* Refiners say higher costs of RINs will hit the pump
* Could squeeze supply with more fuel exports, fewer imports
By Sabina Zawadzki and Cezary Podkul
SAN ANTONIO, Texas, March 19 Hedge funds and
others looking to bet on prices of U.S. ethanol credits should
not use that market as a "casino," the chief executive of
HollyFrontier Corp told refining executives on Tuesday.
HollyFrontier Corp Chief Executive Mike Jennings joined an
increasingly loud chorus of U.S. refiners facing higher costs
under a federal mandate that petroleum-based fuel producers
blend increasing amounts of renewable fuels, such as ethanol and
biodiesel, into gasoline and diesel fuel each year.
The price of the credit known as Renewable Identification
Numbers, or RINs, issued for each gallon of biofuel produced
spiked dramatically from a few cents in January to more than a
dollar this month, then back down to the 60- to 90-cent range,
sparking concerns about those costs eating in to profits or
pushing gasoline prices up at the pump.
"The notion that commodity brokers, hedge funds, and other
non-obligated parties are participating in this market, and
using it as a casino, defies both logic and the intent of the
Renewable Fuels Standard (RFS)," Jennings told refining
executives on Thursday at the annual meeting of the American
Fuel and Petrochemical Manufacturers (AFPM) in San Antonio,
"Instead of increasing renewable fuels blending, the
mechanics of this program are producing higher prices at the
pump, which will probably reduce overall consumption, including
that of biofuels," he said.
Gasoline demand in the United States has declined since
2007, while the amount of ethanol they must add to it under the
2005 RFS continues to rise. Refiners are reluctant to blend more
than 10 percent - the so-called "blend wall" - as that is the
level automakers deem safe for engines and anything higher could
leave refiners liable for vehicle damage.
But if they cannot meet the mandate or they let others do
their blending, they must buy the credits known as RINs in the
market to cover that obligation or face large fines.
The ethanol industry, meanwhile, argues that the refining
industry is driving up gasoline prices and RIN values by
refusing to blend up to 15 percent of ethanol per gallon of
gasoline, as allowed by the U.S. Environmental Protection
The Renewable Fuels Association says that would ease the
demand for RINs and reduce gasoline prices.
Refiners can carry over RINs from previous years if needed,
which has been the practice since the mandate was imposed in
But now that they are reaching the blend wall, concern is
high that all the available RINs will be bought up in 2013 - in
a high-priced, volatile market - leaving refiners hanging next
"You're not really at the blend wall until 2014," Bill
Klesse, chief executive of Valero Energy Corp, the
largest U.S. independent refiner, told reporters at the
"So what it is, is anticipation. You can tell people are
buying RINs, hoarding RINs, keeping RINs, not selling RINs -
they think prices are going higher, and when you get into a
squeeze, how high is the price?" he told reporters.
Paul Eisman, chief executive of Alon Energy USA, one
of the nation's smaller independent refiners, told Reuters in an
interview that the increasing mandate not only encourages
refiners to export more gasoline, it discourages imports.
Exported gasoline faces no mandate -- while imports do, adding
to importers' costs.
"The effect that potentially has on the supply of gasoline
in the U.S. and the price of gasoline will be something that has
an impact,' Eisman said. "A high RINs cost inventivizes the
export of gasoline and disincentivizes the import of gasoline."
Klesse told reporters that the U.S. government must address
the issue because consumers will feel the effects with higher
"This isn't the intent of the (Renewable Fuels Standard)
program and the consumer at the end of the day is going to pay,"
The price added at the pump would be 10 percent of the price
of the credit because each RIN represents a gallon of ethanol.