| NEW YORK, July 26
NEW YORK, July 26 Petrochemical company
LyondellBasell, which operates a 280,000
barrel-per-day (bpd) Houston refinery, said on Friday its
ethanol credit obligations, or RINs, could reach $200 million in
2013, up from $30 million last year, an increase that could
pressure its refinery margins.
That was the forecast by LyondellBasell's chief executive,
assuming prices for those credits remain near last week's high
Refiners need ethanol credits, or Renewable Identification
Numbers (RINs), to prove they have blended their share of
renewable fuels into gasoline and diesel. If they do not blend,
they need to buy a RIN for each gallon of ethanol. RIN prices
peaked close to $1.50 last week then tumbled to below $1 on
Speaking at an earnings conference call, the company's CEO,
Jim Gallogly, said rising RIN prices had almost doubled
LyondellBasell's spending on the credits to $50 million in the
second quarter of this year.
The RINs market has been volatile this year as refiners fear
a shortage should they not be able to blend enough ethanol. This
prompted a rally in prices which last year were less than 20
cents and often at 5 cents.
Asked whether he had an estimate of the total RINs cost for
the company in 2013, Gallogly said: "Well, I did a couple days
ago, but I'm starting to rethink that estimate."
He said the company's RINs obligation amounted to $25
million in the first quarter when prices averaged at 78 cents
and $47 million in the second quarter when they averaged 91
"So if you took that and annualized it, you could get
numbers in the $200 million range. But as I said, things have
started to come in," he said, referring to the fall in prices
The increased cost of RINs was one reason why
LyondellBasell's refinery EBITDA earnings for the second quarter
were $20 million, compared with $160 million a year earlier,
which had been boosted by a $53 million insurance settlement.
The results were also hurt by a $18.49 per barrel crack
margin, calculated using the Mexican Maya crude grade, which was
$3 lower than the first quarter, and higher natural gas costs.
The refining industry has railed against the Renewable Fuels
Standard (RFS) for years but have been especially vocal since
the start of the year. The RFS directs refiners to blend ethanol
into motor fuels and establish ethanol credits
Refineries argue that because the requirement to blend
renewables rises volumetrically each year, while gasoline
consumption falls, they will soon hit "the blend wall" whereby
they would be required to blend more than they can safely do.
They also say they can only blend up to 10 percent of
ethanol per gallon of gasoline or diesel as anything more could
damage vehicles, for which they or gasoline retailers would be
blamed. The ethanol industry disputes that, saying use of
gasoline blended with 15 percent ethanol has been authorized in
Refineries say ultimately the consumer will pay as they pass
on the cost of RINs further down the chain or reduce supply of
gasoline in the U.S. market by either exporting or producing
slightly more jet fuel -- neither of which need a RIN.
"In the past, the export market provided some relief from
this cost pressure. However, during the second quarter, the
gasoline export market was very competitive and resulting weak
export prices essentially eliminated this opportunity," Gallogly
Like many refineries, he has called on the government to
resolve the issue of the "blend wall" by reducing ethanol
"I'm hoping that our Congress is seeing that the market is
so distorted that the ability to blend that extra ethanol into
the system doesn't exist and it is hurting consumers at the
pump. There's a good reason to fix it now and save everybody a
bit of money and stop this market distortion," he said.
"It's also forcing refiners to move product overseas, which
is -- in the peak driving season with gasoline prices going up
-- isn't the right thing for our country."
The ethanol industry has responded to such calls by
refiners by saying the RFS succeeds in its aim of reducing
reliance on foreign oil and cutting greenhouse gas emissions and
says it creates billion of dollars worth of investment.
LyondellBasell as a whole posted second quarter revenues of
$11 billion and EBITDA earnings of $1.65 billion, versus year
ago revenue of $10.7 billion and EBITDA earnings of $1.59