UPDATE 1-U.S. Refiners Reap Big Rewards from EPA Biofuel Waivers

May 09, 2018

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by Jarrett Renshaw (Reuters) The U.S. Environmental Protection Agency’s expanded use of waivers to free small refineries from the nation’s biofuels law has saved the industry as a whole hundreds of millions of dollars, according to a Reuters review of public filings.

Dozens of refineries have received the financial hardship waivers from EPA in recent months, meaning they no longer have to earn or purchase blending credits known as RINs. They can also sell any RINs they have on hand into the market, which helps other refiners by cutting market prices.

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Expansion of the waiver program is due in part to a federal court decision last year that said the EPA had been too stingy with exemptions. But ethanol groups and their legislative backers have complained EPA has gone too far expanding a program that was never meant to benefit deep-pocketed oil companies. One group recently asked a federal judge to determine whether the program expansion was legal.

Andeavor, which sources told Reuters has secured waivers for some of its refineries, said on Monday it saved $100 million in biofuels compliance costs for 2016 and 2017.

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CVR Refining, controlled by billionaire Trump ally Carl Icahn, reported a rare $23 million profit in the biofuels credit market in the first quarter. Sources told Reuters its Oklahoma facility was recently granted an exemption.

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Delek U.S. Holdings reported compliance savings of $79 million, while HollyFrontier said it saved $71 million. Those companies confirmed they received waivers from EPA.

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Refiners that did not get waivers are also posting savings as RIN prices have dropped more than 70 percent since late last year to five-year lows around 30 cents apiece, according to traders. READ MORE

Ethanol Blog--Grassley: 'Pruitt is Breaking RFS Promise Made to Me' (DTN The Progressive Farmer)

U.S. senators ask billionaire Icahn for refinery waiver details (Reuters)

Reich: Trump's friends have a different definition of 'financial hardship' (Baltimore Sun)

This is “Economic Hardship”? (Renewable Fuels Association)

Delek to seek RFS waivers for Tyler, Big Spring (Argus Media)

Andeavor Says it Saves $100MM In US Biofuel Costs In 2016-17 (RigZone)

ADVANCED BIOFUELS PRESIDENT SAYS WAIVER DETERMINATION IS MISLEADING (Brownfield Ag News)

RFS architects Dorgan, Talent call on Congress to do more (Biodiesel Magazine)

EPA grants more 2016 exemptions for RFS (Argus Media)

Senators seek answers on CVR waiver from Pruitt, Icahn (Ethanol Producer Magazine)

Excerpt from DTN The Progressive Farmer: "Pruitt is breaking the president's promise, and he's also breaking his promise he made to me," (Senator Chuck) Grassley (R-IA) said. "The waivers were never meant for billionaires."

In the past year it was reported at least some of the oil companies receiving waivers had profits north of $1 billion, essentially undermining the notion that a hardship existed worthy of waivers.

Many of the more than 40 waivers issued by EPA in 2016 and 2017 were made retroactively, though the agency is required to issue waivers ahead of releasing final RVO numbers each year. READ MORE

Excerpt from Reuters: Six Democratic U.S. senators have asked billionaire investor Carl Icahn and Environmental Protection Agency Administrator Scott Pruitt to explain how an Icahn-owned refinery secured a valuable EPA exemption from the nation’s biofuels law.

The request, made in letters sent late on Tuesday and reviewed by Reuters, adds pressure on the embattled EPA chief over his pro-business policies, as well as on Icahn, whose dual role last year as an investor and presidential adviser is being investigated by the Justice Department.

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The letters were signed by Democrats Elizabeth Warren of Massachusetts, Sheldon Whitehouse of Rhode Island, Sherrod Brown of Ohio, Tammy Duckworth of Illinois, Tammy Baldwin of Wisconsin, and Amy Klobuchar of Minnesota. READ MORE

Excerpt from The Baltimore Sun: Mr. Icahn is not exactly a hardship case. According to Bloomberg's Billionaire Index, his net worth is $21.8 billion.

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When Mr. Trump first talked with Scott Pruitt about running the EPA, Mr. Trump told Mr. Pruitt to meet with Mr. Icahn. As Icahn later recounted, "I told Donald that [Pruitt] is somebody who will do away with many of the problems at the EPA."

Mr. Trump then made Mr. Icahn his special regulatory adviser, until lawmakers raised concerns about potential conflicts of interest. READ MORE

Excerpt from Argus Media: The law includes waivers for individual refineries with less than 75,000 b/d of crude processing capacity. Delek and the US independent refiner it acquired beginning in 2016, Alon, had received waivers for most of the past decade at the 80,000 b/d El Dorado, Arkansas, which is operated at 70,000 b/d, and 74,000 b/d Krotz Springs, Louisiana, refineries. Delek recorded a roughly $80mn benefit in the first quarter for waivers of 2017 requirements for those refineries.

But Delek did not apply for waivers at Tyler or Big Spring. The company did not say why, although both facilities supply more integrated retail networks and benefit from blending.

"We think the waiver is pretty much the mechanism of this administration to control the RINs cost," (Delek chief executive Uzi) Yemin said. READ MORE

Excerpt from Renewable Fuels Association: Just weeks after the news broke that EPA has secretly handed out dozens of RFS compliance exemptions to “small refineries” on the grounds of so-called “disproportionate economic hardship,” many oil companies—including those that likely received exemptions—are reporting their financial results for the first quarter of 2018.

Not surprisingly, the quarterly earnings statements do not paint the picture of a struggling refining sector enduring “economic hardship” at the hands of the RFS. Rather, the financial results show that companies involved in oil refining—both large and small, merchant and integrated—are thriving. The earnings statements also shine some light on the huge windfall that some refiners are receiving as a result of the RFS exemptions.

Nearly all of the public companies with oil refining assets reported quarterly earnings that were well above the corresponding quarter a year ago. Profits for many refiners far surpassed analyst expectations, while shareholders enjoyed larger-than-expected dividend distributions. In the wake of a bullish quarterly earnings cycle, some refiners have experienced record or near-record stock prices in the last few weeks.

In total, the Q1 net profits for six companies that likely received small refinery exemptions came to $8.8 billion, up 31% from $6.7 billion in Q1 of 2017. Oh, pity the poor refiner.

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Call me crazy, but when I hear “economic hardship,” I don’t think of surging profits, record stock prices, generous dividends, and Fortune 100 companies.

Now, a cynic might suggest that these companies performed so well because they received exemptions from 2017 RFS compliance obligations and therefore no longer had “compliance costs” with which to contend in Q1. It is true that the exemptions led to a huge RINs windfall for the companies that received them (see table below showing RIN/RFS compliance cost savings reported by the companies), but how did their profits compare to the oil/refining companies that did not receive exemptions?

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If RFS compliance exemptions truly saved “small refiners” from experiencing financial hardship and led them to strong performance in Q1, then we should surely expect the financial performance of their peers who still have RFS obligations to be noticeably worse, right?

Wrong. In reality, refiners that did not receive RFS exemptions often reported even stronger earnings results in Q1 than their peers who were bailed out of their RFS obligations by EPA. READ MORE