US RINs markets continue to race higher on 2017 EPA biofuel mandate

Source: By Josh Pedrick, Platts • Posted: Thursday, December 1, 2016

US Renewable Identification Numbers on Monday continued to ride a bullish wave that emerged after the US Environmental Protection Agency finalized 2017 biofuels mandates, with both ethanol and biodiesel RINs reaching their highest levels in over three years.

S&P Global Platts assessed ethanol RINs for 2016 compliance at 97.75 cents/RIN Monday while biodiesel RINs of the same vintage were assessed at $1.15/RIN.

However, both traded higher in the morning. Ethanol RINs traded as high as 99.5 cents/RIN while biodiesel RINs traded up to $1.16/RIN.

Before details of the mandates were released on November 23, 2016 ethanol and biodiesel RINs were assessed at 86.75 cents/RIN and $1.045/RIN, respectively, on November 22. On November 23, 2016 ethanol and biodiesel RINs were assessed at 92.25 cents/RIN and $1.10/RIN, respectively

 

Neither ethanol nor biodiesel RINs have traded as high as this since the summer of 2013.

The reaction came after EPA on November 23 announced that the volumes of biofuels that obligated parties must blend with transportation fuel in 2017 would be sharply higher than levels proposed in May. The total mandate climbed to 19.28 billion gallons, 480 million gallons above May’s proposal.

Of that 480 million gallon increase, 280 million gallons was for advanced biofuels.

That poses a challenge for obligated parties as the US consistently finds itself short advanced biofuel and as a result imports the difference from Brazil.

However, Brazil is exporting less ethanol as producers in the South American country divert more sugarcane toward sugar production and away from ethanol.

Sugar prices have spiked in 2016, prompting higher demand for Brazil’s primary ethanol feedstock.

With fewer gallons available from Brazil, the US is likely to cover its advanced biofuel shortfall with biodiesel RINs.

Biodiesel RINs can be used to comply with the advanced and conventional ethanol mandates.

As more biodiesel RINs will be needed, prices have increased 10% in value since the EPA released the 2017 volume obligations.

The rest of the increase in the mandate came from conventional ethanol. The proposed volume was 14.8 billion gallons, but biofuels groups pushed for the EPA to raise it to 15 billion gallons.

In 2007, Congress set volume goals for the Renewable Fuel Standard, aiming to blend 15 billion gallons of conventional biofuel in 2015. At only 200 million gallons away from the goal, and with plenty of ethanol production capacity to generate the volume, ethanol supporters saw 15 billion gallons as achievable in 2017, and the EPA seems to agree.

The higher ethanol blending volume pushed ethanol RINs up. But much of the momentum came from the jump in biodiesel RINs.

Every gallon of biofuel that is produced generates a RIN. These are then turned in to the EPA at the end of each year to demonstrate compliance with blending requirements. If a company does not blend enough biofuel, it can purchase separate RINs on the open market from another party who does not need them.

–Josh Pedrick, joshua.pedrick@spglobal.com

–Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

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