Explaining the OPIS Pricing Methodology

OPIS California Carbon
Market Methodology
&
Cap-and-Trade Pricing in
Your OPIS Reports
California’s 2013 Carbon Emissions
• Total Reported:
348.48 million mt
• Fuels Sector:
201.45 million mt
Transportation Fuels Dominate Emissions
Fuels
Refinery
13%
10%
10%
9%
58%
Instate
Electricity
Electricity
Importers
Others
18
18
16
16
14
14
12
12
10
10
8
8
6
6
2015
2016
Average CCA Auction Prices
2017
2018
Gasoline Rack cts/gal
2019
2020
Diesel Fuel Rack cts/gal
US cts/gal
US$/Metric Ton
Projected California Carbon Prices
OPIS California Carbon Markets
Carbon Allowance
Assessment
Cap-at-the-Rack
Assessment
• Daily Pricing for state
carbon compliance
instruments
• Daily pricing impact for
cap-and-trade regulations
• Traded in secondary
market
• Gasoline and Diesel Fuels
California Carbon Allowances (CCAs)
• Cap-and-trade compliance instrument
• Primary: CARB quarterly auctions
• Secondary: Trading in the marketplace
• 1 CCA = 1 mt of supplier’s carbon
obligation
Cap-and-Trade Compliance
• Covered emissions exceeding 25,000 mt/yr
– 73,000 bbl (3.06 mil gal) of Gasoline
– 58,000 bbl (2.44 mil gal) of Diesel Fuel
• Second Phase Compliance Dates
– November 2016: 30% of the 2015 emissions
– November 2017: 30% of the 2016 emissions
– November 2018: 70% emissions from 2015 and
2016, and 100% of the 2017 emissions
OPIS CCA Assessment
OPIS full-day pricing methodology applied to
California Carbon Allowances trading.
•
•
•
•
Products - Current Yr. and Previous Yr. Vintages
Timing - Prompt and Forward Price Discovery
Min. Volume - 10,000
Pricing - $/Metric Ton
OPIS Cap-at-the-Rack Assessment (CAR)
• Daily Cents/gal impact on rack fuels:
– CARB RFG Gasoline
– CARB Diesel ULSD No. 2
– Biodiesels
• Based off of OPIS CCA Current Yr. Vintage,
prompt timing assessment and the calculated
carbon dioxide equivalents (Co2e) for each fuel.
CO2e/gal Values
OPIS CAR Calculation
• CAR = OPIS prompt timing, current year CCA
assessment mean $/mt x fuel CO2e/gal x 100.
• Biomass derived fuels have a compliance obligation
under the California cap-and-trade program.
• CAR gasoline prices (CARB RFG) = 90% gasoline grade’s
CO2e/gal x the prompt CCA assessment + 10% ethanol
CO2e/gal x the prompt CCA assessment x 100.
• CARB diesel = CARB diesel CO2e/gal x the prompt CCA
assessment x 100.
OPIS CAR Assessment Examples
Prompt OPIS California Carbon Allowance Price Assessment ($/mt)
Vintage
Timing
Current Yr. PMT Dec’14
Low
High
Mean
11.99
12.01
12
OPIS CAR Summer Gasoline Calculation:
CAR = (((0.00893 x 0.9) x 12) + ((0.00022 x 0.1) x 12)) x 100
CAR = 9.67cts/gal
OPIS CAR Diesel Fuel Calculation:
CAR = (0.01024 x 12) x 100
CAR = 12.29cts/gal
Biodiesel CAR Assessment
Prompt OPIS California Carbon Allowance Price Assessment ($/mt)
Vintage
Timing
Current Yr. PMT Dec’14
Low
High
Mean
11.99
12.01
12
OPIS CAR B5 Biodiesel Calculation:
CAR = (((0.01024 x 0.95) x 12) + ((0.00001 x 0.05) x 12)) x 100
CAR = 11.67cts/gal
OPIS Rack Reports will provide a CAR price for each
different biodiesel blend percentage.
CAR Summer and Winter RVP Schedule
Air Basin
Summer
Winter
Mojave Desert
March 1
November 1
North Coast
May 1
October 1
Sacramento Valley
April 1
November 1
Salton Sea
March 1
November 1
San Diego
March 1
November 1
San Francisco Bay
April 1
November 1
San Joaquin Valley
April 1
November 1
South Central Coast May 1
November 1
South Coast
November 1
March 1
OPIS West Coast Spot Market Reports
Propane & LPGs Under the Cap
• Point of regulation
– Importers
– Producers
• “Mixture of hydrocarbon gases used as fuel.”
• OPIS accepting feedback about how LPG
suppliers will pass this cost along.
• Estimated Propane CAR Price: 7cts/gal
OPIS California Carbon Markets
• California carbon market will double next year
with the inclusion of transportation fuels.
• Analyst forecast CCA price increase through 2020.
• OPIS California carbon prices evaluate the impact
of cap-and-trade regulations on rack fuels.
• OPIS USWC Methodology:
http://www.opisnet.com/about/methodology.aspx
CAR in Rack Price
Reports
Where to find resources
http://www.opisnet.com/
http://www.opisnet.com/resources/cap-and-trade.aspx
California Suppliers – Who is doing what?
http://www.opisnet.com/resources/cap_and_trade_supplier_list.pdf
Why will OPIS make changes to reports?
We have learned:
•
The OPIS CCA and CAR have gained acceptance as an acknowledged
benchmark for the assessed costs associated with Cap-and-Trade
•
That some suppliers intend to pass along assessed costs associated
with Cap-and-Trade by adjusting their posted price to reflect these
assessed cost – “apples”
•
While other suppliers will add an assessment as a line item on invoices
– “oranges”
– Because the CAR costs are projected to be in excess of 12 cpg, no adjustment
would cause OPIS CA Rack prices and to be “apples and oranges”
OPIS Adjustment – What do I need to
know?
•
Remember the Ethanol Tax Credit in 2005?
– Normalization lasted about 8 months
•
All OPIS standard published reports, adjusted and non-adjusted will
include the OPIS California Cap-at-the-Rack Assessment (CAR)
•
All California Racks impacted
•
The RVP value used in Rack pricing will be adjusted based on the RVP
schedule built in methodology
•
If all suppliers migrate to pricing the assessed costs associated with Capand-Trade in a like manner, OPIS will stop adjusting
OPIS Non-Adjusted report
If no adjustment is requested, this will be the default
Assessed CAR Cost built into Supplier Price
Adjusted to “without CAR”
•
Suppliers like Chevron, and Shell
•
No line item assessed on invoices, prices may reflect assessed costs that
are associated with Cap-and-Trade
•
Reports adjusted “without CAR” reflected in price will factor out the OPIS
CAR assessment.
•
Non-adjusted and reports adjusted “with CAR” factored in price – will
reflect the actual posted price
•
Customers will need to sign a waiver to receive adjusted rack reports
Without CAR Adjustment Example
Removed OPIS CAR assessments from Shell and
Chevron - New Averages result
Assessment as a Line Item on invoices using
OPIS (or supplier) Assessed CAR Cost
Adjusted to “with CAR”
•
Suppliers like Exxon, Idemitsu, Kern, and Tesoro
•
Suppliers like Valero – identify a supplier specific CAR
•
Invoices will include assessment as a line item
•
Reports adjusted “with CAR” reflected will add the OPIS CAR Assessment
•
Non-adjusted and reports adjusted “without CAR” – will reflect the actual
posted price
•
Customers will need to sign a waiver to receive adjusted rack reports
“With CAR” Adjustment Example
Added OPIS CAR assessments to Tesoro and Idemitsu, and Valero’s
assessment to Valero - New Averages result
When does OPIS make the CAR available?
• The CAR is updated with the first 6 to 6 file
that is sent out after the West Coast Spots are
published
• CAR will be carried through on reports until
next Spot Publish Day
OPIS Contract Averages and other
OPIS Reports
• We need to stress that not all players will choose to
use the same type of normalization
• Consider the contractual challenges
• Other impacted reports
• OPIS Newsletter
– averages all three ways, no supplier normalized prices
• EBIS
• Bottom Line – normalized up only
Government Contracts
Something to consider - will government contracts
accept the CAR value?
•
•
•
•
•
State of California
DLA
Transit Districts
City and County Municipalities, School Districts
Others
Your Fuel Contracts Managing the line item Cap and Trade Assessment
• All fuel supply contracts that reference an
OPIS index benchmark need to be reviewed
• Check with the agencies you supply to see how
they will accept the carbon assessment
• You may need to request a contract
amendment with your customer to reflect the
OPIS index benchmark that has the CAR price
assessment added to the suppliers rack posting
Wrapping It Up
• OPIS Subscribers should be prepared for the
changes
• Will contract partners be willing to use
normalized benchmarks?
• How to request normalization for your OPIS
reports
OPIS Contact Information
• Dolores Santos
OPIS USWC Fuel Supply Expert
T: 240-848-8640
DSantos@opisnet.com
• Lisa Street
OPIS Senior Editor,
U.S. West Coast
T: 747-333-8792
LStreet@opisnet.com
• Tanya Feyereisen
OPIS Director,
Rack Product Development
T: 301-287-2531
TFeyereisen@opisnet.com
• Clif Linton
OPIS Executive Editor,
North America LP, NGL
T: 510-227-5659
CLinton@opisnet.com