Oil interests hope refinery bankruptcy a ‘wake-up call’

Source: Marc Heller, E&E News reporter • Posted: Tuesday, January 23, 2018

The announcement yesterday by Philadelphia Energy Solutions Inc. that it’s filing for bankruptcy — and blaming the cost of federal ethanol mandates — set off a new round of arguments in the fuel industry but showed no sign of kick-starting legislation on the issue.

Lawmakers remain stuck on how, or whether, to ease the cost of renewable fuel credits that PES and other companies buy to show compliance with the RFS’s fuel-blending requirements.

“I will remain engaged until we find an acceptable solution,” Sen. Pat Toomey (R-Pa.) said in a statement after the company’s announcement.

He called the RFS “counterproductive” and “job killing,” and said the law requires refiners to blend “an excessive” amount of biofuel into the nation’s fuel supply.

Discussions on Capitol Hill have focused on capping the cost of credits, called renewable identification numbers, in exchange for measures that could boost non-corn sources of fuel.

Sen. John Cornyn (R-Texas) has been at the forefront, lobbyists say, with Sens. James Lankford (R-Okla.) and Ted Cruz (R-Texas) playing roles.

A spokeswoman for Cornyn, the majority whip, said yesterday the senator is “working hard to unify all stakeholders in a consensus effort to reform the renewable fuel standard.”

But Cruz’s proposal to cap the prices of RINs at 10 cents — a fraction of where prices have been in the past two years — fell flat with ethanol supporters, including Sen. Chuck Grassley (R-Iowa), whose support for any solution would improve its odds dramatically (E&E News PM, Dec. 15, 2017).

The impasse in Congress has held up the nomination of Iowa Agriculture Secretary Bill Northey to a senior post at the Department of Agriculture, as well as the prospects of Grassley’s grandson to replace Northey in the state agriculture post (Greenwire, Oct. 26, 2017).

But the Iowa senator and other ethanol advocates have little incentive to negotiate changes to the RFS as long as they believe the mandate is secure, industry groups said.

A spokesman for Grassley said yesterday he was not aware of much new on the RFS debate, despite the announcement by Philadelphia Energy Solutions.

And a spokesman for Growth Energy, a pro-ethanol trade group, said he expects critics of the RFS to use the bankruptcy to dislodge discussions about the mandate.

PES runs a refinery in Philadelphia, one of the longest-running refineries in the country and a source of fuel for the Mid-Atlantic and New York City area.

The company said the plant would keep running as it sorts out finances as a result of the filing, under Chapter 11 of the federal bankruptcy code. The company said it envisions emerging with the same set of shareholders.

Industry sources said they’re watching for any reverberation in Congress. “I certainly think this is a wake-up call on the RFS,” said Brendan Williams, vice president of PBF Energy Inc., a refining company based in New Jersey. “I think it’ll cause policymakers to raise their eyebrows.”

The company’s announcement confirms what PES has said for months — that the cost of RINs is weighing it down, Williams said. PES has said it spends more on the credits than on payroll for its 1,100 employees.

The firm said it spent about $218 million last year on renewable fuel credits, which it buys as an alternative to blending ethanol; many so-called merchant refiners aren’t set up for such blending, according to industry groups.

Ethanol advocates said the company overstates the financial trouble imposed by RINs and that a broader range of market-related woes have hurt operations, including lower crude oil prices.

“They have their own business model problems,” Growth Energy spokesman Chris Hogan said. “If you look at the rest of the market, other refiners are doing well.”

Biofuel advocates, including fuel companies and farm groups, in December urged the Trump administration to look beyond oil group complaints about the cost of renewable fuel credits. High costs of RINs can be addressed without undercutting the RFS, they said.

“Oil companies and refiners are making investments in biofuel infrastructure to allow them to sell RINs and profit from the RFS,” wrote Fuels America, a coalition of pro-RFS groups.

“Recent quarterly earnings statements [show] evidence that despite claims to the contrary, independent refiners are doing quite well,” the group said. “Consumers then save at the fuel pump because biofuels displace