California LCFS credits continued their steepening ascent on Thursday, pushing the PRIMA California LCFS index up to $85 as both buyers and sellers shifted higher. Buyers were active in the morning pushing best bid indications for Q4 transfer up $1 from the previous trading session to $83. Sellers hiked their offers into the high-$80s, with no indication of any willingness to sell below $87.
After readopting the LCFS late last month, CARB will hold a public workshop on November 6 to recertify pathways using the CA GREET 2.0 model. All CI scores will be calculated using the new GREET 2.0 and pathways will be made specific to each company’s fuel, with requests for recertification required to be submitted by the end of January 2016. The new CI scores will only come into use once they have all be recalibrated. Many participants are hoping that the workshop will shine some light on the whole recalibration process to be able to better gauge its impact on the LCFS market.
With LCFS prices at a new high of $85 mid-market, Brazilian sugarcane ethanol can command an LCFS price premium of around 27 cents/gal under the existing LCFS CI methodology, while Midwest ethanol with a CI value of 90.1CO2/MJ generates a premium of nearer 5 cents/gal. The hefty California premium for Brazilian sugar cane ethanol however is offset by a narrowing D5/D6 spread which has edged back to 10 cents/gal even as the price of Brazilian ethanol as risen to 188 cents/gal, keeping the arbitrage into the US out of reach. Brazilian ethanol sales were up 48% YoY in September as gasoline price hikes cut gasoline consumption by 12% YoY, tightening the availability of sugar cane ethanol for export and driving prices higher. Forecasts for heavy rains in Brazil into early November are likely to further erode northwards arbitrage opportunities.