% annual increase, 70 CI average *Electricity: 50-70% annual increase *Other credits: 10% annual increase 5 0-5 2015 2016 2017 2018 2019 2020-10 -15-20 -25 Gasoline deficits Diesel deficits other deficits Ethanol credits Electricity credits other credits Bio-mass credits Net banks BE 7
Supply: Ethanol and advanced fuels Domes5c Imports from other states Imports from Brazil RFS 99.9% NA 0.1% LCFS 84% 14% 2% Annual increase in Brazilian ethanol, from 34mn gal to 50mn gal at least Trigger: wide D5 and D6 prices and nego5able Brazilian ethanol price million gallon RINs 25 20 15 10 5 RFS: D5 genera5on 2017 low case 2017 high case 2016 genera^on mn gal 370 350 330 310 290 270 LCFS: Ethanol used to generate LCFS Cane Ethanol Corn Ethanol 0 Jan. 17 Feb. 17 März 17 Apr. 17 Mai 17 Juni 17 Juli 17 Aug. 17 Sep. 17 Okt. 17 Nov. 17 Dez. 17 250 2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 8
Supply: Ethanol and advanced fuels GHG saving Feedstocks RFS 20% Corns LCFS 30% average More diversified: corns, sorghum, molasses RFS: D6 supplied by fuel type LCFS: Credits By Fuel Type Fuel Millions Gallons 1.350 1.300 1.250 1.200 1.150 1.100 Jan. 16 Ethanol Renewable Diesel Biodiesel Feb. 16 März 16 Apr. 16 Mai 16 Juni 16 Juli 16 Aug. 16 Sep. 16 Okt. 16 Nov. 16 1.267 1.237 Dez. 16 Jan. 17 1.132 Feb. 17 1000 900 800 700 600 500 400 300 200 100 0 ETH <70 ETH 70-75 ETH 75-80 ETH 80-85 ETH 85-90 ETH >90 Q1 2011 Q2 Q3 Q4 Q1 2012 Q2 Q3 Q4 Q1 2013 Q2 Q3 Q4 Q1 2014 Q2 Q3 Q4 Q1 2015 Q2 Q3 Q4 Q1 2016 Q2 Q3 9
Supply: Bio-mass based diesel RFS: Fuel Change RFS: Fuel Change Domes^c biodiesel Weak Q1, pick up in Q2 onwards Biodiesel Weak Q1, POET case threaten Argen^na biodiesel 200-250mn poten^al shut Renewable diesel Strong Other biodiesel imports Ques^on mark Renewable diesel Strong -Total Q1 genera^on of D4s es^mated: 660mn 680mn RINs, up only 4.6% YoY -Genera^on pace is a 1% slower than same period last year -2017 balance: early to say but don t see shornall -Long term balance: See poten^al shornall in fuels and feedstocks in long term million RIN gal 560 510 460 410 360 310 260 210 160 110 60 Jan. 16 Feb. 16 März 16 Apr. 16 RFS: D4 Genera^on by fuels D4 from domes^c biodiesel D4 from Argen^na biodiesel D4 from Canada Biodiesel D4 from other biodiesel Mai 16 Juni 16 Juli 16 Aug. 16 285 203 215 213 Sep. 16 Okt. 16 Nov. 16 Dez. 16 66 119 135 150 Jan. 17 Feb. 17 März 17 mn gal 120 100 80 60 40 20-2011 Q3 2011 Q4 2012 Q1 2012 Q2 2012 Q3 2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 LCFS: Bio-mass based diesel used to generate LCFS Renewable diesel Biodiesel 10
Supply: Bio-mass based diesel Program Major feedstocks Comments RFS Soybean oil 52%+, corn oil 15% Soybean oil: well above USDA expecta^on LCFS Corn oil 54%, UCO 31%, Canola oil 12% Q3 16 UCO: locally supplied. Seeking for more sources Corn oil: stronger in Q1 2017, both for BD and RD 1200 1100 1000 900 800 700 600 500 400 300 mn gal 45 40 35 30 25 20 15 10 5 Biodiesel by feedstocks BD-Tallow BD-Soy BD-Canola BD-UCO BD-Corn Oil 5 12,73 22,25 200 0 Jan. 15 März 15 Mai 15 Juli 15 Sep. 15 Nov. 15 Jan. 16 März 16 Mai 16 Juli 16 Sep. 16 Nov. 16 Jan. 17 mn pounds Inputs as Biodiesel produc5on Poultry All Others Tallow Animal fats Canola oil Corn oil Recycled feeds Soybean oil 11
Demand: Bio-mass based diesel RFS: Bio-mass based diesel LCFS: Bio-mass based diesel bn gal 2,80 2,60 2,40 2,20 +26% YoY +15% YoY 0,51 +???% YoY 2.000 1.800 1.600 1.400 1.281 1.922 60,00% 50,00% 40,00% 2,00 1,80 0,01 0,29 mn gal 1.200 1.000 800 25,34% 854 30,00% 1,60 1,40 1,20 1,73 1,9 2 2,1 600 400 200 292 365 569 20,00% 10,00% 1,00 2015 2016 2017 2018-2015 2016 2017 2018 2019 2020 0,00% Bio-Mass based diesel in D4 Bio-mass based diesel in D5 Ethanol and others in D6 YoY growth 12
Where the market/program may go? RFS Argen^na/Indonesia An^ Dumping case 2018 RVO BTC vs PTC LCFS Great amount of deficits POET case 13
Where the markets/program to go-rfs? An^ dumping case: Timeline: April 6: comments period closed Early May: first decision Impact: -200-250mn decrease in 2017 -hardly to see imports in 2018 if ruled against -If addi^onal PTC, then completely lose benefits cents/lb 2,00 1,50 1,00 0,50 0,00-0,50-1,00-1,50-2,00 11.5.2015 12.5.2015 1.5.2016 2.5.2016 +3 month Argie SBO vs CBOT -1,65 3.5.2016 4.5.2016 5.5.2016 6.5.2016 7.5.2016 8.5.2016 9.5.2016 10.5.2016 11.5.2016 12.5.2016 1.5.2017 2.5.2017 The red dot shows we are in January 2016, and the Argen^na SBO for April transfer shows about 1.65 cents/lb discount under CBOT. Argen5na Biodiesel Exports to USA Declared (Millions gal) 80 60 40 33 20-12 Jan. Feb. März Apr. Mai Juni Juli Aug. Sep. Okt. Nov. Dez. 2015 2016 2017 14
Where the markets/program to go-rfs? RVO: D4 intra day change vs annual mandates increase Timeline: Summer onwards 600 500 9,000 Advanced renewable fuel Bio-mass based diesel same day change 7,000 10 9 8 Impact: Immediately surge RINs to add addi^onal incen^ves to supply chain, thus boos^ng produc^on poten^ally mn gal 400 300 200 5,250 7 6 5 4 3 100 2 1 0 0 Mai 15 Juni 15 Juli 15 Aug. 15 Sep. 15 Okt. 15 Nov. 15 Dez. 15 Jan. 16 Feb. 16 März 16 Apr. 16 Mai 16 Juni 16 Juli 16 Aug. 16 Sep. 16 Okt. 16 Nov. 16 Cents/RIN 15
Where the markets/program to go-rfs? PTC or BTC: 200 Biodiesel produc^on margin Midwest SME Timeline: Timeline doesn t help Impact: Scenario 1: PTC boost domes^c produc^on especially small producers, immediately bring margins to posi^ve. cents/gal 100 0-100 Houston SME Jan. 04. Jan. 07. Jan. 10. Jan. 13. Jan. 16. Jan. 19. Jan. 22. Jan. 25. Jan. 28. Jan. 31. Jan. 03. Feb. 06. Feb. 09. Feb. 12. Feb. 15. Feb. 18. Feb. 21. Feb. 24. Feb. 27. Feb. März 04. März 07. März Scenario 2: No tax credits: If no Argen^na biodiesel, RINs become the only incen^ves to s^mulate more produc^ons as soybean oil may be strong. It is worth to watch switching feedstocks. If Argen^na biodiesel con^nues, then market operate as is. Cents/lb 39 37 35 33 31 29 27 25 Feedstock prices South Cal dlvd Nor Cal Houston dlvd SBO CBOT 16
Where the markets/program to go-lcfs? *Volume of deficits is large: Supply in 2017: good increase in Brazilian ethanol and electricity credits Long term: increasing supply to be explored 250.000 200.000 LCFS trades 180 160 140 *POET: 120 Scenario 1: Suspend Biodiesel -posi^ve sign for LCFS price -good for Brazilian ethanol and RD Scenario 2: Suspend LCFS -long wait MT Credits 150.000 100.000 50.000 100 80 60 40 $/ton 20 0 Jan. Feb. März Apr. Mai Juni Juli Aug. Sep. Okt. Nov. Dez. 0 17
Stay on top with EU Biodiesel US Biodiesel Argen5nian biodiesel Veg Oils Interna5onal Ethanol Asian Ethanol California LCFS Monthly RIN Count Contact: Patrick.Meister@prima-markets.com 18
Heather.zhang@prima-markets.com +1 630 392 2844 +1 773 620 6799 1560 Wall Street Naperville IL 60563 USA PRIMA makes no warran^es regarding the completeness, accuracy, or ^meliness of any informa^on or data in this communica^on ("Data"). PRIMA shall not be liable for any loss or damage stemming from any par^es' reliance on or use of Data. All Data is provided on an "as-is" basis. Nothing in this communica^on is intended as investment advice or a solicita^on of the purchase or sale of any financial or physical instrument. Copyright 2017 PRIMA. All rights reserved. No part of this publica^on may be copied, reproduced, distributed, or transmived in any form without the express wriven consent of PRIMA