UPDATE 3-Ethanol RIN values fall after rapid run higher

Tue Mar 12, 2013 6:16pm EDT

By Carey Gillam

March 12 (Reuters) - U.S. ethanol blending credits, known as RINs, took a volatile ride on Tuesday, losing nearly half their value in early trading but later staging a swift partial recovery.

The 2013 "vintage" ethanol RINs were trading around 90-92 cents per gallon Tuesday afternoon after trading in the mid-60s to 70-cent range earlier, trading sources said. On Monday, the blending credits for 2013 were trading between $1.05 and $1.13, well up from the mid-20 cents at the end of January.

"There were good reasons why it got bid up, and some of those reasons are still very operative," said Spencer Kelly, who tracks market activity for the Oil Price Information Service. "They won't get real cheap."

The strength of the ethanol RINs is tied to both fears of general ethanol supply shortages and also a looming "blend wall" for alternative fuel that is expected to make it difficult for refiners and other obligated parties to meet federal renewable fuel standards heading into 2014.

RIN, which stands for Renewable Identification Number, is a 38-character numeric code that producers or importers of renewable fuels are required to generate for each gallon and it acts as a credit an obligated party can claim toward its mandate.

The 2005 Renewable Fuels Standard set in place escalating levels of alternative fuels that were required to be incorporated into the U.S. fuel stream. And until this year, the amount of ethanol mandated to be mixed into the U.S. fuel stream was achievable, but a decline in gasoline demand and other factors has made meeting mandates more challenging.

Oil industry players blame the mandates for higher gas prices and say the rising RIN values are curtailing flows of gasoline imports from Europe. CVR Energy Inc CEO Jack Lipinski on Tuesday said the "unintended consequences" of the mandate were "frightening."

The ethanol industry said Tuesday that it is the oil industry that is directly to blame for rising RIN values and rising gas prices.

The Renewable Fuels Association issued a statement that said if the oil industry would blend at the higher 15 percent rate allowed by the EPA, gasoline prices would be cheaper as would values for the RIN credits. The RFA said the oil companies have been the key players bidding up the price of RINs over the last few weeks.

"They are doing so voluntarily to avoid the alternative of adding more ethanol to gasoline," the RFA said. "Oil companies can either buy a gallon of renewable fuel to comply with the RFS or buy a RIN credit on the open market."

The Environmental Protection Agency allows the higher blend for many passenger cars and light trucks. But many refiners and other opponents say the higher blend can cause engine damage in vehicles.

Many groups argue that the EPA should reduce the RFS mandates altogether. The EPA just proposed the 2013 RFS on January 31, and it has until April 7 to finalize the mandate for refiners and blenders to use 16.6 billion gallons of biofuels in motor fuels this year.

Mark McMinimy, a senior policy analyst at Guggenheim Washington Research Group, said it was unlikely that the agency would adjust the proposal for this year as RINS and ethanol are readily available.

"Looks to me for 2013, between the ethanol production, the RINS credits out there, and stockpiles of ethanol, which are not tight, that there should be plenty of availability between those three sources to meet the 2013 requirement," said McMinimy, who calls the market fluctuations "RINsanity."

"There's always the possibility EPA could make an adjustment for 2014, when they come out with the standard for that year, which won't be until later this year," he said.

During the height of the drought that cut corn production last summer the EPA upheld the mandate despite several requests from governors in agricultural states to waive it. The EPA said then that the threshold of severe economic damage had not been met.

Scott Irwin, an agricultural economist with the University of Illinois said in the Reuters Global Ags Forum on Tuesday that he thinks the odds of a change in legislation relating to renewable fuel use are slim. But the EPA may be able to modify policy related to volumes mandated.

"The EPA faces a very difficult decision," he said.