U.S. Oil Refiners Bet the Farm Biden Will Back Them on Biofuels

November 11, 2021

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by Jarrett Renshaw, Stephanie Kelly (Reuters) U.S. merchant oil refiners like Monroe Energy and PBF Energy Inc are playing chicken with the White House, taking moves in the biofuels credit market that could force them to close plants and fire union workers unless the Biden administration bails them out by changing the rules on blending biofuels in gasoline.

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Now, some of these refiners are building up record short positions in the credits.

They are betting U.S. President Joe Biden will ultimately side with refiners and their union supporters and roll back the law, known as the U.S. Renewable Fuel Standard (RFS), experts interviewed by Reuters said, but this would anger the Farm Belt.

Refiners have leverage right now because rising fuel price are hurting Biden’s poll ratings.

“This is nothing more than a political shakedown,” Brooke Coleman, executive director of the Advanced Biofuels Business Council, told Reuters. “These refineries are daring the Biden White House to make them lie in the bed they made by intentionally running up massive short positions,” on biofuel credits.

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In 2017, Carlyle Group-backed Philadelphia Energy Solutions (PES) stopped buying compliance credits, eventually amassing a $350 million outstanding obligation before it eventually filed bankruptcy. The U.S. Environmental Protection Agency (EPA), as part of the bankruptcy hearings, waived about half of those costs.

The PES refinery eventually shut after a massive explosion in 2019.

“PES taught the market that you can play chicken with the EPA and win. It’s a form of civil disobedience of the law,” said Ed Hirs, an energy economist at the University of Houston.

Hirs said shorting the market is clearly a strategic play, but the gambit carries great risk.

“If the administration doesn’t buckle, then these companies will have to pay billions of dollars to comply. That could force Monroe Energy into bankruptcy and we will see if Delta reaches into its pockets to bail out the refinery,” Hirs said.

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Prices for the compliance credits, known as RINs, have traded erratically in a historic year for the market. After hitting an all-time record in June at $2.00 each, renewable fuel (D6) credits traded at $1.08 on Wednesday. That level is still above where they started the year at about 80 cents.

In September, Reuters reported that the Biden administration was considering big cuts to the blending requirements. Such a move would anger farm-state voters, so a decision has been delayed as Democratic lawmakers try to pass other big-ticket bills.

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Refiners have argued to the White House that the higher RIN costs have boosted prices for gasoline, which have hit above $3.40 per gallon. They have noted that the plants, including ones in Biden’s home state of Delaware, offer high-paying union jobs.

Now at least one producer is threatening to shut a refinery over outstanding biofuel liabilities the company has run up.

In recent weeks, Monroe Energy has made a presentation to various stakeholders, including local politicians and labor leaders, painting a stark outlook for its refinery outside Philadelphia, according to two sources who have seen the documents.

The company presentation made clear that either the Biden administration intervenes and rolls back U.S. biofuel laws or its around 200,000 barrel-per-day refinery will be forced to shut its doors and lay off hundreds of union workers, the sources said.

If the Biden administration fails to intervene and prices stay at current levels, the Delta refinery would have to go into the market and settle a significant portion of its $547 million liability in upcoming months. READ MORE

Proposed Extension of Renewable Fuel Standard Compliance Deadlines (Environmental Protection Agency)

EPA Administrator Issues Warning: Agriculture And Big Oil May Not Be Happy With Impending RFS Announcement (AgWeb)

SD CORN HOPEFUL FOR STRONG ETHANOL RVOS (Brownfield Ag News)

U.S. EPA proposes extending refinery compliance deadline for biofuel laws (Reuters)

RFS DEADLINE PUSH: EPA proposed extending biofuel blending requirement deadlines (Politico's Morning Energy)

EPA Seeks to Extend RFS Compliance Deadline (NACS)

EPA proposes to further delay RFS compliance deadlines (Biomass Magazine)

Biofuels Groups Frustrated by EPA RFS Delays (Energy.AgWired.com; includes AUDIO)

EPA again delays ethanol blending targets (Agri-Pulse)

EPA kicks can again on setting RFS blending levels (Farm Progress)

US EPA looks to again extend RFS compliance, reporting deadlines for refineries (S&P Global Platts)

Biofuels leaders call on Biden to keep promise to support RFS (The Center Square)

RFA Calls on Refiners, EPA to Meet RFS Deadlines (Renewable Fuels Association)

U.S. again presses OPEC+ as it weighs reserve release (Reuters)

RFA DISAPPOINTED IN EPA’S LATEST DELAYS (Brownfield Ag News)

No One Falls for Biden’s Gas-Price Blame Game (Wall Street Journal)

THE ADVANCE EDITORIAL: Biden’s EPA takes step that hurts ethanol (Kossuth County Advance)

Biden Could Revisit Renewable Fuel Mandate for Price Relief (Transport Topics)

Exclusive: oil companies’ profits soared to $174bn this year as US gas prices rose (The Guardian)

Why All This Breast-Beating about Faltering Petroleum Refineries? Wouldn’t It Be Better if They Stop Producing Fossil Fuels and Move to Renewables? (Advanced Biofuels USA)

Excerpt from Reuters: The U.S. Environmental Protection Agency on Thursday proposed giving oil refiners more time to prove compliance with the nation's 2020 and 2021 biofuel blending mandates.

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The EPA, however, has delayed decisions on 2021 blending obligations, and is expected to miss a deadline to finalize 2022 obligations by the end of the month.

The refining industry and its backers have also requested waivers on 2020 requirements based on the COVID-19 impact.

The EPA has yet to decide on those requests.

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The EPA said on Thursday it would extend the 2019 compliance deadline only for refineries with a capacity of 75,000 barrels per day or less.

The agency previously extended deadlines for 2019 for small refiners, and for 2020 for all obligated parties.

It will also change the way in which future compliance deadlines are determined. The extensions will help ensure that each year's deadline falls after the standards for the subsequent compliance year are known, it added.

This would help guarantee that parties can fully comply with their obligations, the agency said.

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"There's no good reason for EPA to kick the can down the road again, which only adds uncertainty and instability to the marketplace," said Renewable Fuels Association President Geoff Cooper. READ MORE

Excerpt from Politico's Morning Energy: Sen. Joni Ernst accused the administration of giving a “gift to Big Oil” on Twitter, and Brooke Coleman, executive director of the Advanced Biofuels Business Council, said in a statement the move was “a lucrative handout to the same refiners who played politics with the RFS under President Trump while pocketing millions in regulatory favors.” READ MORE

Excerpt from NACS: The EPA is making four proposals:

Extend the Renewable Fuel Standard (RFS) compliance deadline for the 2019 compliance year for small refineries only.
Extend the RFS compliance deadline for the 2020 and 2021 compliance years for all obligated parties.
For 2019, 2020 and 2021, extend the associated attest engagement reporting deadlines to the next June 1 annual attest engagement reporting deadline that is at least 60 days after the applicable 2019, 2020 and 2021 compliance deadline.
change the way in which future (2022+) RFS compliance and attest engagement reporting deadlines are determined.

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Earlier this month, Growth Energy threatened to sue the EPA over the agency’s delay in releasing RFS volume proposals for 2021 and 2022. The EPA was supposed to issue the 2021 RVO by Nov. 30, 2020, which was an annual deadline set by the RFS, but the agency has yet to release the 2021 RVO.

The EPA is holding a hearing on the proposal on Dec. 3 at 10 a.m. EST. READ MORE

Excerpt from Biomass Magazine: In the proposed rule, the agency explains the delay in the 2019 compliance deadline for small refiners is needed because the agency is still considering how to adjust its small refinery exemption (SRE) policy in light of the Tenth Circuit Court of Appeals’ January 2020 decision and the U.S. Supreme Court’s subsequent ruling on SREs handed down in June 2021, including holdings from the Tenth Circuit case that were not appealed. As a result, the agency said there is still uncertainty regarding 2019 SRE petitions. The EPA is proposing to extend the deadline for all small refineries regardless of whether they have an SRE petition pending for 2019 because those that do not may elect to submit petitions in the future. Under the proposal, small refineries that have already submitted their 2019 compliance reports would be allowed to revisit those compliance reports before the new deadline.

The previous rulemaking also extended the 2020 compliance deadline for all obligated parties from March 31, 2021 to Jan. 31, 2022. EPA is now proposing to extend the RFS compliance deadline for the 2020 and 2021 compliance years for all obligated parties. The proposed 2020 compliance deadline is the next quarterly reporting deadline after the 2019 compliance deadline for small refineries and the proposed 2021 compliance deadline is the next quarterly reporting deadline after the 2020 compliance deadline.

For 2019, 2020, and 2021, the EPA is proposing to extend the associated attest engagement reporting deadlines to the next June 1 annual attest engagement reporting deadline that is at least 60 days after the applicable 2019, 2020 and 2021 compliance deadline.

The agency is also proposing to change the way in which future RFS compliance and attest engagement reporting deadlines are determined. Starting with compliance year 2022, the annual compliance reporting deadline would be the latest date of three options, including March 31 of the subsequent calendar year, the next quarterly reporting that is at least 60 days after publication in the Federal Register of a final rule establishing the subsequent compliance year’s RVOs, or the next quarterly reporting deadline under 40 CFR 80.1451(f)(2) after the annual compliance reporting deadline for the prior compliance year. Similarly, the annual attest engagement reporting deadline would be set at the latest of two options, including June 1 of the subsequent calendar year or the next June 1 annual attest engagement reporting deadline that is at least 60 days after the annual compliance reporting deadline.

The EPA said the proposed extensions aim to ensure obligated parties are positioned to fully comply with their RFS obligations by ensuring that each’s year’s compliance deadline falls after the standards for the subsequent compliance year are known. The proposed approach for compliance year 2022 and thereafter would also avoid EPA having to repeatedly extend compliance deadlines for obligated parties should promulgation of the subsequent year’s standards be delayed, according to the agency.

Representatives of the biofuels industry are slamming the EPA’s proposed rule and calling on the agency to propose long-delayed RVOs for 2021 and 2022.

The Renewable Fuels Association is calling on refiners and the EPA to meet RFS deadlines. “It’s long past time for refiners to demonstrate compliance with their 2019 and 2020 renewable volume obligations,” said Geoff Cooper, president and CEO of the RFA. “There’s no good reason for EPA to kick the can down the road again, which only adds uncertainty and instability to the marketplace. Refiners and the EPA need to respect and meet deadlines, and we likewise call on EPA to immediately publish the long-overdue renewable volume obligations for 2021 and 2022. We had hoped things would be different under this administration, but EPA continues to miss its deadlines and create confusion in the marketplace. The rural economy needs and deserves the market certainty and predictability the Renewable Fuel Standard was intended to provide.”

Growth Energy stressed the EPA’s proposal will contribute to ongoing uncertainty. “EPA needs to release 2021 and 2022 RVOs immediately,” said Emily Skor, CEO of Growth Energy. “Further delaying compliance deadlines for previous RVO years does nothing but contribute to ongoing uncertainty in the marketplace. Sadly, even as our country faces rising gas prices, the EPA and the Biden Administration continue to give in to the loud voices of the oil industry without considering their detrimental impact on rural America.

“During his confirmation hearing, the EPA Administrator said he wanted to get the RFS back on track and reintroduce transparency into the program,” Skor added. “To do so, EPA must issue strong 2021 and 2022 RVOs and ensure that the 15-billion-gallon biofuel blending requirements are met. It is past time for EPA to act.”

The National Biodiesel Board expressed frustration with further RFS delays. "The Biden administration and EPA are sending the wrong signals on fuel availability and gas prices,” said Kurt Kovarik, NBB’s vice president of federal affairs. “The uncertainty they are creating for the RFS will undermine biodiesel and renewable diesel producers, blow up demand for cleaner fuels, and derail the nation's progress toward carbon reductions. This is simply a gift to refiners who have ignored the RFS obligations for more than a year and a half and are demanding the administration bail them out. EPA needs to finalize RFS rules now."

The Advanced Biofuels Business Council called the EPA’s proposal a handout to refiners. “The Biden EPA is saying that oil companies are free to ignore clean energy laws until it's politically convenient,” said Brooke Coleman, executive director of the ABBC. “This license to delay is a lucrative handout to the same refiners who played politics with the RFS under President Trump while pocketing millions in regulatory favors. It's past time for the EPA to enforce the law, as written, and give producers, farmers, and other responsible stakeholders the certainty they need to invest in homegrown energy, hold down prices at the pump, and reduce emissions.”

The Iowa Renewable Fuels Association said the proposal signals bad news for farm country. “The details of today’s action by the EPA to delay RFS compliance deadlines seems to indicate very bad news is headed toward farm country,” said Monte Shaw, executive director of the IRFA. “If EPA were only delaying the deadlines because of pending small refinery exemptions, then they would only delay the deadlines for small refineries. In fact, that’s exactly what they did for 2019. But the EPA proposed delaying the 2020 deadline for all obligated parties. This discrepancy appears to support the rumors and reports that EPA is preparing to take the unprecedented and illegal step of reopening the finalized 2020 RFS rule in order to reduce the volumes and destroy biofuel demand.

“We hope we are wrong and the difference can be explained away, but the different treatment of the compliance years must be for a reason,” Shaw added. “It is absolutely perplexing why the Biden EPA would delay and potentially plan to undermine the only federal law that is designed to reduce carbon emissions. To do so now, at a time of high gasoline prices, makes this action doubly confounding. IRFA urges the Biden EPA to follow the law and to implement the RFS fully and faithfully.”

The Iowa Biodiesel Board called the proposed rule alarming. “Iowa biodiesel producers and soybean farmers are disheartened by the Biden administration’s continued placation of the petroleum industry,” said Grant Kimberley, executive director of the IBB. “That comes at our expense. Allowing refiners to double down on their violations of the RFS law is outrageous, and deprives Americans of the benefits of renewable fuels.

“If a low-carbon future is truly the goal of this administration, then it defies logic to continue penalizing the biofuels industry, which can reduce carbon today,” Kimberley continued. “Biodiesel reduces greenhouse gases by an average of 74 percent compared to petroleum diesel, while providing green jobs and supporting the farm economy. We urge EPA to stop bending to the petroleum industry and finalize RFS rules immediately.”

A public comment period on the proposed rule is open through Jan. 3. A virtual public hearing is scheduled for Dec. 3. The deadline to register for the hearing is Nov. 30. Additional information, including a full copy of the proposed rule, is available on the EPA website. READ MORE