UPDATE 1-Oil exec says ethanol RINs "out of control", urges action

Tue Jul 16, 2013 3:33pm EDT

* U.S. gasoline prices up nearly 15 cents this week

* Valero CEO says costs of biofuel credits "out of control"

* Lawmaker wants agency to resume monitoring of refinery outages

By Ayesha Rascoe

WASHINGTON, July 16 (Reuters) - A leading U.S. oil executive urged legislators on Tuesday to relax a requirement to use renewable fuel in gasoline, blaming an "out of control" market in biofuel credits known as RINs for adding to fuel costs in a recent run-up in gasoline prices.

At a Senate Energy Committee hearing, lawmakers sought answers for why a surge in domestic crude oil production to the highest level in over two decades had failed to bring down fuel prices. Average U.S. gasoline rates jumped 15 cents over the past week to $3.64 a gallon on Monday, data showed.

Oil refiner Valero Energy Corp Chief Executive Bill Klesse said the government's renewable fuel mandate is affecting prices in the refined fuel market, repeating a long-standing source of aggravation for the energy industry.

Although the hearing was scheduled weeks ago, the timing was apt: U.S. benchmark gasoline futures have surged over the past week to more than $3 a gallon, nearing their highest since early 2012, while RIN prices have risen more than 30 percent this month to a record over $1.30 per credit on Tuesday.

The Renewable Fuel Standard (RFS), which calls for increasing amounts of biofuels to be blended into U.S. gasoline and diesel supplies, requires refiners to buy biofuel credits, known as RINs, from renewable fuel producers to comply with the mandate. The oil executive complained about the price of the biofuel credits.

"The thing the government can do is to get a hold of RINs," Klesse said. "RINs are out of control."

Oil companies have complained about spiking RIN costs this year, as the United States nears a point where the law will require use of more ethanol than can physically be blended into the fuel supply at 10 percent per gallon.

The approach of the so-called "blend wall" at 10 percent has escalated the war of words between the refining sector and the biofuel industry. The American Petroleum Institute, the industry lobby group, on Monday launched a new advertising campaign to put public pressure on Washington to relax the biofuel rules, warning that a higher blend of ethanol could damage car engines.

While Valero also operates 10 ethanol plants, RIN prices could raise costs for the company by $750 million or more this year, according to Klesse.

Dan Gilligan, the head of the Petroleum Marketers Association of America, also told lawmakers at the hearing that the RFS could lead to fuel price chaos unless the biofuel targets are lowered.

Some lawmakers at the hearing defended the biofuel mandate.

"I don't think it's fair to blame the Renewable Fuel Standard," said Senator Al Franken, a Democrat. "The policy is helping to wean us off foreign oil and that is a good thing."

The latest spike in U.S. gasoline prices coincides with a nearly 9 percent rise in U.S. crude oil costs over the past two weeks. Gasoline prices could jump an additional 15 cents due to the rise in oil costs, EIA head Adam Sieminski told Reuters after testifying.

Committee Chairman Ron Wyden questioned why gasoline prices have remained stubbornly high even though U.S. oil output has reached record levels.

"Unlike the immediate benefits that American consumers and businesses have seen from low natural gas prices, at the gasoline pump, it has been pretty much business as usual," Wyden said.

Several lawmakers pressed Klesse and Sieminski about recent refinery outages that have spiked regional gas prices.

Klesse said that refiners attempt to schedule maintenance for low demand periods, but unexpected glitches can force the shutdown of refineries at inopportune times. Antitrust laws also prevent companies from communicating about planned outages.

Earlier this year, gasoline prices jumped to $4.29 a gallon in the Midwest after planned and unplanned refinery outages lowered gasoline output in the region.

The EIA had a program several years ago that helped to monitor and report outages that was aimed at preventing such widespread shutdowns. The program was shut due to budget cuts.

Wyden said providing real time information on refinery outages should be a priority for the EIA and pledged to work with the agency to address the issue.

Restarting the refinery outage report would cost the EIA several million dollars a year, Sieminski told lawmakers.

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Comments (3)
Ralph69 wrote:
Somehow I don’t believe the oil companies, how does adding Ethenol to gas,yield higher cost of fuel. If this wasn’t added to gas, then we would be using more oil to make gas, which would mean more profits to the oil compnies. I see this statement by the oil companies as an attempt to reget controll of all of the fuel produced.

Jul 16, 2013 4:59pm EDT  --  Report as abuse
dallasinohio wrote:
Oil goons are one of the biggest problem in America along with the corrupt so-called leaders that the dumb voter continues to put in charge.

Jul 16, 2013 5:18pm EDT  --  Report as abuse
megaboz42 wrote:
Ralph69,

I read about this problem months ago, and it took a bit of time to figure it out, and this article doesn’t even seem to start explaining it. The way I understand it is this: The government mandates that X gallons of ethanol be blended with refined gasoline for sale at the pump for a given year. If what you get from the pump is 10% ethanol and 90% gasoline, then the total amount of blended gas sold at the pump has to be ten times X. Now X is a fixed number set by the government, unaffected by market forces. No matter how much gasoline is sold at the pump, refiners are required to blend X gallons of ethanol into the product.

Now what happens if the market demand for gasoline is only nine times X gallons? You hit the blend wall: you can still only blend a maximum of 10% ethanol with 90% gasoline for sale, so you are using less ethanol than you are required by law to use. To make up the difference between what you are required by law to use, and what you are actually blending into gasoline for sale at the pump, you must purchase the RINs, credits for ethanol that you are required to use but can’t use because you can’t increase the ethanol content of the gasoline sold at the pump. The cost of these RINs goes directly into the cost of producing the gasoline, and has to be passed on at the pump.

Jul 17, 2013 9:04pm EDT  --  Report as abuse
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