Paul Cheng: Andrew and Bob, I think that the latest drop in the LCFS revision is that they will require the physical person of the RNG in California, instead of just a pathway in order to claim the LCFS credit. If this indeed will be remaining in the final decision, is there any incremental cost for you guys? And if it is, any rough estimate that on a per gallon basis, that what is the incremental cost?
Robert Vreeland: Yes, both in claim. Yes, and whether that, if it stays in, is that going to be an incremental cost?
Andrew Littlefair: You know, we’ll probably have some questions. Let me go out on a limb and kind of talk about where I think that the Air Resources Board in California said it. We believe, we haven’t exactly tried on this, but I think we’re pretty close to it, but we believe that they are being likely, we’ll hear some proposed rules before it’s boarded soon middle of — it’s been suggested it could be in the middle of November. It could be next week. And there were three — Paul, there were three big issues that kind of at stake, right, or at least that had our attention. One was the avoided methane. Would the ARB, as it was suggested by some, get rid of the way we calculate or utilize the avoided methane in RNG, right? And it looks to us like that suggestion has not been heeded.
And that the ARB has understood that the low carbon fuel standard is working. They want to make it more aggressive and they know they need dairy gas and they know they need RNG and so the avoided methane calculation looks to me like it will be in place for a long time to come and you know I don’t know that it’s clear if it’s 2040 or 2045, but that’s a significant issue and that means that RNG will be in place for a long time to come. And certainly, for these projects, get good returns, and so it would make a lot of sense. And then they may decide that after 2040 that maybe it shouldn’t go into transportation. It ought to go into other uses like trains and ships and other hard to carbonize. But we’ll see that. We’ll see. There’s a long ways to go before we get to that.
The other is book and claim. The way that we currently account for it, we put it in [Indiscernible] and we take it out in California. And it looks to us like that is in place to 2035. Most of us believe that’s the way that’s beginning to shake out. And then maybe there would be some refinements after some study. CARB, I think, has been very good about this that they’re listening to how the business really works. And that maybe after 2035, there would be some looking at, you might have to justify that the pipes you’re using to move it to California, that 50% of the time they have to have flow rate to California. It’s not clear whether or not even after 2035 you might have to pay for transportation. But you know, the way I look at it as compared to avoided methane, the book and claim is kind of a cost of doing business.
And if in the worst case after 2035 you needed to pay for the capacity charge, now you’re talking about let’s call it a couple bucks of MCF. All right, now we’re dealing with potential value to fuel around $80 MCF. So to me that is a little bit of a cost doing business, but it’s way out and I think we’re having good negotiations and good understanding with CARB. Now finally it is, well, what is the obligation curve going to be? And we all saw in the stuff that came out in SREA not so long ago that one of the suggestions was, you remember there were three options, either it was 20%, 25%, 30%, and 35%. One looks like they’re moving toward the aggressive side of that. So as I look at it as a shareholder and as a believer in the RNG business, it looks to me like they’re going toward the most aggressive end of the scale.
So far it appears that it’s in the range of something around 34%, right? So that’s a big move from 20% in 2030 to 34%. And so now I think the market, I’m going to give more here than your question, I think that the market is likely for LC&S to be a bit soft in 2024, because you don’t really see the big pickup start on the obligation and on the compliance curve until ‘25. So it’s going to take a little time to work off the oversupply of credits that are in the bank right now. On the other hand, it’s likely that CARB is going to adopt this automatic ratchet mechanism that if there’s a big oversupply, they can ratchet down and sop up some of the supply. That is going to looks like it’s going to be in this as well, so that’s good news. So I think we may have to grin and bear it a little bit until some of the oversupplies worked off in 2024.
I think it will be much more constructive. The ARB has said that they believe that the range for the LCFF should be between 120 and 180 after 2025. So that we think is very constructive. So anyway, I gave you a lot more than you asked for, but I just thought I would get out of the free items.
Paul Cheng: So sure, thank you. And Andrew, I know typically you guys don’t give guidance for next year that early, but anyway, that is already early November. Any soft guidance on just EBITDA and also the RNG sales warming for next year?
Robert Vreeland: We’ll try it. I don’t think — soft guy. Well, that’s a little tricky. That’s, you know, it could be too soft, it could be, you know, too hard. So, look, I mean, Andrew alluded to the LCFS. And I mean, that could be potentially something if that price is going to be challenged by the kind of supply demand. But you know, who knows? I think we have a fair amount of some time to kind of get some more information and we’re really evaluating all of that as we speak. Also, it wouldn’t be probably a good idea to try to do some soft guidance.
Andrew Littlefair: You know, Paul all we know is that we know on the demand side, I mean, as I look out, I’m not going to give you any numbers, but on that, you known I like we’re constructive in that we love the fact that in the biggest market in transportation, heavy duty, we’ve got now finally a product that’s coming to market. And those were actually, those engines are going to be delivered in June. That’s a good thing. So we haven’t seen the cannibalization on the 12-liter right now. So we see this as incremental volume that’ll come into the system, which I think is a good thing. And of course, we know there’s lots of R&D projects coming. So demand should be up, and R&D supplies should be up. And so we’ll be more specific later. I’m sorry we can’t do it today, but we’ll be more specific with guidance coming, you know, in the next quarter, sorry.
Operator: Thank you. And your next question comes from Matthew Blair from TPH. Please go ahead.
Matthew Blair: Hey, Andrew. Could you talk about the competitive landscape for dairy RNG? If you’re looking to sign up a new dairy today, is that easier or tougher than it was a year ago? And are you seeing any cases where dairy is just simply, you know, they’re not interested in RNG because of the low LCFS prices? And if that’s the case, I mean, would a higher LCFS price just spark more signups?
