April 12, 2018 / 8:23 PM / 14 days ago

EXCLUSIVE-Chevron, Exxon seek 'small refinery' waivers from US biofuels law

(Adds background on companies in paragraph 20)

By Jarrett Renshaw and Chris Prentice

NEW YORK, April 12 (Reuters) - Global energy giants Chevron Corp and Exxon Mobil have asked U.S. regulators for exemptions to the nation’s biofuels policy that have historically been reserved for small companies in financial distress, according to sources familiar with the matter.

The requests will add fuel to a raging dispute between Big Oil and Big Corn over how the Trump administration should manage the U.S. Renewable Fuel Standard - a 2005 law that requires oil refiners to mix biofuels such as corn-based ethanol into the nation’s fuel supply, or buy government-awarded credits from other energy firms who do the blending.

The U.S. Environmental Protection Agency (EPA) has already issued an unusually high 25 hardship waivers to small refineries in recent months, according to an agency source, driving blending credit prices down and helping the oil industry reduce compliance costs.

But the agency won’t name the firms receiving the exemptions, citing a concern over disclosing private company information.

Both Chevron and Exxon, among the world’s most profitable energy companies, have asked EPA for waivers for their smallest facilities - Chevron’s 54,500 barrel-per-day refinery in Utah and the Exxon’s 60,000 bpd refinery in Montana, two sources briefed on the matter told Reuters on condition of anonymity.

The exemptions would free the plants from their obligation to hand in blending credits earned or purchased for 2017, which came due this year, the sources said.

The disclosure of the Chevron and Exxon applications, which have not been previously reported, follow a Reuters report this month that the EPA has exempted three of ten refineries owned by Andeavor, one of the biggest U.S. refining companies.

The waivers could save Andeavor $50 million or more in regulatory costs for the company’s 2016 obligations under the biofuels law.

Husky Energy - a Canadian oil giant backed by a Hong Kong billionaire - will also be seeking an exemption, this one covering the 2018 requirements for its small Superior, Wisconsin plant, spokesman Mel Duval told Reuters, disclosing the waiver for the first time.

Duval said Husky inherited a 2017 exemption when it bought the 50,000 bpd Superior refinery from Calumet Specialty Products Partners for $435 million in November.

The waivers are intended for facilities producing less than 75,000 barrels per day (bpd) that can also prove compliance with the policy would cause them “disproportionate economic hardship.”

The exceptions and the EPA’s refusal to disclose them have infuriated the corn lobby, which argues the waivers hurt farmers by undermining demand for corn and should be used only sparingly for tiny facilities in dire straits.

A spokesman for Chevron, Braden Reddall, declined to confirm or deny the application, but said waivers provide an edge.

“Several competitors have reportedly received exemptions from the RFS,” he said in a written statement to Reuters. “If true, any refinery which has not been exempted from the RFS will be at a competitive disadvantage.”

Exxon spokesman Dan Carter declined to comment.

It’s unclear whether the EPA has approved the Exxon or Chevron application. EPA spokeswoman Liz Bowman declined to comment on which firms have applied for or received exemptions.

She said the agency considers any application to exempt a refinery of less than 75,000 bpd - regardless of the size of the company that owns it.

“EPA decisions on waivers are based on refinery-specific information,” she said in an email. “We continue to work through petitions received for 2017.”

Exxon reported net profits of $19.7 billion last year. Chevron reported earning $9.2 billion.

Both bill themselves as globally integrated companies, and neither breaks out the financial details for their individual facilities in the public disclosures they are required to file with the Securities and Exchange Commission.

‘DEMAND DESTRUCTION’

The EPA has historically doled out fewer than ten hardship exemptions per year to U.S. refineries, according to a former U.S. official who spoke on condition of anonymity. A current EPA official, however, said the number reached 20 for 2016.

The EPA has come under pressure for being stingy with the waivers in the past. A successful lawsuit last year by Sinclair Oil Corporation led a federal court to order EPA to expand its definition of “economic hardship” - opening the door for more facilities to be eligible.

The Trump administration has also signaled a willingness to help refining companies reduce their biofuels compliance costs - which industry players say has encouraged a surge in recent applications.

Trump hosted a series of meetings with advocates for the corn and oil industries at the White House since late last year aimed at reforming biofuels regulations in a way that cuts costs for refiners without reducing overall biofuels demand. The effort failed to yield a deal due to protests from corn industry representatives.

Obtaining a waiver helps refiners in two ways: they no longer have to earn or purchase blending credits, called RINs, to prove compliance, and they can sell any RINs they have on hand into the open market. That can provide a company with a benefit ranging into the tens of millions of dollars.

Other big oil companies including Phillips 66 also own refineries small enough to be eligible for a waiver, as does CVR Energy which is owned by billionaire investor and Trump ally Carl Icahn.

Officials for those companies did not respond to requests for comment on whether they are seeking exemptions.

Icahn’s efforts last year to overhaul the biofuels program - while acting as an adviser to Trump on regulatory issues - drew scrutiny from federal investigators after lawmakers said it raised ethical concerns.

Biofuels proponents including U.S. Department of Agriculture Secretary Sonny Perdue has criticized the use of RFS exemptions as “demand destruction” for corn-based ethanol. Ethanol demand has been vital to farmers who are buffeted by low commodities prices and the threat of a global trade war. (Reporting by Jarrett Renshaw and Chris Prentice Editing by Richard Valdmanis and Brian Thevenot)

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