Independent refiners’ RIN crisis has passed — report

Source: Marc Heller, E&E News reporter • Posted: Wednesday, December 6, 2017

Wells Fargo Securities is offering comfort to investors worried that the high cost of renewable fuel credits threatens merchant refiners’ bottom line.

The firm says the independent refiners are recovering from high renewable fuel credit prices by passing the cost to consumers and that other aspects of renewable fuel policy such as taxes and allowable emissions are more pressing.

In its Nov. 16 report, Wells Fargo Securities implies that one of the key fuel industry lobbying points playing out in Washington — a plea for federal officials to help refineries by reining in prices for renewable fuel credits, called renewable identification numbers, or RINs — is overblown.

The issue is one likely topic of discussion at the White House this Thursday as Sen. Ted Cruz (R-Texas) and other lawmakers critical of the biofuel mandates meet with President Trump and U.S. EPA Administrator Scott Pruitt.

“Our conclusion is Independent Refiners should focus less on the specific impacts of RINs (though the program could use some tweaks, in our view) and more on establishing a level competitive playing field for biofuels and fossil fuels on taxes and emissions,” the Wells Fargo analysts wrote. “Investors should not spend much time and effort on the risks to refining margins historically posed by RINs.”

They added, “The independent refiners bore the brunt of the first wave of RINs in 2013 but have since turned the tide. With RINs costs now being ‘passed along’ to consumers, the incentive for Independent Refiners to aggressively fight against RINs may wane.”

RINs are the tradeable credits that refiners buy to meet fuel volume requirements under the federal renewable fuel standard. Prices for RINs shot up tenfold in early 2013, from less than a dime each to 70 cents, then continued climbing to $1.40.

That spike hurt refiners, and companies continue to complain about high RIN prices, the report says. But high prices aren’t affecting most companies’ bottom lines or cash flow lately because they’re passing the cost to consumers through higher gas prices, the Wells Fargo analysts said.

The analysts say they don’t dispute that some smaller refiners are still hurting from RIN prices, but they say that overall, the industry is recovering.

The report has become a talking a point in policy debates among industry groups. The president of the Renewable Fuels Association, Bob Dinneen, cited it in a statement pushing back against Texas Gov. Greg Abbott’s (R) request for EPA to temporarily waive biofuel blending requirements for his state, noting analysts’ conclusion that merchant refiners recover costs through higher refining margins.

Oil industry sources told E&E News that the report overlooks events such as Gulf Coast hurricanes that disrupted the market this year and that analysts also reinforced one message that the gas and oil companies have pressed: Rising RIN prices result in higher prices for gasoline.

Thursday’s meeting — which Cruz and other Republican senators opposed to the biofuel mandate requested in October — may spell out ways to control RIN prices, industry sources said, possibly by capping them. EPA could do that by crafting regulations, and while the process would take months, it would send a signal that might push down prices, said a refining industry source who requested anonymity to talk openly about policy implications affecting his company (E&E News PM, Oct. 26).

While controls on renewable fuel credits offer a short-term solution, participants are also looking for long-range changes in renewable fuel policy that wouldn’t divide ethanol and petroleum interests.

One possibility, the refining industry source said, is to promote octane-rich fuels for higher-compression engines coming on the market — a goal that could help higher-octane renewable fuels without undercutting gasoline. A national octane standard could do that, possibly as a bargaining chip for scaling back the RFS.

An opportunity may be at hand, the refining industry source said. Officials are reviewing the corporate average fuel economy, or CAFE, standards that address greenhouse gas emissions from motor vehicles, at the same time some lawmakers are urging a revamp of the RFS. Industry group are hoping for a solution “that works for autos, ethanol producers and refiners while increasing engine efficiency concurrent with lowering GHG tailpipe emissions,” the source said.

The White House meeting has political implications, as well, as Cruz and other senators are holding up the nomination of Iowa Agriculture Secretary Bill Northey for an undersecretary position at the Department of Agriculture, in a spat with Sen. Chuck Grassley (R-Iowa) over biofuels. Grassley has been credited, in part, for successfully pressuring the administration not to scale back biofuel volume requirements for next year (Greenwire, Oct. 26).