Posts from Kevin Waguespack

It seems logical that shifting over time to aviation fuel with a lower carbon footprint would represent the most practical way for the global airline industry to reduce its greenhouse gas (GHG) emissions. But for that shift to happen, there needs to be an economic rationale for producing sustainable aviation fuel and, despite a seemingly generous production credit for SAF in the Inflation Reduction Act (IRA), that rationale is a least a little shaky when compared to renewable diesel (RD) credits available today. In today’s RBN blog, we conclude our two-part series on SAF with an examination of RD and SAF economics (which are remarkably similar), the degree to which existing SAF incentives may fall short of RD, and what it all means for SAF producers and production.

Around the world, there’s a strong push to put aviation on a more sustainable footing and reduce the industry’s greenhouse gas (GHG) footprint. Increasing the production of sustainable aviation fuel (SAF) — a close cousin of renewable diesel (RD) — is key to this effort. But while the economic case for producing RD in the U.S. has been compelling for some time thanks to government subsidies, the returns on investment for producing SAF appear more dubious, despite a seemingly generous production tax credit for SAF in the Inflation Reduction Act (IRA). As we discuss in today’s RBN blog, the incentive for making jet fuel is likely too small — and too short-lived — to overcome the higher cost of production for SAF compared to RD, and additional incentives may be needed to spur meaningful increases in SAF production.

Russia has long been a significant supplier of refined intermediates and finished products to Europe, just as it has been of crude oil. That changed, however, in the wake of Russia’s invasion of Ukraine in February 2022 as the European Union (EU) implemented a formal embargo on imports of Russian crude oil in December 2022, followed by refined products in February 2023. In today’s RBN blog, we review the reduction in imports of Russian refined products and intermediates into Europe and the specific replacement sources.

Russia supplied significant volumes of crude oil and refined products to Europe for many years. Its primary crude oil export grade, medium-sour Urals (approximately 30 API and 1.7% sulfur), was a benchmark, both in quality and price, that European refiners long relied on to plan refinery processing configurations and that served as a signal for crude oil pricing dynamics in Northwest Europe and the Mediterranean. In addition to crude oil, Russia was a large supplier of gasoil (diesel) as well as a more limited supplier of other refined products such as fuel oil (including intermediate feedstocks) and naphtha. In today’s RBN blog, we review the abrupt reduction in Russian crude oil movements to Europe following Putin’s invasion of Ukraine 13 months ago with an eye on the specific grades that have filled the gap.

Refining margins today — whether in the U.S. Gulf Coast (USGC), Rotterdam or Singapore — are at record highs. Given current high crude oil prices, gasoline and diesel prices at the pump everywhere are also at unprecedented levels, making refinery profits a major topic of conversation — and not just for politicians. While some of the explanations of refining margins are just political talking points, several others are well-established and accepted, and still others consider factors that are less frequently cited, even by those familiar with energy markets. One such factor is the price of natural gas and how it’s impacting refinery operations and competitiveness around the world. Today’s RBN blog discusses the crucial role natural gas prices play in refinery operating expenses and refining margins, and examines how favorable natural gas prices in the U.S. are providing a substantial competitive advantage for domestic refiners.