Low energy prices and regulatory uncertainty are driving federal renewable fuel mandate credits higher, US independent refiner Valero said today.
Prices for renewable identification numbers (RINs), used to prove compliance with the US Renewable Fuels Standard (RFS), will remain higher until economic damage caused by the Covid-19 pandemic subsides and energy prices climb, Valero senior vice president of alternative energy and project development Martin Parrish said.
RINs generated by blending renewables with petroleum fuels used in the US transportation supply will remain more expensive until then, and until the Environmental Protection Agency (EPA) clarifies how requirements will change next year.
"Once we turn the corner on the pandemic and energy prices recover to higher levels, we expect the RINs to drift lower," Parrish said.
RFS requires that refiners, importers and certain other companies each year ensure minimum volumes of renewables blend into the gasoline and diesel they add to the US transportation fuel supply. Obligated parties submit RINs representing each ethanol-equivalent gallon of blended fuel to prove compliance with the mandate.
Argus RVO, an assessment of the per gallon cost to comply with the federal mandates, has climbed above 6¢/USG, or roughly double the average cost in July last year.
EPA under President Donald Trump's administration has typically proposed blending obligations for the following year in July. But the agency has yet to propose those levels. EPA also has kept uncertain how it will address limits placed by a federal court on program waivers granted to small refineries.
Liquid confidence
US refiners have cut capital spending, but Valero continues to move forward with a potential 26,000 b/d renewable diesel project at its Port Arthur, Texas, refinery and an expansion to 54,000 b/d of renewable diesel at its Diamond Green Diesel joint venture in Louisiana.
The company does not see serious threats to its bullish view of renewable diesel demand in proposals for a carbon tax or in the absence of renewable diesel plan in the clean-energy agenda of presumptive Democratic presidential nominee Joe Biden.
"Nobody is going to want to take the union jobs away that are associated with the manufacturing that we have out there," general counsel Rich Walsh said. "I do not think any administration that comes in is going to want to pull the rug out from under the farmlands."
Valero reported $91mn in ethanol segment income for the second quarter, compared to $7mn in the same quarter of 2019. Renewable diesel reported $129mn of income for the quarter, up from $77mn in 2019.
| Valero expected Q3 throughputs | ||
| Region | 2020 estimate ('000 b/d) | 2019 actual |
| Ethanol production | 90.0 | 95 |
| Renewable diesel sales | 18.0 | 15 |
| - Valero | ||
