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Summary
- US exports 530 mln litres of renewable diesel to Canada in H1
- Falling credit market values will hit cash flow for new projects
- British Columbia government not planning changes to LCFS program
NEW YORK, Oct 29 (Reuters) – Canadian renewable fuel producers are facing lower returns on new facilities due to a slump in British Columbia’s low carbon fuel standard (LCFS) credit market, a trend expected to persist amid a flood of exports from the United States.
Weakness in British Columbia’s LCFS credit market reflects growing pains in the international biofuels industry, where many regulators are cracking down on imports to protect their nascent domestic markets from oversupply.
Low-carbon fuels are more expensive to produce than petroleum-based gasoline or diesel. LCFS programs help to bridge the gap by issuing credits to suppliers of fuels with lower emissions intensity, which can be sold to those with higher-carbon fuels that need to bring down their emissions.
Canada has lagged the U.S. in setting up domestic renewable diesel production. British Columbia is the only Canadian province with an LCFS credit market, which helped encourage Calgary-based Tidewater Renewables to open the country’s first standalone renewable diesel refinery last year. Others are also betting on the credits to support construction of more facilities in British Columbia and other provinces.
At the same time, the LCFS has also made Canada an attractive outlet for a glut of U.S. renewable diesel.
U.S. producers shipped at least 530 million litres of renewable diesel to Canada in the first six months of 2024, a jump from 151 million litres in the same period last year, according to data compiled by Will Faulkner, founder of industry analysis firm Carbon Acumen.
Barchart shows total number of standalone renewable diesel production facilities in the U.S. and Canada; U.S. had 17 facilities in 2023 when Canada opened its first
British Columbia’s LCFS credits fell to C$207 in July and C$350 in August, after trading above C$400 for more than two years previously, ringing alarm bells for Tidewater.
The company said in August that the slump hurt its ability to generate revenues, and blamed weakening prices on a surge in renewable diesel imports from the United States. Tidewater subsequently sold some assets and future credits to its majority stockholder to avoid financial distress.
British Columbia LCFS credit values rose to C$456 in September, but credit market transactions reported last month could have been completed before the price crash in July, Faulkner said. There has not been a significant slowdown in U.S. imports, he noted.
Tidewater only produces renewable fuel at its 3,000 barrel-per-day, or about 170 million liters-per-year, plant in British Columbia, so is highly exposed to low credit values there.
However, falling BC LCFS credits will also weigh on returns for diversified energy producers such as Imperial Oil (IMO.TO), opens new tab and Parkland (PKI.TO), opens new tab, said Sam Harrison, senior analyst at Navius Research.
Imperial is building a C$720 million ($518.25 million) 20,000-bpd renewable diesel facility in Alberta, the largest in Canada, that will be partly funded by LCFS credits granted by British Columbia.
“This correction downwards in the market will affect Imperial’s cash flow from the renewable diesel that they’re able to sell into the British Columbia market,” Harrison said.
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