RFA asks US EPA, CFTC to look into recent surge in RIN prices

Source: By Wes Swift, Platts • Posted: Friday, August 5, 2016

Houston (Platts)–3 Aug 2016 625 am EDT/1025 GMT

The Renewable Fuels Association has asked the US Commodity Futures Trading Commission and the Environmental Protection Agency to investigate what is behind the recent surge in Renewable Identification Number prices, arguing that the spike in prices defies “basic market fundamentals.”

In a letter sent Monday, the US trade group’s CEO Bob Dineen questioned why RIN prices had risen nearly 30% since the EPA released its proposed renewable fuel blending mandates on May 18 despite robust RIN generation so far this year.

S&P Global Platts assessed 2016 D6 ethanol RINs at 74 cents/RIN on May 17, the day before the EPA released its proposals. On Monday, Platts assessed the same RINs at 94.75 cents/RIN.

Dineen argued in the letter that after a small surge in prices shortly after the EPA’s announcement, RIN prices began to recede toward the pre-announcement levels.
That changed, however, in June, when RIN prices began to rise steadily. D6 ethanol RINs for 2016 rose above 90 cents/RIN on June 29, the same day Goldman Sachs released a report projecting that the supply of carryover RINs would decline by half by the end of 2017.

The Goldman report — and a subsequent conference call several days later — said rising blending mandates in 2017 would force obligated parties to use RINs saved from previous years. The report projected that 2016 D6 RINs would average more than $1/RIN in 2017.

Sources previously have told Platts the expectations of a drawdown in carryover RINs had prompted obligated parties to buy more RINs in the market now, pushing up prices.

But Dineen argues RINs prices should not have risen after the EPA announcement, since ethanol production so far in 2016 has produced more than enough RINs to satisfy demand this year.

According to Platts analysis, D6 RIN generation for 2016 is on pace to exceed the 2016 blending mandate by 478,000 RINs, based on historical trends. Generation of D4 biodiesel RINs — which can be used to satisfy the D6 ethanol mandate under the Renewable Fuel Standard rules — is also projected to exceed its mandate by 1.405 billion RINs.

Factoring in projected deficits in cellulosic and advanced biofuel RIN generation, carryover RINs for 2016 are estimated to reach about 965 million RINs, according to the analysis.

“Basic market fundamentals suggest RIN prices should have remained stable — or fallen — following the proposal’s release,” the letter states.

The rapid rise in RIN prices is reminiscent of 2013, when RIN prices broke $1/RIN, causing many obligated parties to protest.

Valero — the largest refiner in the US by capacity at the start of 2016 at 2.062 million b/d, according to Energy Information Administration data — spent $517 million on RINs in 2013, according to Securities and Exchange Commission filings.

On July 26, John Locke, vice president of investor relations for Valero, said the company expected to spend $750 million to $850 million on its RIN costs in 2016.

The EPA issues RINs to track renewable fuel usage throughout the supply chain. Refiners, importers and blenders — called obligated parties — use them to show the EPA that they have fulfilled their mandated government use of renewable fuels. If the obligated party has not used enough physical product, it can buy RINs to satisfy the quota.