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Biofuel credit prices drop without deal: Update

05 Mar 2018 21:02 GMT
Biofuel credit prices drop without deal: Update

Adds union lobbying efforts.

Houston, 5 March (Argus) — President Donald Trump cut refiner costs to comply with US biofuel mandates last week even without brokering a deal between oil and agriculture groups.

Uncertainty following meetings among senators, industry leaders and the White House led the price of ethanol-generated renewable identification numbers (RINs) used to prove compliance with the program to their largest single-day drop in a year. The 8.25¢/RIN decline on 2 March fell short of a 10.25¢/RIN plunge roughly one year earlier inspired by the same unease over White House interest in the Renewable Fuel Standard (RFS).

All sides remained implacable over how best to reduce RIN prices following two rounds of February deal making toward a new compromise the White House may not have the power to provide.

The RFS requires refiners, importers and other companies ensure each year that minimum volumes of renewables blend into the fuel they add to the US transportation supply. Companies acquire RINs needed to prove compliance by blending or by purchasing the credits from others.

The refiners most reliant on purchasing RINs, including Valero, PBF Energy and other merchant refiners, insist the mandates drive unsustainable compliance costs and pressured Pennsylvania refinery Philadelphia Energy Solutions (PES) into a bankruptcy demanding immediate relief. Senators Ted Cruz (R-Texas) and Patrick Toomey (R-Pennsylvania) have carried this argument to the White House.

Agriculture groups counter that giving more market share to ethanol and other renewable fuel blends would drive down refiner costs and provide support for US farmers facing their own crises. Senators Chuck Grassley (R-Iowa) and Joni Ernst (R-Iowa) have shouldered this argument.

The conflict deadlocks industries representing two supporters of the president — farmers and manufacturers — ahead of Congressional elections and with added urgency for Philadelphia refinery workers.

"The noose is getting tighter around the people who rely on PES," United SteelWorkers Local 10-1 president Ryan O'Callaghan said.

Trump on 1 March at the end of a closed-door session with four senators and company executives suggested a two-year restriction on the price of RINs as temporary relief for that market, according to attendees and three sources briefed on the meeting. The remark followed objections that it would take too long for sales of higher-ethanol gasoline blends sought by the ethanol industry and other businesses to drive down the costs of the program.

But agriculture groups, fuel blenders and some refiners reject that idea, and it was not clear how the executive branch could legally offer such a price cap.

The concept would rely on an Environmental Protection Agency-created alternative credit, available at 10¢/RIN or another lower price, that obligated parties could buy in lieu of actual blending-generated RINs. The proposal mimics provisions in the law that have repeatedly generated credits for cellulosic ethanol in the absence of sufficient volume for blending.

But statutes creating the program allow EPA to reduce required volumes, not prices, for other biofuels. An alternative RIN would face immediate legal challenges.

So too would changes making it easier to sell 15pc ethanol blends in the summer. Ubiquitous 10pc ethanol blends have a federal waiver of clean air rules restrictions on how easily the fuel evaporates that allow E10's sale in certain major markets during summer months. But the law specifically designates 10pc ethanol for this waiver, making it unclear how the EPA could extend the exemption to a new fuel without Congressional action.

"That is their complaint, the high prices of RINs," said Mike Lorenz, vice president of trading for retailer Sheetz. "If we can sell higher blends of ethanol, that is going to help alleviate that situation."

Congress could address both ideas with a longer-term fix. An effort to find compromise there continued this month behind closed doors. USW members working at Valero, PES, Monroe Energy, PBF Energy and HollyFrontier refineries planned to lobby legislators on the program tomorrow and 7 March. Workers would not be asking for repeal but for changes to the trading system to reduce costs, O'Callaghan said.

"I think Congress can fix it, but that may be a long road," O'Callaghan said. "I think the president will fix it. I think he can fix it."

Fuel traders will meanwhile continue to glean any hints of policy change from executive meetings. Trump roiled international markets last week with a surprise announcement of plans to levy tariffs on steel and aluminum. RIN prices fell 8.6pc on news that the White House would hold the meetings and 22pc over two days following the second meeting.

Another round of RFS talks was planned, but not yet scheduled, for this week.