Nodal Exchange Reports Rise in Biofuel RIN Trading in Early 2022 After 2021 Dormancy


Strong points

1.5 million RIN D3 futures sold in the first week of January

The trend may indicate a shift towards the forex market

The North American environmental product trading platform Nodal Exchange traded 2.5 million renewable cellulosic biofuel credits from December 15 to January 15. On January 5, signaling renewed interest in renewable fuel futures to 2022 after a year of inactivity, representatives of exchange partner IncubEx said on January 6.

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Nodal Exchange began offering renewable ID number futures contracts physically delivered in November 2020, where it traded futures contracts for cellulosic biofuels, categorized as D3; biomass-based diesel fuels, or D4; advanced biofuels, or D5; and renewable fuels like corn ethanol, or D6.

But while the number of transactions recorded on the exchange had been relatively high in 2021 for these latter categories – in part due to the higher annual requirements of the Environmental Protection Agency for these types of fuel – Nodal Exchange recorded no transactions. term of D3 RIN before December. On January 15, 2021, he saw 100 contracts traded, representing 1 million RINs, according to trade data shared with S&P Global Platts.

This trend continued in January, when 50 D3 RIN futures were traded on January 4 and 100 were traded on January 5 – representing 1.5 million RIN, according to the data.

“Until this year, RIN futures have not been very successful,” said Kees Woodward, senior vice president of IncubEx, which initiated trading of RINs on Nodal Exchange. “It looks like they’re getting traction now.”

RINs were first traded as credits under the Renewable Fuel Standard Program, which was passed by Congress under the Energy Policy Act of 2005. The program requires a certain amount of fuel each year. fossil fuel is replaced by volumes of renewable fuel.

In December, the EPA proposed to set biofuel volumes under the RFS for 2022 at 770 million gallons of cellulosic biofuel, or D3; 2.78 billion gallons of biomass-based diesel, or D4; 5.77 billion gallons of advanced biofuel, or D5; and 20.77 billion gallons of all renewable fuels combined.

Cellulosic biofuels have long been the category of biofuels with the lowest minimum requirement set by the EPA. And RIN D3 trading mostly occurs in two-way trading – a format that Woodward says is much riskier than trading futures on an exchange.

Transactions on over-the-counter markets have much less collateral than those which occur on futures exchanges. Bilateral RIN trading carries the possibility that one party will default on a trade, creating an element of risk.

This risk factor was most recently illustrated last year when Sundive Commodity Group failed to deliver RIN 106 million to Valero. In December, Valero filed a lawsuit against Sundive, alleging that it required it to spend an additional $ 10 million in the RIN market to meet its RFS obligations.

Events like this cause serious disruption in RIN trading by limiting liquidity and halting deal making, Woodward said.

“I’ve called the RIN market the Wild West for 10 years, and it really is still the Wild West,” he said. “You can look back through the history of RIN and there have been some pretty interesting default issues. “

The risks of trading RINs are greatly reduced when traded on an exchange rather than over-the-counter, he said. Trading on an exchange is regulated by the Commodity Futures Trading Commission, while the futures clearing trading organizations monitor the margins and ensure that traders are in good standing to make payment or deliveries of RINs.

Moving more of these transactions to exchanges is one of IncubEx’s goals, the company said.

“This is why we are excited about a slight increase in these contracts traded on the [Nodal] exchange, ”said spokesman Jim Kharouf. “I think the message is starting to resonate with some, and people are becoming more and more interested in it.

“We would like to see more people join the futures market,” Kharouf said. “It’s a cleaner, more efficient and more transparent way to trade goods.”


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