The market for California ethanol has spiked in recent days as scarce product and plant maintenance has driven up rail car prices.
"Spot singles are in a pinch and trading at explosive values," said one source.
California rail cars with sub-71 carbon intensity (CI) were heard traded at $1.77/gal Friday. Sub-70 CI rail cars, which would normally carry a premium, were traded at $1.73/gal on Thursday.
The California market incorporates CI into values as lower CI product generates more credits under the state's Low Carbon Fuel Standard, and can be sold at a premium.
S&P Global Platts assessed Northern California rail cars with 93.55 CI at $1.4875/gal Friday, up from $1.4450/gal on Thursday.
Platts normalizes market indications to the annual gasoline standard CI -- 93.55 in 2018 -- using the Platts LCFS credit assessment. The Platts assessment only reflects the value of the ethanol, rather than the ethanol and LCFS credit combined.
Seasonal maintenance at ethanol plants has created tightness in rail markets across the US.
Buyers who are normally supplied directly from plants have had to turn to spot rail car trading to supply their needs.
Strong exports out of the Gulf Coast have diverted much of the rail market there, as have high premiums in New York Harbor. That left fewer rail cars moving into California and now buyers are having to pay up to find product.
California's LCFS aims to reduce the carbon intensity of transportation fuels by 10% of 2010 levels by 2020. The initial years of the program required a 1% reduction, while 2018 requires a 5% cut and the targets will accelerate in coming years.
LCFS credits are generated as obligated parties produce fuels below the annual carbon intensity requirement. For example, in 2018 the gasoline standard is 93.55 CI. If a party produces gasoline that is 90 CI, it generates credits that can be sold in the market to parties who generated a deficit, or gasoline above 95.02 CI.
Each credit represents 1 mt of carbon emissions.
