July 30, 2013 / 9:47 PM / in 4 years

UPDATE 1-BP wins as U.S. refiners suffer under biofuel mandate

By Sabina Zawadzki

July 30 (Reuters) - BP Plc said on Tuesday it did “quite well” during a recent spike in the price of U.S. ethanol credits that is costing some U.S. refiners hundreds of millions of dollars.

U.S. refiners are obliged to blend a certain amount of renewable biofuel, mostly ethanol, into gasoline and diesel or purchase a Renewable Identification Number (RIN) in the market.

Refinery operators have complained that the policy is forcing them to either blend more ethanol than they safely can or buy more RINs, leading to price spikes.

Valero Energy Corp, one of the largest refiners in the United States, says it will spend up to $800 million on RINs in 2013. Smaller refiner HollyFrontier Corp said its costs could reach as high as $150 million.

Refiners have put a lot of pressure on Washington to either remove or change the Renewable Fuels Standard, which is responsible for the requirement, and warned that the consumer will ultimately pay for RINs at the pump.

This contrasts sharply with BP’s optimistic comments during an earnings call.

”We’re quite well positioned in the short term,“ said Iain Conn, chief executive of refining and marketing. ”We’re net long RINs. We’ve been able to trade into this spike recently and done quite well out of it. I‘m very pleased about that.

“Over time we’re going to see that position become more balanced and (it) will be neutral ... in a couple of years’ time.”

BP operates the 413,000 barrel per day (bpd) Whiting, Indiana, and the 234,000 bpd Cherry Point, Washington, refineries, as well as the 160,000 bpd refinery in Toledo, Ohio, which it runs as a joint venture with Husky Energy Inc .


RINs rose to almost $1.50 per credit two weeks ago, a new record, compared with just 5 cents in December 2012. The credits rose sharply at the start of March to more than a dollar for the first time in the program’s five-year existence.

Refiners have warned they will soon hit the “blend wall” when they will be forced by the RFS mandate to include over 10 percent ethanol into their fuel or buy RINs to cover their obligations.

The rising demand for RINs is what caused recent price spikes.

Refiners say motor fuels with more than 10 percent ethanol might damage vehicle engines and the blame will fall on them or on gas stations. But producers point out that fuel with 15 percent ethanol has been approved for use in vehicles made since 2001.

BP’s strong position in the RINs market is the result several factors. It sold two plants this year - Tesoro Corp took over the 240,000 barrel per day (bpd) Carson, California, refinery, while Marathon Petroleum Corp bought its 400,780 bpd Texas City refinery.

This means BP has reduced its RINs obligations and Conn said he was “rather relieved” for the company “because that would have probably been quite costly in the first half” of this year.

BP also blends a fair amount of ethanol with gasoline at its terminals on the U.S. East Coast and Gulf Coast, which generates RINs, a BP spokesman in the United States said in an email.

Independent refineries, which do not blend their own fuels, have been hit hardest by the RFS because they need to purchase RINs even if their gasoline or diesel is blended down the line.

RIN prices have steadied recently to around $1 per credit. They fell to around 93 cents last week from the mid-July peak on expectations by some market players that the amount of ethanol refineries will have to blend next year will be cut.

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