Ethanol RINs Market Explodes

by Susanne Retka Schill (Ethanol Producer Magazine) Lack of transparency makes market analysis difficult.

...The ethanol producer's role in RIN generation is basic: produce the physical gallons and fill in the required information to generate the RINs in the automated EMTS system. That information becomes part of the shipping documentation as the product moves into the marketplace. In practice, many ethanol producers don’t actually handle RINs at all, but hand off the task to their ethanol marketers and the independent firms providing RINs tracking services.

RINs follow the physical gallons through the distribution system until the ethanol is blended into gasoline, at which point the RINs are separated and used by the blender, if it is an obligated party, to meet its renewable volume obligation (RVO). If that blender has excess RINs, they can be banked and, up to 20 percent carried into the next year. Or, excess RINs can be sold.

...Obligated parties in this system are domestic refiners, importers and downstream parties who make finished gasoline or blendstocks.

...On the market analysis side, Brian Milne is editor and manager of a team of specialists producing oil market news and analysis for Schneider Electric, owner of the DTN line of services. “It’s not like trades on an exchange where you can look at the end of the day and see the volume,” he says. “We do know there is volume. We see a million RINs on offer. Whether that’s being bought, we can’t tell.” An expected shortage of RINs is driving the market, he explains. “We understand that a lot of obligated parties have already carried over 20 percent of their RINs from last year to help meet this year’s obligations, but the renewable fuels obligation goes up again next year,” Milne says. “And we’re not expecting to see a ramp up in gasoline demand. The concern is not only about meeting this year’s obligation, but 2014.”

...It is difficult to analyze the RINs market, (Bill Day (executive director of media relations for Valero) concurs. “It’s hard to tell because the RINs market is so opaque, there’s no transparency to it. It’s not a regulated market like gasoline or crude oil or other commodities that trade on the New York exchange or CBOT. It’s mostly private transactions.” While it’s difficult to know the volumes of trade, he adds, “It seems obvious that some are banking RINs because of the idea that the country is getting close to or at the blend wall.”

The ethanol industry organizations, the Renewable Fuels Association, Growth Energy, the American Coalition for Ethanol and the recently formed coalition, Fuels America, as well as individual producers, kicked into high gear to explain the complex issues and provide documentation to support the ethanol industry’s point of view. In multiple news conferences, statements, blogs and reports, the industry laid out its basic position:

• The oil industry, in dragging its feet on implementing higher blends such as E15 or E85, has brought the blend wall situation on itself.

• It is entirely possible to blend more ethanol. There is no shortage of ethanol nor of ethanol capacity to produce more ethanol, and thus, more RINs. And, with ethanol trading 50 to 60 cents per gallon less than gasoline, more should be blended to save consumers money.

• There are 2.5 billion unassigned RINs going into 2013, more than enough to cover any deficits for the compliance reports due in February 2014.

• The oil industry originally helped design and openly supported the open market RINs mechanism for the flexibility that RINs credits would provide in showing compliance.

• High gasoline prices are being driven by the record profits of the oil companies, with profits of more than $1 per gallon.
Independent Analyses
In late March, two separate analyses came out that conclude increases in RINs prices are having little impact on gas prices. University of Illinois economists Scott Irwin and Darrel Good conclude the impact on RINs on gasoline prices was but a few cents in the first quarter. “RINs prices started moving higher in January and peaked near 90 cents in early March and then declined modestly,” they write in a FarmDocDaily analysis. “The timing of the increase in CBOB (conventional blendstock for oxygenate blending) gasoline prices predates the increase in RINs prices by several weeks, which casts doubt on RINs prices as a significant driver of gasoline blendstock prices. In addition, CBOB prices were lower in late March than in October, further suggesting that factors other than RINs prices dominated CBOB prices.”

(Shashi) Menon (managing partner in Iowa-based EcoEngineers, a RINs management service) often hears from ethanol producers that their RINs are handled by their marketers, but he cautions that it is the producer who is held liable by the EPA. “I’ve talked to many ethanol plants that don’t have a staff person assigned to do any interface with the EPA because their marketer does it all for them.” They are vulnerable, he suggests, because should their marketing arrangements change, they may not have ready access to their RIN accounts and risk falling into noncompliance. “They’re still 100 percent responsible,” he cautions.

Looking ahead, Menon expects that as corn ethanol producers begin to add cellulosic or advanced biofuel capabilities, RINs verification will become necessary. He also expects that California officials will soon follow EPA in asking for audits for the California low carbon fuel standard. “For those who say, ‘We don’t touch a RIN, we just give it away,’ that may be true for a while for many,” Menon says. “But if you want to be competitive in the marketplace, you have to understand RINs and you have to be able to take care of them.” READ MORE and MORE (Politico)