Houston — Trading interest in the California ethanol market was volatile over the last week as illiquidity prompted higher bids from buyers and looming imports forced traders to balance storage positions.
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Sign Up "I'd love to say that the import market is affecting the spot price, but I don't know," said one source. "It just seems like it's such an illiquid market."
California, which typically follows movements in the benchmark Chicago market, shifted significantly nearly every day this week, with sub-75 carbon intensity product trading for $1.77/gal Friday morning.
S&P Global Platts valued sub-75 CI ethanol in Northern California at $1.74/gal Thursday. Platts normalizes market indications to the annual gasoline standard CI, which is 93.55 in 2018, using the Platts assessment of California Low Carbon Fuel Standard credits.
Platts assessed the Northern California market at $1.4550/gal Thursday, up from an eight-month low of $1.3125/gal on Monday.
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.
As carbon reduction targets become harder to meet and require lower CI fuels, buyers have to search for ethanol with a low enough carbon intensity to fit into their blending programs.
That can cause spikes in prices as buyers look for just the right ethanol.
Imports from Brazil due to land in the coming weeks have also forced market participants with storage capacity to play a delicate balancing game: keeping room at terminals for incoming product while holding enough inventory to meet prompt demand.
The Cielo di Salerno is due to arrive in San Francisco on Monday, according to cFlow, Platts trade flow software, carrying nearly 40 million liters of Brazilian ethanol.
Brazilian ethanol has a lower CI score than US ethanol due to its sugarcane feedstock. That encourages traders to book imports from Brazil to generate more LCFS credits, as well as D5 renewable identification numbers.
S&P Global Platts Analytics forecasts the US will import 400 million liters of ethanol from Brazil in 2018.
