NEW YORK (Reuters) - Philadelphia Energy Solutions (PES) built up a “significant” short position in the biofuel credit market in the months leading up to the announced closure of the refinery on Wednesday, two market sources told Reuters.
The refiner built up a large short position valued at several hundred millions of dollars before heading into bankruptcy last year but was granted relief by the U.S. Environmental Protection Agency in a deal that was heavily criticized by the biofuels industry.
The U.S. Renewable Fuel Standard requires refiners to blend biofuels like ethanol into the fuel pool or buy compliance credits generated by those who do. The company stopped buying credits around March, building up a shortfall of roughly 80 to 90 million credits, two market sources told Reuters on Thursday.
“I have not seen them in the market for some time,” said one of the sources.
PES, which lacks blending facilities, entered bankruptcy owing 467 million credits from 2016 and 2017, with only 210 million credits in hand, the filing showed.
The EPA said PES could comply with the program by turning over its available credits and would be excused from any shortfall, a huge win for the refiner.
After exiting bankruptcy, PES would have to comply with the law on a semi-annual basis as opposed to annually and submit itself to more EPA scrutiny. It would face penalties for non-compliance with the agreement.
Reporting By Jarrett Renshaw; Editing by Chizu Nomiyama
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