Faced with Cheap Oil Prices, Biofuels Industry Sees No Déjà Vu
(Reuters/Business Times) Ethanol producers may feel less pain from sinking oil prices than in previous tough times, as a government rule ensures a minimum use of the biofuel and recent consolidation gives them both financial strength and output flexibility.
Oil prices at 2003 lows and the highest ethanol stocks for nearly four years have given some in the trade flashbacks to 2008 and 2012 when weak margins forced many plants to close.
Indeed, ethanol has been trading at a rare, stubborn premium to gasoline for the longest period since 2009.
The front-month Chicago Board of Trade ethanol futures contract has been above RBOB gasoline prices for nearly five months, the longest since a seven-month run to May 2009, according to Reuters data.
The premium is partly supported by the niche market for biofuels compliance credits known as Renewable Identification Numbers (RINs), which oil refiners and importers are required to have to prove compliance with the government’s Renewable Fuel Standard.
Those credits are trading at around 64 cents each – helping to subsidize the cost of using ethanol, according to many traders.
Major oil refiners like Flint Hills Resources and Valero Energy Corp, larger ethanol producers like Poet, Green Plains Inc, and commodities merchants like Noble Group scooped up more than 60 plants since 2008, according to data compiled by the Renewable Fuels Association.
Pacific Ethanol Inc, which merged with Aventine Renewable Energy Holdings last year, has said that the consolidation means major producers relying on more than one plant are more easily able to throttle back capacity when needed. READ MORE and MORE (Platts) and MORE (KWQC)