Damage may have been done to ethanol and corn markets by waivers granted to refiners in recent years, but one ethanol industry official said it’s too soon to know the extent because the U.S. Environmental Protection Agency is withholding details about those waivers.
The agency is under fire for granting nearly 40 Renewable Fuel Standard waivers to so-called small refiners since 2016, including about 25 in 2017 alone.
As a result, the Renewable Fuels Association is stepping up pressure on the agency to provide information on the waivers. On Thursday, the RFA filed a new Freedom of Information Act request with both the EPA and the U.S. Department of Energy, after the EPA didn’t respond to the ethanol industry’s January request for similar information.
RFA Executive Vice President Geoff Cooper told DTN the agency’s waivers, along with a settlement reached between EPA and Philadelphia Energy Solutions on Wednesday, are creating “uncertainty and confusion” for ethanol and corn demand.
“I don’t think anyone knows the magnitude of the market impact right now because we are still missing key information,” Cooper told DTN. “How much volume was exempted, for what compliance years do the exemptions apply, how many RINs (renewable identification numbers) are going to be dumped back into the market, how much blending is not going to happen as a consequence of these decisions?”
The most immediate impact has been what Cooper said is the “cratering” of the RIN market. Prices have fallen from 95 cents in November to about 30 cents on Wednesday. RIN values provide an incentive for the expansion of ethanol blending beyond E10, he said.
“The crash in RIN prices does not bode well for E15 and E85 growth prospects,” Cooper told DTN. “We’ve also seen ethanol futures prices drop 10% since mid-March even though stocks have been shrinking and export demand has been strong. That tells me the market is reading the PES settlement and the small-refiner bailouts as highly bearish news.”
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The small-refinery waivers may be creating a “slow burn that will have long-term impacts,” Cooper said.
“By retroactively exempting dozens of refiners from RFS compliance in years that have already passed, EPA is creating a situation where hundreds of millions of RINs that refiners were holding for compliance will now be dumped back onto the market,” he said. “The impacts of these decisions will continue to play out over time.”
RFA INFORMATION REQUEST
In a news release on Thursday, RFA President and CEO Bob Dinneen said the last straw was EPA’s approval of waivers for larger refining companies such as Andeavor, the nation’s fifth-largest refiner.
“Several media reports over the past week have confirmed the fears we voiced in January about EPA’s expansive and abusive administration of the small-refiner exemption provision,” Dinneen said.
“One article even quoted a refining executive as saying EPA is ‘handing out those exemptions like trick-or-treat candy.’ EPA’s unbelievable issuance of secret compliance bailouts to refining giants like Andeavor goes far beyond the pale and stomps all over President Trump’s commitment to protect the RFS and support America’s family farmers, whom he called ‘the backbone of our nation.'”
In a FOIA request this week, Dinneen requested numerous documents from the agencies.
Reuters reported on Tuesday that Andeavor received an RFS obligation exemption for three of its smaller refineries. The RFS exemption was meant to apply to small refineries producing less than 75,000 barrels a day that demonstrate economic hardship. Andeavor posted $1.5 billion in profits last year, Reuters reported. Reuters reported that two sources informed the news agency of the waiver.
When asked by DTN about the nature of the waivers being granted, an EPA spokesperson said on Wednesday, “This type of waiver contains confidential business information, and the agency has no comment at this time.”
On March 22, EPA emailed DTN, stating that the agency was granting exemptions to refiners for 2016 RFS obligations. “To date, we have granted an annual exemption for 14 small refineries for calendar year 2016, and we are still evaluating 2017 petitions. We have not received 2018 petitions,” the EPA spokesman stated.
On Wednesday, an EPA source who asked not to be named said the agency has granted about 25 hardship waivers from 2017 RFS obligations.
In addition, a federal court approved a settlement to relieve Philadelphia Energy Solutions from most of its RFS obligations that it says led to financial difficulties.
In a statement to DTN, Philadelphia Energy Solutions said the settlement was just the beginning of what it hopes are changes to the RFS.
PES is allowed to retire 138 million RINs for its pre-effective date obligation of more than 500 RINs. In addition, PES reportedly sold roughly 40 million RINs in the fall of 2017, even as the March 2018 RVO compliance deadline approached.
“While this settlement is only a partial and temporary reprieve, we are hopeful that action will be taken by policymakers to address the flaws in the Renewable Fuel Standard program’s RIN compliance mechanism that adversely impacts independent refineries across the country,” the company said.
The East Coast refiner made the case in bankruptcy court that high RIN prices in the past few years led to insurmountable debt, forcing the company to file for Chapter 11 bankruptcy protection.
Essentially, the waivers granted by the EPA have, in part, led to lower RIN prices. Biofuels and agriculture groups are raising questions as to whether the agency is implementing the RFS in the way Congress envisioned when it passed the Energy Security Act in 2007.
Small refiners are defined as refinery systems with less than 155,000 barrels per day of capacity and less than 1,500 total employees as of 2006. A small refinery is defined as having an aggregate throughput of less than 75,000 barrels per day.
It is not clear whether the 2017 number of waivers granted represents all of the small refiners eligible for the waiver.
A 2018 Oil and Gas Journal survey said total refining capacity that falls in the small or near-small category totals about 1.7 million barrels per day of production, or about 71.4 million gallons. Total refining capacity is about 18.5 million barrels per day.
Todd Neeley can be reached at firstname.lastname@example.org
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