Ethanol 'blend wall' cost refiners at least $1.35 billion
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 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 on Friday.