| NEW YORK, March 31
NEW YORK, March 31 Last year's spike in the
price of ethanol blending credits cost independent refiners at
least $1.35 billion, more than three times as much as the year
before, according to a Reuters' review of securities filings.
The tally, which has not been previously reported, is a
conservative estimate as it includes only nine refiners that
disclosed the figures. Others affected did not specify the cost
of buying Renewable Identification Number (RINs), paper credits
used to meet quotas for blending biofuel into gasoline and
While it has long been clear that refiners lacking the
facilities to blend their own fuel would end up footing a
billion-dollar-plus RINs tab last year, the data may give the
companies more firepower as they urge regulators to stick to a
proposal to cut back ethanol requirements for this year.
A final rule is due to be completed in the coming months,
and some analysts say the U.S. Environmental Protection Agency
(EPA) could alter the proposal after outcry from the biofuel
The review also highlights how the impact was unevenly
distributed, with independent refiners CVR Refining and
LyondellBasell alone shouldering more than a fifth of
the cost although they only account for 2.5 percent of the
nation's daily refining capacity.
Gina Bowman, CVR's vice president of government relations,
called the market for the credits "volatile and unfair" and
pointed to it as evidence for why the biofuel blending
regulations need to be reformed.
Valero Energy Corp, the biggest U.S. refiner with 10
percent of capacity, spent about $517 million on RINs in 2013.
"We were clear that Valero could not bear that cost alone,
so much or all was passed on to consumers," said Valero
spokesman Bill Day. The company estimates that it will spend
another $250 million to $350 million on RINs in 2014.
Some biofuel proponents say the tab is not as large as it
sounds when compared with the overall profits the industry is
making. In 2013, the refiners that disclosed RIN costs made $9.4
billion in net profits, according to their filings, excluding
one refiner whose parent company is an airline.
Still, the data highlights the burden that many refiners
face under U.S. environmental regulations that require them to
mix increasing amounts of ethanol into their gasoline output.
In 2012, before an unprecedented price spike sent the
credits up as much as 2,900 percent, six of the refiners that
disclosed their RIN costs put the tab at $427 million.
Some that did disclose them in 2013 did not do so in 2012,
when the credits' cost was not as material an expense. RIN
prices rose as high as $1.45 each in July 2013, up from about 5
cents each at the end of 2012. They traded for 52.5 cents each
The regulatory burden is at the heart of a fierce lobbying
battle between refiners fighting to ease the rules and ethanol
proponents hoping to keep them in place. Saddled with hundreds
of millions in additional costs, refiners turned up the ante in
Washington last year, successfully convincing environmental
regulators that ethanol blending capacity had hit its peak.
In November, the EPA explicitly recognized the so-called
"blend wall," proposing to cut corn ethanol blending quotas from
14.4 billion gallons to about 13 billion gallons for 2014. The
proposal caused RINs to fall as low as 22 cents each.
But in recent months, RINs have risen anew, largely on
uncertainty over whether the proposed cuts will stay in place.
The EPA's proposal is not yet finalized, and since it was
unveiled in November, the biofuel industry has redoubled its
efforts lobbying the White House and the EPA to change course.
In February, EPA administrator Gina McCarthy caused a stir
in the RINs market after telling state agricultural officials
that the final rule will be "in a shape that you will see that
we have listened to your comments."
The American Fuel and Petrochemical Manufacturers, which
represents the refining industry, said the RIN bill showed the
need for the EPA to keep its proposed cuts in place.
"What was supposed to be a transaction cost has become this
artificial commodity that is obviously costing fuel producers,"
said Brendan Williams, senior vice president of advocacy for the
group. "What it does is it shows you the blend wall's here."
Proponents of the blending regulations say the higher
compliance costs should incentivize refiners to do what they
should under the law: blend more ethanol into their fuel output
to avoid paying the higher costs.
But only a handful of them, such as Marathon Petroleum Corp
, the No. 5 refiner, said in its filings that the company
curbed the cost rise by investing in blending infrastructure.
A Marathon spokesman said the company began investing in its
terminals several years ago to allow for gasoline to be blended
with up to 10 percent ethanol at all of its facilities.
Many others simply paid the costs. Delta Air Lines Inc
, which bought a 185,000 barrel-per-day (bpd) refinery in
Trainer, Pennsylvania, in 2012, said it paid $64 million for the
credits because the plant does not blend biofuels.
The company said in an annual U.S. Securities and Exchange
Commission filing that it was "pursuing legal, regulatory and
legislative solutions to this problem."
Others refiners, such as Tesoro Corp said it dipped
into reserves of the credits built up the previous year to meet
compliance obligations. The so-called "banked RINs" could be in
short supply if mandates go higher in 2014.
Meanwhile, a handful of smaller operators, including CVR and
Delek US Holdings, said they have applied for exemptions
from the blending rules for some plants. The EPA has granted the
so-called hardship exemption to at least one refinery, Alon USA
Energy's Krotz Springs, Louisiana, plant.
There are currently 14 active exemption requests under
consideration by the EPA, according to the agency's website.
The total tally in RIN costs is likely more than $1.5
billion including refiners such as Philadelphia Energy Solutions
(PES), owned by the Carlyle Group, which operates the
biggest plant on the East Coast.
The firm is not required to disclose the company's financial
details, but last October Chief Executive Officer Philip Rinaldi
said RIN costs could be as much as $250 million for 2013. A
spokeswoman declined to provide an updated figure, saying only
that last year's costs were "very substantial."
"Did merchant refiners take a hit? Yes, but that affected
their shareholders, not the American public," said Todd Becker,
chief executive officer of Green Plains Renewable Energy, a
Nebraska-based ethanol producer.
He said that looking at both sides of the market, the run-up
in RIN costs had not driven up gasoline prices, as some refiners
"It was a zero-sum game. The blenders had a windfall."
THE LONG OF IT
Conspicuous by their silence are large oil majors, such as
BP Plc and Royal Dutch Shell Plc, which operate
U.S. refineries as well as biofuel blending operations. Last
July, BP's top refining executive said the company did "quite
well" trading its surplus RINs for a profit.
Some pipeline operators, such as Kinder Morgan Energy
Partners, also said in its filings that the company made
money selling RINs, though they did not provide exact figures.
The biggest known beneficiary, according to a search of
public SEC filings, was Murphy USA Inc, a gasoline
station chain, which said it sold 171 million RINs in 2013 for a
total of $91.4 million - a windfall compared with the company's
$8.9 million of sales the prior year.
Vitol S.A., the world's largest oil trader and a
leading importer of Brazilian ethanol, has been one of the
biggest traders in the market and is believed to have done well
in the run-up in RIN prices. It is unclear how it has fared
(Reporting by Cezary Podkul; Editing by Jonathan Leff and Lisa