Posts from George Hoekstra

How can a business survive and thrive while spending $5.30 to make a product that sells for $1.90? That’s what’s happening in the booming renewable diesel (RD) market, where government subsidies allow RD to compete directly with petroleum diesel even though RD is inherently more costly to produce. But as new plants keep coming on stream, RD profit margins are coming under closer scrutiny. In today’s RBN blog, we analyze RD profit margins and show how they are changing as the market continues to expand. 

The boom in renewable diesel (RD) production has triggered a race to secure the dozen different bio-feedstocks suitable for refining into diesel fuel. It’s an interesting story that impacts both the oil and agriculture industries, with twists and turns that will take years to play out. In today's RBN blog, we describe the current state of the market and highlight recent happenings in supply chains for two of those increasingly important bio-feedstocks — soybean oil and used cooking oil. 

When the price of the Tier 3 sulfur credit hit a new high of $3,600 in October 2023, the tradable sulfur credit for gasoline moved from the background to center stage in refining circles. And while credit prices have retreated slightly to about $3,400, they still represent a nearly 10-fold increase over two years and translate to a Tier 3 compliance cost of almost $3/bbl, raising concerns from refiners in a highly competitive market. In today’s RBN blog, we look at how refiners are adapting and the investments that could reduce the cost of compliance. 

The price of the Tier 3 gasoline sulfur credit hit $3,600 in October, up by a factor of 10 since 2022 and roughly in line with the all-time high reached in 2019. The high price of this important credit is a direct indicator of the true cost of compliance with the Environmental Protection Agency’s (EPA) Tier 3 gasoline sulfur standard and has raised some alarm recently in refining and financial circles. In today’s RBN blog, we give some specific examples of how refiners and investment analysts are reacting. 

The price of the Tier 3 gasoline sulfur credit hit $3,600 in October, up by a factor of 10 from two years ago and roughly in line with the all-time highs seen in late 2019. This tradable credit allows refiners to sell gasoline that exceeds the sulfur specification on gasoline sold in the U.S. In today’s RBN blog, we examine what’s behind the credit’s steep and steady rise — and why it matters. 

U.S. production of hydrogenated renewable diesel (RD), which is made from soybean oil, animal fats and used cooking oil, is growing faster than expected. That may sound like good news for the renewable fuels industry, but it comes with the fear that the rapid growth might push RD production levels well past the mandates set by the Renewable Fuel Standard (RFS), potentially triggering a sudden crash in Renewable Identification Number (RIN) prices that — if it happens — would rock the market. In today’s RBN blog, we estimate the likelihood and possible timing of such a market-shaking event.

U.S. production of hydrogenated renewable diesel (RD), made from soybean oil and animal fats like used cooking oil, is growing faster than expected. That may sound like good news for the renewable fuels industry, but it comes with the fear that the rapid growth might trigger a sudden crash of Renewable Identification Number (RIN) prices that — if it happens — would rock the market. In today’s RBN blog, we have a go at describing what that might look like.

The Renewable Identification Number (RIN) has long served as the tool used to force renewable fuels like ethanol and soybean oil into the U.S. gasoline and diesel supply. A creation of the Renewable Fuel Standard (RFS), RINs act as a subsidy that enables the production of renewable fuels that would not otherwise be economically justified. RIN prices are set by the usual workings of supply and demand, but chatter has bubbled up recently in the renewable fuels ecosystem that prices for a particular variety of RIN could be headed for a crash. In today’s RBN blog, we explain what’s behind the talk about RIN prices.

If you buy premium gasoline, you’ve probably noticed its price differential versus regular has been increasing in recent years. That is a sign of the rising value of octane, the primary yardstick of gasoline quality and price. In this blog series we’ve examined a new gasoline sulfur specification called Tier 3, which is causing complications for U.S. refiners looking to balance octane and gasoline production while still meeting the regulatory limits on sulfur. In today’s RBN blog, the fourth and final on this topic, we provide an analysis of the obscure Sulfur Credit Averaging, Banking and Trading (ABT) system, which allows refiners to buy credits to stay in compliance with the Tier 3 specs. The price of these credits quintupled in 2022, another sign of a tight octane market that will be attracting increased attention in the months and years ahead.

Senior refining executives were called to Washington, DC, in June, around the time U.S. gas prices hit their high-water mark for the year, as the government sought recommendations about how to increase the supply of gasoline. One suggestion made to Secretary of Energy Jennifer Granholm was to relax sulfur specifications on fuels, including the Tier 3 gasoline sulfur specifications. But what is the connection between those rules and the U.S. refining system’s ability to produce gasoline? In today’s RBN blog, we explain how the Tier 3 rules constrain gasoline supply capacity in the U.S. and discuss ways to break free from those chains.

A potentially important factor affecting the supply of octane — the primary yardstick of gasoline quality and price — has been lurking in the background over the last few years. The Environmental Protection Agency’s (EPA) Tier 3 gasoline sulfur standard applies to all refiners and importers who deliver gasoline to the U.S. market, and while delayed compliance requirements and the onset of the pandemic have blunted its full impact to refiners and consumers so far, the implications of meeting the new standard are beginning to take shape. In today’s RBN blog, we explain how the Tier 3 specs are linked to octane supply, where octane destruction comes into play, and how refiners are adapting to the octane-sulfur squeeze.

While we’ve seen up-and-down spikes in stock market indices, cryptocurrency values and the prices of crude oil and motor fuel in recent years, the price of one important commodity has been quietly but relentlessly rocketing higher — octane, the primary yardstick of gasoline quality and price. The steady rise in octane prices is tied in part to the fundamental change in how octane is valued, with the retail market now being impacted more by demand than production costs. In today’s RBN blog, we look at why octane prices have climbed over the past decade and what market factors are limiting its supply.

The dramatic increase in the price of the D6 Renewable Identification Number a decade ago was one of the more spectacular moves in the history of major commodity trading. The spike in the price of RINs — the credits used to certify compliance with the federal Renewable Fuel Standard (RFS) — was brought on by a sudden uptick in demand and stakeholders who lacked sufficiently deep awareness and understanding of the complex RIN credit system. In today’s RBN blog, we use the story of 2013’s “Big Bang” in D6 RIN prices to explain the fundamental mechanism that determines RIN prices, consider whether such a price shock could occur again, and discuss what stakeholders can do to prepare.

Renewable Identification Numbers (RINs) are credits used to certify compliance with the Renewable Fuel Standard (RFS), which requires certain minimum volumes of biofuels to be blended into fuels sold in the U.S. There are many types of fuels covered by the RFS and so RIN credits come in different categories. One category, the D6 RIN, applies to the blending of corn-based ethanol into refined gasoline to make the gasoline-ethanol blends we pump into our cars, SUVs and pickups. In 2013, the D6 RIN price skyrocketed 100-fold in one of the most extreme cases of panic buying in any major commodity market in history. In today’s RBN blog, we examine that event and address three key questions: How did it happen, what was the solution, and why does it matter today?

What has been the most controversial topic in the U.S. refining industry over the last 10 years? Well, it’s a matter of opinion but, judging from time spent in earnings conference calls, law offices, courtrooms, congressional committees, the White House, and other forums of business and political debate, Renewable Identification Numbers — or RINs — would have to be a top contender for that prize. In today’s RBN blog and the final episode of this series, we consider two differing viewpoints on the effects of the RIN system and specific disagreements — or are they misunderstandings? — about the financial consequences of RINs that have dominated the debates and legal cases.