Biofuel Fight Lives On

February 24, 2018 07:00 AM
The price of biofuel blending credits tumbled Friday on mounting speculation that the fight by independent oil refiners to change U.S. laws mandating the use of ethanol will lead to rule changes.

(Bloomberg) -- The price of biofuel blending credits tumbled Friday on mounting speculation that the fight by independent oil refiners to change U.S. laws mandating the use of ethanol will lead to rule changes.

A meeting was said to take place on Friday between Environmental Protection Agency Administrator Scott Pruitt and Agriculture Secretary Sonny Perdue to discuss possible changes to the Renewable Fuel Standard, the law that forces refiners to use escalating amounts of ethanol and biodiesel, according to people familiar with the discussions.

A follow-up meeting is scheduled for the morning of Feb. 27 with President Donald Trump and four Republican senators on both sides of the issue, said the people, who asked not to be named in discussing private deliberations. Pruitt, Perdue and other officials are also expected to be in attendance.

The meetings show that the campaign to change the biofuels mandate is gaining momentum, six months after its fiercest and most outspoken critic, billionaire investor Carl Icahn, left his role as regulatory adviser to the president.

Icahn, who owns an 82 percent stake in CVR Energy Inc., a Sugar Land, Texas-based oil refiner, became the public face of the campaign to reform the 13-year-old law through a series of letters, editorials and interviews in recent years. Icahn served as a regulatory adviser to Trump until August, and his advocacy for changing the RFS while in that role prompted complaints from Democratic lawmakers about potential conflicts of interest.

Federal investigators have issued subpoenas seeking information on Icahn’s efforts to alter biofuel policy during his time advising Trump.

At the center of the debate are tradeable credits known as Renewable Identification Numbers, or RINs, that refiners use to show compliance with the mandate. RINs prices have been volatile in recent years.

On Friday, prices of the credits tumbled as much as 12 percent, according to broker data compiled by Bloomberg.

The dispute intensified last month with the bankruptcy filing of Philadelphia Energy Solutions LLC, the largest refinery on the U.S. East Coast. Companies like PES, Valero Energy Corp. and CVR that lack the infrastructure to blend biofuel and generate the credits themselves must instead buy them from other sellers, including other oil companies as well as traders who have no obligation under the program.

Nevertheless, CVR and other independent refiners may be benefiting from the intensity of the push over the past year to change the program. Prices for RINs tracking 2018 ethanol consumption targets have fallen 37 percent to 62 cents apiece since Oct. 25, according to data compiled by Bloomberg. The biodiesel variety has dropped 26 percent to 80 cents apiece.

The decline is due, in part, to the increased likelihood of legislative reform, Jason Fraser, Valero’s vice president of public policy, said on a Feb. 1 conference call with investors. Earlier that day, Marathon Petroleum Corp. Chief Executive Officer Gary Heminger said that he was “fairly confident” that there will be a resolution by “this spring.”

David Lamp, CEO of CVR, said Thursday he’s “very optimistic something is going to happen,” citing the involvement of ethanol champions Senator Chuck Grassley and Senator Joni Ernst, both Iowa Republicans, and Senator Ted Cruz and Senator John Cornyn, both Texas Republicans.


Copyright 2018, Bloomberg News

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