U.S. oil refiners this quarter are expected to spend the most since at least 2018 to meet U.S. biofuels requirements, further pressuring margins hit by the collapse since March in global prices and demand.
Under renewable fuel legislation originally aimed to support corn farmers, refiners have to blend biofuels requirements like ethanol or diesel made from animal fats or vegetable oils, into gasoline and diesel, or buy credits, known as Renewable Identification Numbers (RINs), from those who blend more than they are required to.
The coronavirus crisis has led to less blending activity generally and as a result the issue of fewer compliance credits, reducing the supply of credits available for trading and raising the price of them.
RIN prices had also risen earlier this year after a U.S. court in January ruled the Trump administration must reconsider three waivers it previously handed out to refineries that exempted them from the blending laws.
As of Monday the price of corn-based ethanol fuel credits for 2020 had risen nearly five-fold this year to 43.50 cents each.
“For some refiners, it is one more cost to contend with in a refining environment which is seeing margins under pressure because we have so much excess refining capacity around the world,” said Andy Lipow, president of Lipow Oil Associates.
The higher RIN costs to meet biofuels requirements, combined with lower margins because of the coronavirus pandemic, have added a sense of urgency to the ongoing debate in Washington, D.C. around the blending requirements. Lawmakers from heavy oil-producing states have called for relief to refiners during the pandemic, citing in part the increased RIN prices.
San Antonio-based Valero Energy Corp in its post-earnings call raised its estimates for RIN expenses this year by $100 million to between $400 million and $500 million. Last year it spent $318 million.
Another Texas-based refiner, CVR Energy Inc, also raised its full-year estimates for RIN costs by 43% to about $100 million. It had spent $43 million last year.
Refiners paid about $268 million in the second quarter for these compliance credits, a Reuters review of regulatory filings from five publicly listed refiners that disclose the numbers show.
this article is originally published at reuters.