The tally is in: Ethanol 'blend wall' cost refiners at least $1.35 billion

Mon Mar 31, 2014 8:23am EDT
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By Cezary Podkul

NEW YORK (Reuters) - 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 diesel.

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 lobby.

The review also highlights how the impact was unevenly distributed, with independent refiners CVR Refining (CVRR.N: Quote) and LyondellBasell (LYB.N: Quote) 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 (VLO.N: Quote), 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.   Continued...

A gas station worker fills a car's tank with ethanol in Rio de Janeiro April 30, 2008. REUTERS/Sergio Moraes