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Brazil's ANP approves hybrid trading model for biodiesel

Highlights

Brazil to trade 80% of biodiesel in OTC model, 20% spot

Importers will not need to commit with OTC contracts

Final resolution estimated for October

Brazil's National Petroleum Agency approved April 29 a proposal to shift biodiesel trading from the country's current public auction model to a hybrid model, starting January 2022.

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After more than 30 meetings with the participants in Brazil's biodiesel market, the agency, the ANP, announced the parameters established for the hybrid trading mode, which would replace the auction model in place since 2008 when Brazil started to blend diesel fuel with biodiesel, resulting in a 2% biodiesel mix.

The measure met the commitment of the National Energy Policy Council to replace public auctions to meet the mandatory percentage of biodiesel blended into conventional diesel. To meet the CNPE's determination, the ANP formed a working group to design this new model.

Over the counter proposal

The model approved April 29 would allow biodiesel producers and distributors to settle over-the-counter contracts to guarantee 80% of biodiesel supply of the next two months, following the same calendar used for the current public auction. The remaining 20% will be allowed to trade in the spot market.

Only fuel distributors with at least 5% of market share in any fuel in 2020 will need to commit to 80% OTC contracts, meaning that small distributors will be allowed to trade 100% of their biodiesel demand in the spot market.

The model would see 86% of the biodiesel sold by Brazilian distributors in 2020 traded under the mandatory OTC model, the ANP said.

In 2020, Brazil consumed 6.38 billion liters of biodiesel. S&P Global Platts Analytics estimates that in 2021 the volume will increase to 6.6 billion liters, as the mandatory biodiesel blend rose from 12% to 13%.

Producers will also need to commit 80% of the volume traded in the same two-month period of the prior year through OTC contracts; however, just the ones with a market share of at least 3% of the negotiated volume in 2020. Around 76% of the total volume sold by biodiesel producers in 2020 will fulfill mandatory contract conditions, according to the ANP.

Additionally, the ANP disclosed that the mandatory volume target will not be imposed for importers, who will be allowed to bring biodiesel into the country from January 2023.

"The suggested parameters aim to guarantee supply, not to impose penalties," said Patricia Baran, coordinator of the ANP working group in charge of the new regulation.

The ANP concluded saying that the new trading model will guarantee the quality and volume of biodiesel available in the market and free competition between market participants.

"Regulatory action has to defend consumer interests," said Simone Araujo, ANP director.

The regulatory impact studies are expected to be concluded by the end of June, when the public comment period might start. According to Brazilian legislation any public comment period must last for a minimum of 45 days, therefore the court hearing is planned for the end of August.

The ANP plans to make the final resolution public in October, or two months prior to the new trading model become official.