U.S. biofuel credit prices hit 3-year low, expected to stay weak, EIA says
(Reuters) - U.S. biomass-based diesel and ethanol compliance credit prices have slumped to three-year lows on declining feedstock costs and are set to stay low as renewable diesel output rises, the Energy Information Administration said on Tuesday.
The slump in prices for the credits, known as Renewable Identification Numbers (RINs), could reduce incentives for investments in biofuels production, the EIA warned. This could hinder the energy transition away from fossil fuels.
D4 RINs RIN-D4-US, generated from renewable diesel and biodiesel output, and D6 RINs RIN-D6-US, generated from ethanol output, are both trading at their lowest since 2020.
Declining prices of soybean oil, a widely used feedstock for renewable diesel and biodiesel production, are a primary driver behind the slump in RINs, the EIA said.
Rising global production and lower demand in China have boosted soybean stockpiles, while increasing exports from Brazil have put more pressure on Bean Oil prices, the agency noted.
The BOHO spread BOHOc1, which tracks the difference between Bean Oil and Heating Oil futures, fell by almost half from the start of the year to a three year low of 54 cents a gallon on Monday.
Increased renewable diesel production and relatively low renewable U.S. blending targets through 2025 have also put pressure on bean oil prices and RINs, said John Auers, managing director at RBN Energy.
Nearly half the bean oil produced in the U.S. is expected to be used for biofuels production this year, according to government data.
The EIA expects U.S. renewable diesel output to grow 30% this year to 230,000 barrels per day and another 30% next year to 290,000 barrels per day.
Renewable blending targets for 2023, 2024 and 2025 finalized by the U.S. Environmental Protection Agency in June last year are seen well below existing biofuels output. Based on EIA's calculations, RIN generation exceeded EPA's 2023 targets and the surplus will grow through 2025.
Analysts at TD Cowen earlier this month estimated a 1 billion RIN oversupply in 2023 and a 2 billion surplus this year.
"Mostly it's the narrowing of the BOHO spread but biofuels are very cheap at the moment," said Tom Kloza, head of energy analysis at Oil Price Information Service (OPIS).
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