German Biofuel Ticket Market to Get a Boost

August 15, 2018

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(Argus Media) Germany's biofuel quota ticket prices are poised to receive a boost from 2018 onward, as market participants increasingly see benefits in holding onto tickets in anticipation of higher biofuels blending costs.

Germany's so-called tickets are tradeable greenhouse gas (GHG) reduction certificates that road fuel blenders receive for each tonne of CO2 equivalent (CO2e) saved when incorporating more biofuels into gasoline and diesel than needed to meet GHG savings targets. Suppliers of biogas, LPG and CNG selling into the retail fuel market also create tickets as their lower-carbon fossil fuels displace higher-emitting road fuels.

Road-fuels blenders that have missed their mandated GHG saving target can buy tickets to meet obligations and avoid a €470/t CO2e fine imposed by the German government. Compliance for each year is due on 15 April the following year, to give participants time to calculate their mass balance and trade tickets.

Market participants anticipate that a risk premium will likely start to be factored into ticket prices, as biofuel blending quotas rise to 2020 under European renewables transport targets. While domestic tickets for 2018 mandate compliance have so far been pricing well below 2017 values, premiums over Europe's mainstay biofuels already suggest ticket demand is outstripping supply.

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The shift to winter biofuels plays a role in the higher premium. Colder temperatures limit the amount of Ucome that can be blended into the road fuels, forcing suppliers to incorporate non-waste biofuels with typically lower GHG savings credentials that often result in a higher biofuels blending cost.But this time around markets expect the ticket premium to biofuels blending cost to stay, leading to potentially higher ticket prices in early 2019 after mass balancing for this year's compliance draws out more buyers to meet shorts in biofuels blending. The rate of the government fine will eventually set a cap on ticket prices.

Current weaker ticket values have been attributed to narrowing differentials between oil product and biofuels prices, as values in the oil markets strengthened and associated fossil fuel costs through the supply chain increased.

"As long as the more economical option of CO2 reduction is physical blending, there is no need to search elsewhere for a transfer of reduction obligation," Total Germany new energies Advisor Ralf Stoeckel told Argus. READ MORE