Delek will seek biofuel blending exemptions

Independent refiner Delek plans to seek small refinery exemptions from US biofuel blending rules following a key Supreme Court ruling late last month.

After the nation's top court ruled on 25 June that the Environmental Protection Agency (EPA) has wide discretion to provide small refineries with exemptions from annual biofuel quotas under the US Renewable Fuel Standard (RFS), Delek will forge ahead with exemption requests for its 83,000 b/d El Dorado, Arkansas, and 80,000 b/d Krotz Springs, Louisiana, refineries, two of its top executives said. The refineries previously had exemptions under the administration of former president Barack Obama and as recently as 2018.

The company will be "very aggressive" in seeking exemptions after the Supreme Court ruling "opened the door" for companies that previously held exemptions, Delek chief executive Uzi Yemen told an online conference this week.

With prices for RINS — the credits used to certify compliance with RFS — hitting all-time highs this year, small US refiners struggling to recover from a difficult 2020 now face mounting compliance costs.

"There's no doubt with the RIN price where it is today, we feel the system is broken and it's a real overhang on the industry," Delek senior vice president of market intelligence Blake Fernandez told the conference.

While Delek does not disclose the exposure it faces from RINs, Delta Airlines said in April that its Trainer, Pennsylvania, refinery operated by Monroe Energy incurred $158mn in RIN costs in the quarter ended 31 March, up from $27mn in the same period one year earlier and $15mn two years earlier.

In March 2020, Delek threatened to sue the EPA for not meeting a deadline to act on 2019 exemption requests for the refineries, although the company told Argus that ultimately no lawsuit was filed. Exemptions for its 2018 blending obligations reduced RIN expenses by $7.4mn for El Dorado and $4.9mn for Krotz Springs, the company said in 2019.

Both El Dorado and Krotz Springs were the subject of a governance struggle earlier this year between Delek management and shareholder CVR Energy, which wanted the refineries converted to renewable-diesel production or terminals.

By Dylan Chase