Biofuel stocks mixed on EPA mandate, biodiesel hit

LOS ANGELES Fri Nov 15, 2013 6:15pm EST

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LOS ANGELES (Reuters) - Shares of biofuels makers and oil refiners were mixed on Friday after the Obama administration proposed slashing federal requirements for U.S. biofuel use in 2014, with biodiesel maker Renewable Energy Group Inc's (REGI.O) stock falling 5 percent on the news.

The EPA's proposal to reduce the renewable fuels targets, which followed a prolonged lobbying blitz on both sides of the issue, is seen as a partial win for the petroleum industry, but a loss for biofuels producers.

Nevertheless, some biofuels producers rallied after the announcement of the proposed goal, which matched the number contained in a draft that was leaked last month. The sector's biggest percentage gainer was isobutanol maker Gevo Inc (GEVO.O), which rose 36 cents, or 26 percent, to $1.74. Ethanol maker Pacific Ethanol Inc (PEIX.O) rose 35 cents, or 14.4 percent, to $2.78.

Cellulosic biofuel maker Kior Inc (KIOR.O) was up as well, climbing 15 cents, or 6.3 percent, to $2.54.

Losers included biodiesel maker Renewable Energy Group Inc (REGI.O), which was down 4.8 percent at $13.38, and ethanol producer Green Plains Renewable Energy (GPRE.O), down 17 cents, or 1.1 percent, at $15.81.

The Environmental Protection Agency proposed to cut to a range of 15 billion to 15.52 billion gallons the overall use of renewable fuels, made mostly from U.S. corn and to a lesser extent from soybeans, grasses, Brazilian sugar cane and crop waste.

The EPA also proposed freezing the required blending volumes of biomass-based diesel, such as biodiesel made from soybean oil, for 2014 and 2015. The agency said freezing its use at this year's 1.28 billion gallons will give refiners and importers more flexibility in meeting required blending mandates.

The National Biodiesel Board (NBB), the industry's top lobby group in Washington, said the industry can produce more than the 1.28 billion gallons and warned the freeze would hit producers hard.

"This proposal, if it becomes final, would create a shrinking market, eliminate thousands of jobs and likely cause biodiesel plants to close across the country," Anne Steckel, NBB's vice president of federal affairs, said in a statement. "We will continue urging the Administration to improve this rule before it becomes final."

Dan Oh, chief executive of Renewable Energy Group, one of the nation's largest biodiesel makers, said he was "disappointed by the proposed numbers," adding that they "do not reflect the positive results the biodiesel industry has provided."

Archer Daniels Midland, which makes ethanol and biodiesel, fell 3.4 percent to close at $40.56. Other major producers of biodiesel include Cargill and Louis Dreyfus.

Refining companies have complained that the United States is near a point where law will require them to use more ethanol than can physically be blended into the fuel supply.

Refiners likely to see the most relief from a lower biofuel blending standard are those with big exposure to rising RIN costs, including Valero Energy Corp (VLO.N), Marathon Petroleum (MPC.N) and Holly Frontier Corp (HFC.N), analysts said.

Shares of Valero rose more than 2 percent following the EPA announcement before trimming gains. The stock closed up 16 cents, or less than 1 percent at $43.

Marathon Petroleum shares fell 2 cents to $78.84 and Holly Frontier's shares fell 7 cents to $46.50 on the New York Stock Exchange.

(Reporting by Nichola Groom in Los Angeles and Anna Driver in Houston; editing by G Crosse and David Gregorio)

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