U.S. refiners’ biofuel bill soars to record high as debate heats up

Source: By Swetha Gopinath and Arathy S Nair, Reuters • Posted: Monday, March 13, 2017

Oil refiners shelled out a record over $2 billion to meet U.S. biofuels requirements in 2016, a 70 percent surge that helps fuel a growing debate over who should shoulder the costs for meeting environmental regulations.

A Reuters review of regulatory filings from ten refiners, including Valero Energy Corp and CVR Energy Inc, showed that they paid $2.22 billion last year for compliance credits that companies use to prove they are meeting annual government requirements for volumes of biofuels to be blended with gasoline and diesel.

That was 68 percent more than in 2015 and well above the previous record of $1.3 billion reached in 2013, when prices for paper credits, which trade in an opaque market, spiked to historic levels. Oil companies including refiners can either blend biofuels or buy the compliance credits, known as Renewable Identification Numbers (RINs), from those that have.

Refiners without blending operations have been chafing for some time over the rising costs to meet the U.S. Renewable Fuel Standard (RFS) requirements. They have been pushing for that burden to be shifted downstream from refiners to those closer to the gas pump.

That charge has been led by Valero and more vocally by Carl Icahn, the billionaire investor and majority stakeholder in CVR, who has attempted to reach a deal with a major biofuels industry group to agree to shift that burden, known as “point of obligation.”

Icahn’s role has drawn criticism from ethanol producers and other biofuel industry representatives because he is serving as a special advisor on regulations to President Donald Trump, a friend who he supported in his 2016 campaign.

Icahn has been accused of using his influence to favor a change that has direct financial benefit to him given his ownership in CVR. That stock has soared since the election, rising 63 percent since Nov. 8, though shares were down Friday for a seventh straight day. Icahn says refiners are at risk of buckling under the increasing costs.

A shift would mean lower costs for the merchant refiners and a more mixed impact on integrated companies like Marathon Petroleum, which would lose the revenue generated from selling RINs to refiners. Marathon, Tesoro Corp and others invested in blending operations in order to meet the annual biofuels requirements.

Valero, which has argued in favor of changes, spent $749 million on RINs last year, 70 percent hike from 2015, according to regulatory filings.

Critics of the change say that oil refiners regain the added costs in the price of gasoline they sell. The RFS was designed to help boost use of biofuels, including ethanol.

“RINs are the currency by which (these companies) can meet their obligations. As RIN prices go higher, the incentive to use the fuels goes up,” said Andrew Lipow, President of Lipow Oil Associates LLC in Houston.

One company that would be negatively affected by a shift, Casey’s General Stores Inc, which operates gas stations in the U.S. Midwest, earned $31 million last year by selling 57.1 million in renewable fuel credits, or RINs.

Calumet Specialty Products Partners LP also reported gains, earned $5.5 million on RINs in 2016. That compared with a year-ago cost of $38.8 million for the petrochemical company.

The price of RINs has fallen sharply in recent months since Trump appointed Scott Pruitt, the former Oklahoma attorney general and RFS critic to lead the Environmental Protection Agency (EPA). The plunge extended last week on news of possible changes to the policy.

Renewable fuel credits were trading above 80 cents apiece ahead of the presidential election and were about 39 cents apiece on Thursday, traders said. (Additional reporting by Chris Prentice in New York and Nithin Prasad in Bengaluru; Editing by Marguerita Choy)