Compliance costs falling: PBF

PBF Energy's spending on federal fuel blending mandates may fall by a third this year on expectations that the program will change, the company said today.

The US independent refiner and outspoken critic of the Renewable Fuel Standard (RFS) remained optimistic that Congress or the White House will change the program.

Speculation that the current administration will approve changes to the mandates has helped slash refiner costs associated with the program this year. PBF estimated full year costs at $200mn, down from $293.7mn in 2017.

"Obviously it is a crazy roller coaster ride, but as we get closer to a world with lower RIN prices, PBF is one of the largest beneficiaries of that," vice president of finance Matthew Lucey said on an earnings call. "We are cautiously optimistic and continue to work the program."

RFS requires refiners, importers and other companies to each year ensure minimum volumes of renewables blend into the gasoline and diesel they add to the US transportation fuel supply. Companies prove compliance by acquiring renewable identification numbers (RINs) representing the blended gallons of biofuel.

Companies such as PBF Energy that do not blend fuel must purchase RINs.

The program has pit manufacturing workers against farmers as the administration of President Donald Trump tries to woo both. Trump has personally attended meetings to broker a compromise between increasing volumes of renewables in fuels and reducing refiner obligations to ensure that blending happens.

The Environmental Protection Agency (EPA) will "in the not-too-distant future" limit who can purchase and hold credits under the system to limit speculation, Lucey said. EPA administrator Scott Pruitt has repeatedly mentioned changes to reduce this activity during Congressional hearings and other appearances, although he has given no timing for such a change. The EPA did not immediately comment on any pending changes.

PBF still expected the White House or Congress to make more fundamental changes to the program reducing long-term costs. US senators Chuck Grassley (R-Iowa) and Ted Cruz (R-Texas) confirmed to Argus that the White House would host a meeting on the program early next week. Senator John Cornyn (R-Texas) and US representatives John Shimkus (R-Illinois) and Bill Flores (R-Texas) continue work brokering legislation to change the program.

A surge in approved waivers from the program for 25 small refineries as well as a waiver for the bankrupt 330,000 b/d Philadelphia Energy Solutions refinery in Pennsylvania, Philadelphia, have meanwhile cut obligations and prices for refiners this year.

"While there have been no permanent solutions, discussions on ways to fix the RFS and small refinery waivers granted by the EPA have had the effect of lowering RIN prices and thereby reducing a significant headwind for our business," PBF chief executive Tom Nimbley said.