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Stillwater bases this Oregon Clean Fuels Program (CFP) outlook on our detailed California Low Carbon Fuel Standard (LCFS) outlook which was built on a quantitative foundation of credit supply and demand forecasting methodology. This link to the larger and more established LCFS credit market for CFP forecasting is supported by several factors:

1. The CFP is nearly identical to the LCFS. There are, however, differences in reduction schedules, some fuel CIs, price caps, and regulatory specifics. We take these differences into account in our CFP forecasting methodology.
2. The Oregon CFP covers about one eighth the transportation fuel volume of the LCFS; as such, California’s larger market sets the low-carbon fuel value in the region.
3. The CFP and LCFS programs share the same low-carbon fuel supply with delivery via rail, marine vessel, the Western Interconnect, and the interstate natural gas pipeline network.
4. The West Coast transportation fuels market is isolated from the rest of the country for fuel supply. The underlying transportation fuels market has three primary enclaves – the Pacific Northwest (PNW), the San Francisco Bay Area, and Southern California – which are interlinked via marine movements of fuels. As a result, fuels prices among the enclaves tend to track, although there can be considerable short-term volatility between enclaves as unscheduled refinery issues or logistics shutdowns cause supply disruptions that impact a single enclave and stress the capability for marine movements.

Our methodology focuses on the parity of renewable diesel (RD) value under the CFP and LCFS programs in future years since the same fuel from many of the same suppliers is supplied to both programs. The supply of this fuel has been rapidly growing, and this growth is the reason for the large growth in credit generation under both programs. In other words, RD is assumed to be the swing fuel for credit generation between the LCFS and CFP.

Reduction Schedules

The CFP was modeled after the LCFS; thus, the programs are structured similarly. Both programs share many of the same pathways and basic constants that are used in credit and deficit calculations. The major difference between the LCFS and CFP is in the reduction schedules for the programs. The 2024 LCFS Amendments are currently undergoing rulemaking, and we expect that the LCFS reduction will be accelerated to stay significantly below the reductions called for in the current CFP regulation, as illustrated in the figure below.

Sources: Oregon Department of Environmental Quality (DEQ), California Air Resources Board (CARB), and Stillwater analysis

Underlying Fuels Market

The figures below provide perspective on the market scope for the California LCFS and the Oregon CFP. The first figure illustrates the market size and gasoline-to-diesel ratios for the two markets. As can be seen, the gasoline and diesel fuels volumes covered by the LCFS are 9.6 and 4.8 times larger, respectively, than those covered under the CFP. However, the Oregon fuel mix has a higher proportion of diesel than California’s fuel mix. This would tend to make program compliance with biodiesel (BD) and RD more leveraging in Oregon than in California.

Sources: Stillwater analysis of DEQ and CARB data

The figure below illustrates the relative volume of credits and deficit generated in each program. As can be seen, both credit and deficit generation are markedly larger in California than in Oregon.

Sources: Stillwater analysis of DEQ and CARB data

Shared Low-Carbon Fuels

In addition to the petroleum product supply, low-carbon fuels are supplied to the West Coast via production within the region as well as imports by rail and water, the Western Interconnection,[1] and interstate and intrastate natural gas pipelines.

To meet the needs of the CFP and LCFS, suppliers of the low-carbon fuels that utilize the same sources and transportation modes to California and Oregon have the option to supply either of these markets and are, thus, incentivized to establish a price parity that provides indifference as to whether their fuels are sold into Oregon or California.

The supplies of fuels that come from outside the West Coast for the LCF programs are:

• Ethanol railed primarily from the Midwest,
• BD railed primarily from the Midwest with a small amount imported by water and rail,
• RD supplied by rail and by water from other regions in the U.S. and imported to the West Coast by water,
• Renewable Natural Gas (RNG) supplied via common-carrier pipeline and granted LCFS and CFP credits via book-and-claim accounting without deliverability requirements (although deliverability requirements are under consideration in the 2024 LCFS amendment package),
• Electricity imported to the West Coast through interties that are part of the Western Electricity Coordinating Council (WECC) that covers the 11 western states and two western Canadian provinces.

As low-carbon fuels are shared between California and Oregon, their values are expected to have parity under the LCFS and CFP barring constraints around supply, demand, usage (such as blending restrictions), or local logistics. In the case of RNG and electric vehicles (EVs), demand in each state is constrained by the number of appropriate vehicles on the road, with California having a higher percentage.

Linking Markets with RD

 To illustrate how RD has affected credit generation in these programs, the following figure demonstrates how credits from RD have grown as a percent of the total credits since 2020 in each program, establishing a lead position among fuels in both programs.

The figure below illustrates the credit value of 35 CI RD (representing RD from low-CI waste feedstocks) and 60 CI RD (representing RD from crop-based feedstocks) in the two programs since 2018, and illustrates the periods described in the article linked above. Overlaid on the credit values is the RD volume trend that has been reported for the CFP.

[1] Per the Transmission Agency of Northern California (TANC): The Western Interconnection is the geographic area containing the synchronously operated electric grid in the western part of North America, which includes parts of Montana, Nebraska, New Mexico, South Dakota, Texas, Wyoming and Mexico and all of Arizona, California, Colorado, Idaho, Nevada, Oregon, Utah, Washington and the Canadian provinces of British Columbia and Alberta.

ABBREVIATED SAMPLE

The methodology used for this CFP outlook is based on Stillwater’s LCFS outlook, published in June. The LCFS Outlook projects our assessment of future year-average prompt LCFS credit prices. Our primary premise in forecasting CFP credit prices is that the LCFS will drive the low-carbon fuel market because of its relative size and diversity of suppliers, fuels, and market participants. Our secondary assumption is the two credit markets will relate via the product value parity of RD, and RD will be the swing fuel for credit generation that sets the value for credits in the West Coast LCF programs at least through 2030.

ABBREVIATED SAMPLE

The table and graph below show the forecast CFP prices using the methodology described above applied to the three primary LCFS outlook cases.

The following figure compares our current Base Case CFP outlook with our previous Base Case outlook.