Texas Journalist Elliott Blackburn

Tag: biofuels

  • EPA grants 31 Renewable Fuel Standard waivers

    EPA grants 31 Renewable Fuel Standard waivers

    Prices for US renewable fuel blending credits plunged today ahead of the Environmental Protection Agency’s (EPA) approval of 31 exemptions for small refineries of their federal biofuel obligations for 2018.

    The agency rejected six of the 2018 applications and the single remaining applications for the 2016 and 2017 compliance years. The decisions marked the first rejected requests to waive Renewable Fuel Standard (RFS) requirements under President Donald Trump’s administration and since 2016.

    A final 2018 application was withdrawn.

    The decisions effectively waived 7.4pc of the requirements for the 2018 compliance year, freeing up credits needed to comply for future years of the program. Farm and biofuels groups immediately condemned the announcement, which arrived three weeks late and followed a heated summer of debate over EPA’s administration of the mandates.

    Prices for ethanol-associated renewable identification numbers (RINs) traded as low as 11¢/RIN this afternoon ahead of the statement, down from a 20¢/RIN settle yesterday, based on Argus assessments.

    “The EPA has proven beyond any doubt that it does not care about following the law, American jobs, or even the president’s promises,” ethanol trade group Growth Energy chief executive Emily Skor said. “Now farmers and biofuel producers are paying the price.”

    RFS requires that refiners, importers and certain other companies each year ensure minimum volumes of renewables enter the gasoline and diesel they add to the US transportation fuel supply. Refiners prove annual compliance with renewable identification numbers (RINs) representing each ethanol-equivalent gallon of blended fuel acquired through their blending businesses or by purchasing the credits from others.

    Congress included an exemption for refineries processing less than 75,000 b/d of crude a year that could demonstrate a hardship under the program to the Energy department and EPA. EPA issued relatively few such waivers under former president Barack Obama’s administration, but their use surged under Trump’s first EPA administrator, Scott Pruitt, and following a series of judicial rebukes of the difficult Obama administration criteria.

    These waivers effectively reduce total annual mandates because the EPA does not shift the waived requirements to other, larger obligated parties. A record 35 waivers issued as of March this year for 2017 reduced obligations for that compliance year by 9.4pc.

    Exemptions for the 2018 compliance year waived 1.43bn RINs.

    Ethanol advocates have especially railed against the waivers, insisting the exemptions slashed demand for their fuel and associated corn feedstock as Trump’s trade wars and widespread flooding crush farm incomes this year. The waivers have more directly affected biodiesel blending refiners historically used to make up the difference between the total volume of annual ethanol demand and mandated renewable blending volumes.

    Refiners have argued that the courts determined EPA was only now properly issuing waivers.

    “Capital planning is difficult without knowing whether your refinery needs to set aside millions of dollars for RIN purchases,” the Small Refiners Coalition said. “The decision to grant small refinery hardship is a legal decision, not a political one, and we are pleased that [the department of Agriculture’s] influence did not cause EPA to depart from the rule of law.”

    EPA pledged to “remove regulatory burdens” for new pathways of renewable fuels to use to comply with the program, and touted work with the National Corn Growers Association to expedite approval for the herbicide atrazine.

    “EPA is committed to an expeditious and transparent process to ensure that America’s corn growers have the tools they need to grow safe, healthy and abundant food for all Americans and a growing population,” the agency said.

    Litigation continues against EPA’s handling of the program. The US Court of Appeals has scheduled a late October hearing on an Advanced Biofuels Association challenge to the agency’s use of the program.

  • Retailers dispute refiners’ proposed RIN changes

    Retailers dispute refiners’ proposed RIN changes

    Published date: 29 August 2016 at Argus Media

    Proposed changes to federal biofuel mandates would slash liquidity for compliance credits without improving prices for consumers, fuel retailers tell Argus.

    Vocal refiners facing rising costs have warned that the Renewable Fuel Standard (RFS) encourages market manipulation more than biofuel blending. But retailers including Murphy USA, a frequent target of refiners this year, said the complaints were misdirection.

    “For an industry whose margins have collapsed by 50pc, it’s disingenuous to point to this, when I think the bigger issues are staring them in the eyes,” Murphy USA chief executive Andrew Clyde said.

    Merchant refiners increased pressure this year to change the structure of federal mandates that require rising volumes of biofuels enter the domestic transportation fuel supply. The mandates measure volumes of biofuels such as ethanol or biodiesel blended with traditional fuel before shipping off to retail stores.

    Refiners Valero, PBF Energy, CVR Energy and HollyFrontier all lack infrastructure to fully blend their own production, so they must purchase credits — called renewable identification numbers (RINs) — from blenders that do not need the credits under the program.

    The refiners insist the system invites manipulation and blunts the program’s ability to achieve higher volumes of blending. Sellers of RINs have more incentive to profit off scarce credits than to blend fuels, they say, and speculators have helped drive RIN prices to unreasonable levels.

    Opponents also claim Murphy and other retailers use revenue from the program to slash fuel prices and pressure smaller competitors.

    Refiners have pushed the Environmental Protection Agency (EPA) in rulemakings and courts filings to make blenders obligated to purchase RINs. These efforts to change compliance split the industry, with more integrated downstream competitors reluctant to sign on and the trade association made up of oil majors openly opposed to the idea.

    Retailers have remained largely silent in the debate. Murphy rebutted the refiner-proposed changes in comments on blending volumes the EPA proposed this year. A handful of small fuel suppliers also commented, all using similar language to criticize grocers and large retailers making “extra profit from selling RINs,” an echo of the refiner complaints about the system.

    Retailers who sell RINs told Argus last week that refiners had exaggerated the program’s influence on their profits.

    “The bottom line to us and many, many others is that if the EPA or Congress change the point of obligation, the consumer will pay more for motor fuels and less renewable products will be introduced into the market,” said Mike Thornbrugh, a spokesman for retailer QuikTrip.

    QuikTrip declined to comment on its RIN sales revenues or to whom the midcontinent retailer sells the credits. Other privately held retailers contacted by Argus would not respond to questions.

    Murphy singled out

    No company has been more frequently cited by refiners critical of the program than publicly-traded Murphy USA, an almost 1,400-station chain anchored by Wal-Mart stores. The retailer reports revenue from RINs as a line item, allowing readers to easily track an increase from $5mn in the third quarter of 2013 to a peak of $44mn in the second quarter of this year — a period when the company saw $3bn in total revenue. The Murphy RIN revenue appeared in refiner filings to the Environmental Protection Agency and a Southern Methodist University paper suggesting RINs unfairly grant advantages to larger retailers.

    Murphy does benefit from RINs, though not to the degree claimed by refiners, Clyde said. The retailer considers recent net gains of 2¢/USG to 3¢/USG following RIN sales a 9pc to 10pc return on its investment in the infrastructure needed to blend and deliver the fuel. Murphy owns line space on major products pipelines, operates blending infrastructure and purchases biofuels — all costs associated with the business that separates RINs, he said.

    “It’s easy for people to selectively pull one number, the other income number, and not net it,” Clyde said. “It’s just as misleading for someone to report the cost of RINs without netting it against the refinery margin that has that increased spot price built into it.”

    Refiners argue they cannot compel higher prices at blending racks, or spur those terminals to add biofuel blending capacity. But Murphy said it does see prices increased to offset compliance costs in barrels purchased directly from refiners. And the compliance credits offset a narrow, often negative margin between spot prices and the rack that intensifies when RIN prices climb, Clyde said.

    Casey’s Convenience Stores reports income from RINs, but the 14-state retailer owns no blending or terminal infrastructure, chief financial officer Bill Walljasper said. The retailer instead collects RINs through a quirk of Iowa state law, where the company operates roughly a quarter of its stores. Casey’s receives RINs when ethanol splashes into the company’s truck fleet just before heading off to its stores.

    Casey’s lacks infrastructure to increase or otherwise manage RIN access beyond the ebb and flow of outright fuel demand, he said.

    “We don’t manage our business to RINs at all,” Walljasper said. Rather, the company sells to an obligated buyer twice a month, and had not seen any speculators seeking the credits.

    Murphy’s used brokers to place RINs, but the third parties did not take title, Clyde said.

    “We see no signs of this quote ‘rigged system’, and we’re selling to refiners either directly or through brokers,” Clyde said.

    What the current system does have is liquidity, he said. Shifting the compliance to blenders would slash the volume of buying and selling, leaving all parties, including refiners, with an illiquid market.

    Some merchant refiners have begun to draw closer to the distribution business. But midcontinent refiners HollyFrontier and CVR Energy said they cannot acquire such facilities for their midcontinent systems. And Valero doubts it could secure infrastructure to blend all of its production without raising federal market power concerns. The EPA has said it was not the intent of the RFS to change refinery business models.

    EPA also cannot change a natural business cycle, Clyde said. US refinery margins for gasoline and diesel have crumbled as the industry’s advantages relative to global competitors faded with the price of oil this year.

    “I think the refinery industry has a set of challenges on its hands that are completely independent of the RIN,” Clyde said. “It’s easy for them to look at our other income category and try to point to a windfall profit that doesn’t exist.”