U.S. refiner biofuels costs top $1 billion, nearing 2013 record

Source: By Chris Prentice, Reuters • Posted: Friday, March 4, 2016

A general view of the Tesoro refinery in Carson, California February 2, 2015. REUTERS/Bob Riha, Jr.

U.S. oil refiners paid more than $1 billion to comply with rules to produce more ethanol-infused gasoline last year, the most in two years, according to filings that will likely intensify the debate over who should foot the bill for the nation’s biofuels programme.

Eleven companies, including Valero Energy Corp and Marathon Petroleum Corp, shelled out $1.27 billion last year for credits, known as Renewable Identification Numbers or RINs, as they raced to stock up on paper credits to meet ethanol quotas set by the government after years of delays, according to securities filings reviewed by Reuters.

Uncertainty over the Environmental Protection Agency’s plans for its biofuels policy through 2016 also boosted prices of the renewable fuel credits, which were on average 14 percent higher last year than in 2014.

The total cost was up by just over one-quarter from 2014 and near 2013’s historic high of $1.35 billion. Refiners blamed rampant speculation for a spike in prices and called for regulators to cut ethanol requirements and overhaul the more than decade-old programme.

With oil prices languishing close to 12-1/2-year lows and RINs prices last year up more than 10 percent, biofuel compliance costs accounted for a greater chunk of refiner overhead.

This year, the high cost of complying with the biofuels policy may have even greater resonance for refiners as their profits from gasoline evaporate, because warm winter weather has curbed demand while adding to record glut of the fuel.

Refiners typically tack those costs onto the price paid at the pump, but the data will stir the fierce debate over who should foot the annual billion-dollar-plus bill.

Delta Air Lines Inc’s Monroe Energy LLC and Valero are suing the EPA over the issue.

Merchant refiners such as Monroe, which do not have the facilities to blend their own fuel, say the burden should be shouldered by fuel blenders, which benefit from the higher RINS costs.

Gasoline retailer Murphy USA Inc realized a $117.5 million boost to its bottom line in 2015 from selling the credits, up more than 26 percent from the prior year, but the chain said in a filing that the gains may not be sustainable if refiners have their way.

Brought into law more than a decade ago to boost the use of cleaner fuels, reduce U.S. dependence on oil and help rural economies, the U.S. Renewable Fuel Standard (RFS) program requires refiners either to blend biofuels or buy RINs, which are created with each gallon of renewable fuel, to meet the policy standards.

Valero declined to comment for this story and Delta Air Lines did not respond to request for comment.


Valero, which had the highest costs out of the 11 companies, accounted for one-third of last year’s total. The true tally is likely higher as some obligated parties such as Tesoro Corp did not disclose the costs.

“Those costs are basically a wash” for refiners, said Scott Irwin, an agricultural economist with the University of Illinois. “Extra costs start at the production of biofuel and finally end up at the pump.”

Whoever ends up paying, the tally this year could go even higher as increasingly ambitious targets may keep prices of renewable fuel credits elevated, said Thomas Hogan, executive vice president at consultancy Turner, Mason & Company in Dallas.

Credits for 2016 are trading around 73 cents each, up from an average of about 60 cents last year.

“High RIN prices could be the norm for this year,” Hogan said.

CVR Energy, owned by activist investor Carl Icahn, said in its quarterly filing it expects its RIN costs to total $140 million to $190 million this year, up from about $123.9 million in 2015.

“The fact that the price of RINs has risen far beyond the transaction cost of blending biofuels is evidence that the program is broken,” said Chet Thompson, president of the American Fuel and Petrochemical Manufacturers Association.

“The RFS must be repealed,” he said.