House May Act This Week on Biodiesel Tax Credit: Sources

June 17, 2019

House Ways and Means Committee Chairman Richard Neal (D-Mass.) may have the committee mark up a bill this week that would include an extension of the $1/gal federal biodiesel blenders tax credit (BTC) for 2018, 2019 and 2020, according to sources.

A committee spokesperson told OPIS that "nothing is scheduled as of now," but sources said that such a move may occur on Thursday or the following Tuesday.

A coalition of groups supporting a BTC extension last week referred to reports of the move and said that although the "proposal may not be perfect, we are grateful for Chairman Neal's good-faith efforts to craft compromise legislation."

"The Neal proposal should be viewed as a helpful step in the right direction toward providing our industries the certainty they need to continue bringing advanced biofuels to market," it added. "We urge leaders in both the House and Senate to continue working toward an equitable compromise as soon as possible."

The coalition included the Advanced Biofuels Association (ABFA); American Trucking Associations; National Association of Convenience Stores; the New England Fuel Institute; the Petroleum Marketers Association of America; the Society of Independent Gasoline Marketers of America; and NATSO, the national association representing truckstops and travel plazas.

Neal is looking toward tax increases elsewhere to finance such a move, according to sources, but is meeting resistance from Senate Republicans.

However, the House passing a bill would allow the differences to be worked out in a House-Senate conference committee, according to sources.

"I think the key is for the House to move a bill," said one. "The Senate can then act and get to conference.

"Selling at a loss on the market's anticipation of the tax credit coming back, plants are running out of cash to buy feedstock. Then they shut down."

ABFA President Michael McAdams called the reported move toward a three-year extension "a good development," adding: "My members are drooling to try to get that because the industry is in a very difficult and challenging place right now.

"A lot of the little guys are not even running because they don't have the wherewithal to bankroll waiting on a tax credit," he told OPIS. "They ran out of money and this expiration outlasted them."

McAdams said he is hoping that Neal will move his bill out of committee this week and that next week the House will vote on that bill and send it to the Senate.

"Then we look forward to having the senators respond to that bill and we are hoping that they can reach an accommodation with each other and finish this process prior to August," he said.

David Fialkov, NATSO's vice president of government affairs, told OPIS that "it is in everyone's interest for this negotiation to commence and be resolved as soon as possible, ideally before the August recess."

Fialkov said he hopes that the House Ways and Means Committee will mark up extenders legislation within "the next couple of weeks" and that he expects the legislation will include Democratic priorities that U.S. Senate Finance Committee Chairman Chuck Grassley (R-Iowa) opposes.

"However, I would view any House bill as simply initiating a negotiation with Grassley," Fialkov said.

He added that if a resolution is not reached before August, "extenders will need to be a part of the larger legislative package that will be cobbled together in September, and at that point we're rolling the dice as to whether or not this movie has a happy ending."

Earlier this month, U.S. Reps. Abby Finkenauer (D-Iowa) and Josh Harder (D-Calif.) asked House Speaker Nancy Pelosi (D-Calif.) and Neal to support a retroactive reinstatement and a multiyear extension of the BTC along with two other biofuel-related provisions, saying the loss of the tax breaks is "jeopardizing significant private investment, agricultural supply chains, jobs and the use of advanced renewable fuel technologies."

--Michael Schneider,

Copyright, Oil Price Information Service

JetBlue's SAF Delays Highlight Sector's Slow Development

June 7, 2019

Tucked away in JetBlue's annual environmental report to investors last week was an acknowledgement that the airline's plan to start taking deliveries of renewable jet fuel for its fleet this year has been delayed.

Though JetBlue's admission was hardly surprising, it provided another indication of an issue that continues to hinder greater use of sustainable aviation fuel (SAF) by the airline industry -- the slow development of global production capacity.

The New York-based carrier in late 2016 announced that it had reached a 10-year deal to buy sustainable alternative jet fuel from Philadelphia-based SG Preston. The agreement, valued at more than $1 billion, was billed by both companies at the time as one of the "largest binding supply commitments for aviation biofuels in history."

The contract called for deliveries of SAF from Preston to JetBlue to begin in 2019, but the airline says that's not going to happen.

"In 2017, JetBlue signed an offtake agreement to purchase renewable jet fuel, helping to accelerate the supply and the product's entry to the market. However, the development of this fuel has been delayed."

The delay, the airline said, "is similar to the ones seen with many other renewable jet fuel suppliers in the United States in recent years. We will continue to work with our partners to stimulate demand within the aviation industry and bring alternative fuel sources to market in the near future."

The company said it will continue to "search for additional purchase opportunities and looks forward to completing the purchase, receipt, and use of renewable jet fuel from our existing partners in the future, though on a longer timeline than originally hoped for."

JetBlue spokeswoman Tamara Young told OPIS in an email that the company is exploring "ways to reduce our greenhouse gas emission exposure, including a focus on renewable jet fuel as a long-term business strategy." In addition, she said the airline believes SAF will help it "gain more control over future fuel supply and save on costs in the future."

She said the company is working with its partners, including Preston and Airbus, "to stimulate demand within the aviation industry and bring alternative jet fuel sources to the market in the near future. We look forward to purchasing, receiving and flying with renewable jet fuel from SG Preston in the future, though on a delayed timeline."

How far off is that "near future"? That seems to be a difficult question to answer.

"It's fair to say that we haven't seen as much commercialization progress as we had hoped," Steve Csonka, executive director of the Commercial Aviation Alternative Fuels Initiative (CAAFI), a U.S.-based partnership between the government and the private sector established to bring commercial quantities of SAF to the marketplace.

CAAFI in mid-2018 listed only two U.S. plants as producing SAF in commercial quantities: World Energy, which operates a 38 million-gal/year facility in California; and Gevo, which produces a very modest amount of SAF from its alcohol-to-jet conversion facility in Texas, using biobutanol from its 19 million-gal/year facility in Luverne, Minn.

Almost a year since that status report was issued, no other U.S. plant has joined the list of SAF commercial producers, though several have announced plans to commercialize new renewable diesel facilities.

Red Rock Biofuels has begun construction of a 15 million-gal/year SAF plant in Lakeview, Ore., and expects to begin production next year, and Fulcrum BioEnergy says it expects to have its 10.5 million-gal/year plant in McCarran, Nev., running in 2020.

Once the Nevada plant is operational, Fulcrum is hoping to follow up quickly with the commercialization of six 30 million-gal/year plants in key demand areas of the U.S.

As for the JetBlue delay, Csonka said at least part of it is attributable to Preston's decision to double the capacity of its planned plant in South Point, Ohio, to 240 million gal/year. CAAFI's 2018 accounting says that plant is also expected to enter service next year.

World Energy in October announced plans to spend $350 million over the next two years to expand its California refinery to produce 306 million gal/year of total product, including SAF, renewable diesel, gasoline and propane. Of that capacity, World Energy committed to devote half to SAF, given the right market conditions.

Plans by other companies to bring more capacity online in the U.S. are also proceeding, Csonka said.

Further, the SAF industry in Europe also is beginning to stir. LanzaTech, working with Virgin Airlines, is planning to build a plant in Great Britain, and U.K.-based Velocys, which is working with British Air and Shell on another plant in the country, said in December that it had secured a site for the facility near Immingham.

In late May, SkyNRG said it and other partners planned to build by 2022 in the Netherlands Europe's first plant dedicated to SAF production. In the announcement, the company said KLM Royal Dutch Airlines has committed to buy 75,000 metric tons (24.6 million gal/year) annually for 10 years.

In addition, Csonka said French refiner Total is planning to open soon its renewable diesel facility in La Mede, while Italian refiner ENI is also producing renewable diesel.

Renewable diesel production is significant for the aviation industry because such facilities can also produce SAF (if the economics are right). Further, the aviation industry is evaluating the ability to use renewable diesel as a blending component for SAF, though at rather modest maximum blend levels.

Neste, the world's leading producer of renewable diesel, said late last year that it was shifting an undisclosed portion of production capacity at its Porvoo, Finland, refinery to make SAF and said it plans to produce SAF at its expanded Singapore facility.

Though the additional planned capacity of renewable diesel and SAF is no doubt an encouraging sign for the global airline industry, much more SAF capacity will need to come online if airlines are going to be able to meet their commitment to reduce its carbon emissions (50% below a 2005 baseline by 2050) through SAF use.

Csonka said 300 million to 400 million gal of capacity will need to come online each year "indefinitely" to allow U.S. airlines to meet their carbon neutral growth using SAF, rather than through offsets under the International Civil Aviation Organization's CORSIA program.

He said that despite the various setbacks and delays of the last several years, a steady stream of new producers and technology firms are showing interest in producing SAF. Interactions with airlines also are continuing, with more announcements of offtake agreement expected by year end.

Further, he said he is encouraged to see the increasing engagement of refiners, fuel suppliers, fixed base operators and the business aviation community in developing SAF supply and supply chains.

"The development of global production capacity does not solely rest with the efforts of the producers, but also needs the strong communication of interest and commitment from fuel users and other supply chain enablers," he said, adding that he remains optimistic about the near-term success of SAF commercialization.

--Jeff Barber,

 Copyright, Oil Price Information Service

US Ethanol Sales to EU Could Hit 100 Million Gal, but Obstacles Remain

May 21, 2019

The U.S. ethanol industry could reasonably export roughly 100 million gal to the European Union (EU) over the next 12 months following the EU's decision last week to lift anti-dumping duties that had been in place since 2013, but several market sources cautioned this week that several factors, including the comparatively small size of the continent's market and EU greenhouse gas standards, will likely limit the effect that the sales will have on an oversupplied domestic industry.

On paper, the removal of the 9.5% anti-dumping duties open up a gaping arbitrage opportunity for U.S. ethanol to begin ramping up transatlantic trips, but that doesn't necessarily mean the U.S. will see its roughly 3 million-bbl, or 126 million-gal, ethanol supply glut disappear overnight.

Green Plains CEO Todd Becker piqued industry interest at the BMO Farm to Market Conference in New York last week when he said his company began receiving inquiries from potential European buyers shortly after the EU announced Tuesday that the tariffs had been lifted.

"If we can get a couple hundred million gallons of EU demand in the next 12 months -- and the window is wide open to do that -- we think that is a great opportunity for us," Becker said.

The first obstacle for opening up the European market for U.S. ethanol -- price -- now appears to be the least challenging with the duties gone. The arbitrage window had actually been mostly open for the last few months as U.S. ethanol prices in the Gulf Coast have held below $1.50/gal, well below the $2.50/gal T2 Rotterdam European ethanol was fetching at last look.

Market sources said EU import tariffs were not affected by the decision to lift anti-dumping duties.  Still, they said that adding in the EU's import tariffs of Eur102/cubic meter for denatured fuel ethanol and Eur192 for undenatured fuel ethanol -- which equates to roughly 43cts/gal or 73cts/gal, respectively -- and freight costs of about 20cts/gal, a U.S. export price out of the Gulf Coast under $2.15/gal would likely be attractive enough to draw the attention of European buyers.

Denatured fuel ethanol can only enter the EU through the U.K., Spain, the Netherlands and Norway. The rest of the countries can import only undenatured fuel ethanol. U.S. ethanol is most often shipped undenatured, stored in a duty-free port where it is denatured and then imported into the EU paying the lower Eur102 tariff, according to Alberto Carmona, CEO at Nixal Commodities.

The second obstacle in the near-term outlook -- logistics -- could put a temporary hold on any significant volumes of U.S. ethanol moving to Europe. To export ethanol to the EU, a U.S. producer must be certified in the International Sustainability and Carbon Certification (ISCC) system.

Currently, only seven ethanol plants are listed on ISCC's website as cleared to export to the EU. Those plants carry a total combined annual capacity of just over 1 billion gal. Many more plants had been certified, but opted not to review their certifications while the anti-dumping tariffs were in place.

More producers are likely to seek recertification in the coming months, but even then, to export product into the EU, a producer must show its ethanol provides a 50% reduction in greenhouse gas (GHG) emissions as well as a water content spec of less than 0.3%, which is much lower than the U.S. standard of 1%.

The third and perhaps biggest obstacle to substantial increases in flows of U.S. ethanol to the EU is simple -- demand. Just because the opportunity is more open now, does the EU need the product?

Carmona said the European market is very small and put total fuel ethanol demand in the bloc at about 1.4 billion gal last year. That could approach 1.6 billion gal this year, according to some of the more bullish estimates. By comparison, California blended over 1.6 billion gal of ethanol in 2018, according to the most recent data from the California Air Resources Board (CARB).

U.S. Census data shows ethanol exports to the EU approached 300 million gal in 2011 before falling below 200 million gal in 2012 and less than 30 million gal in 2013 after the duties were put in place. In 2018, the U.S. ethanol exports to the continent nearly doubled from 2017 totals to a six-year high of more than 120 million gal, with most shipped to the Netherlands and Spain.

Through the first three months of 2019, ethanol exports to the EU totaled roughly 13 million gal, according to the latest Census data.

Renewable Fuels Association (RFA) President and CEO Geoff Cooper said he doesn't expect the U.S. to regain the 300 million-gal demand it used to see from the EU anytime soon. He estimated something in the 100 million-150 million-gal range in the next 12-18 months is reasonable as more plants complete their ISCC certifications.

U.S. Grains Council Chief Economist Mike Dwyer said his members are also estimating around 100 million gal of exports in the coming year, but maintained that the lifting of the duties was a big step in the right direction, regardless of its immediate impact.

"I think giving a number bigger than 100 million might be overhyping the significance," Dwyer said. "But, hey, 100 million gallons is $150 [million]-$175 million with today's prices. And that's the value you get when we challenge the EU on the review. I think the commission just did the right thing when they removed them."

Even if U.S. ethanol marketers were somehow able to find a home for 200 million gal of product in the coming year -- a "dream scenario," according to one source -- would that sharp growth necessarily be a good thing?

"I think if the US goes in and tries to steal 20%-25% of the EU ethanol market, the U.S. is going to get hit with another tariff or tougher GHG restrictions," one trader said. "EU ethanol producers also have margins and can lower prices to shut an arb in a hurry."

Few (if any) market sources or industry followers are looking to the EU to suddenly save the U.S. ethanol industry from gloomy break-even margins seen for much of the past year, but that's not to say there isn't an export market that could provide a substantial boost in morale, literally overnight. China, at least so far, has become the industry's white whale, and the future trading relationship between the two economic giants remains far from clear.

"We're hopeful," Dwyer said. "Frankly, we thought we were right across the finish line up until a few weeks ago, but hopefully, we can move forward and get those duties removed. We think China could very easily become our top market within a year of the duties going away."

--Jordan Godwin,

Copyright, Oil Price Information Service

Ethanol Advocates Worry RIN Reform Proposals Will Derail E15 Expansion

 April 1, 2019

YPSILANTI, Mich. -- With about two months to go before the start of the summer driving season, ethanol advocates are growing increasingly worried that EPA's decision to combine in the same proposed rulemaking changes to how Renewable Identification Number (RIN) credits are trading and a volatility waiver for E15 could threaten the agency's ability to lift summertime restrictions on the sale of the higher ethanol blend by June 1.

At EPA's public hearing here on Friday, a number of Renewable Fuel Standard (RFS) stakeholders expressed opposition to the agency's proposed changes to RINs trading. Iowa Gov. Kim Reynolds, a Republican, even urged the Trump administration to break off the RIN reform package into a separate rulemaking, cautioning that the changes would undermine any boost provided by an E15 waiver.

"If the EPA wants to meet the president's pledge to remove barriers for higher ethanol blends, it must restore some symmetry to any RIN market reforms between the buyers and the sellers and between the obligated parties and retailers," Reynolds said. "If finalized as proposed, this draft rule would simply replace a regulatory barrier for E15 with an economic barrier.

"That was not what I or Iowans across my state heard the president promise."

Nebraska Gov. Pete Ricketts, also a Republican, similarly urged EPA not to finalize its proposed RIN reforms in submitted comments to the hearing.

EPA earlier this year rejected calls from several ethanol groups that it break off proposed changes to how RINs are bought and sold from the RVP issue. The groups argued that combining both would unnecessarily complicate the waiver and jeopardize the agency's ability to issue a final rule before June 1 when sales of the higher E15 ethanol blends are prohibited in many parts of the country without a Reid Vapor Pressure (RVP) waiver.

Growth Energy CEO Emily Skor said that from the outset of the rulemaking process, her group's members agreed that it would make sense to split the proposals into two rulemakings, but that EPA made it very clear that they were given a "very firm direction" from the White House that the E15 expansion and the RIN reform proposals must go hand in hand.

The White House, which spent much of last year working on an ultimately unsuccessful effort to broker a deal that would address the concerns of the biofuels and merchant refining industries, said it would allow year-round E15 sales, but only if they were linked with changes sought by independent refiners in how RINs are bought and sold.

On the possibility of EPA pausing the RIN reform proposals, one source on Monday said he thinks there's a "60/40 chance" the agency scraps the contentious part of the rulemaking because "they won't have a prayer in federal court." The source added that EPA can still likely get E15 done in time for this summer by splitting the rulemaking but added that the E15 waiver will also likely be decided in court.

"We want this rule to get across the finish line, but we want it to be defensible because we know it's heading to court," Skor said. "A lot of our energy these past several months has been pulling together the support and expertise and legal rational to have engaging conversations with EPA and provide any support and analysis that we can to make sure that when the rule is finalized, it's got the right rationale and justification it's going to need to stand up in court."

In her testimony at Friday's hearing, Skor didn't elaborate much on Growth's stance on RIN reform proposals, due in part to the strict three-minute time limit, but said her group plans to provide detailed analysis of how the proposals could be problematic. Skor said the primary concern is that the proposed changes are tilted too heavily in favor of refiners who purchase RINs for RFS compliance rather than pursue expanded blending of biofuels.

EPA is accepting public comments on the proposals until April 29. It will then have roughly a month to weigh public comments and draft a final rule for White House review and approval.

EPA said in its proposals released last month that the RIN changes would prohibit certain parties from being able to purchase separated RINs, require public disclosure when RIN holdings exceed specified thresholds, limit the length of time a non-obligated party can hold credits and increase the compliance frequency of the program to quarterly from annually.

The agency said it "takes claims of RIN market manipulation seriously and although we have yet to see data-based evidence of such behavior, the potential for market manipulation is a concern."

Iowa Renewable Fuels Association Executive Director Monte Shaw pointed out in his testimony on Friday that EPA admitted that it has no evidence of RIN market manipulation, "Yet, this proposal wouldmanipulate the RIN market into a grotesque caricature of itself."

"If you adopt RIN procedures that eviscerate the value of RINs, as this proposal does, then you have eviscerated the incentive to expand the use of renewable fuels, which is the main purpose of the RFS," Shaw said. "With no actual market manipulation to address, this proposal reeks of a backdoor attempt to simply rip the heart out of the RFS."

Renewable Fuels Association (RFA) President and CEO Geoff Cooper said his group doesn't believe any of the RIN reform concepts should be finalized, a sentiment echoed by many others from various biofuels groups including the National Biodiesel Board (NBB), American Coalition for Ethanol (ACE), the Advanced Biofuels Business Council (ABBC) and others of the more than 50 representatives who testified at the hearing.

Even oil industry representatives expressed opposition to the changes.

Frank Macchiarola, American Petroleum Institute (API) VP of downstream and industry operations, called the reforms a "solution in search of a problem."

Macchiarola pointed out that EPA has access to every RINs transaction and a memorandum of understanding (MOU) with the U.S. Commodity Futures Trading Commission (CFTC) addressing potential market manipulation.

"Although RINs prices can be volatile, volatility alone is not an indicator of price manipulation or misbehavior," Macchiarola said.

API's members include refiners who have invested in RFS compliance and have expanded blending capacity to meet their renewable volume obligations (RVOs) under the law.

Among those offering support of EPA's proposed RIN reforms were Frank Maisano of the Fueling American Jobs Coalition.

"The RIN market is plagued by anticompetitive behavior such as price manipulation, RIN hoarding, and speculation, as well as a lack of transparency and high transaction costs," Maisano said. "Regulatory reform is needed to address these substantial market flaws because they contribute to the harm the RFS causes independent refiners, small gasoline retailers and consumers."

Merchant refiners HollyFrontier and PBF as well as the American Fuel and Petrochemical Manufacturers (AFPM) also urged EPA to push the RIN reforms through.

"Of course, they want the reforms finalized because they're the ones who wrote them and they'll stand to gain the most from them," one RINs trader said Monday morning. "This was clearly a Trump deal in search of a compromise where they got gamed."

--Jordan Godwin,

Copyright, Oil Price Information Service

ABFA Says EPA Made Illegal, Secret Change to SRE Process

March 8, 2019

EPA in May 2017 made an unannounced and illegal change to its process for determining whether to exempt small refiners from their obligations under the Renewable Fuel Standard (RFS), a biofuels industry group that received court-ordered access to the agency's confidential decision documents said this week.

In a Wednesday filing with the U.S. Court of Appeals for the District of Columbia Circuit, the Advanced Biofuels Association (ABFA) charged that the agency on May 4, 2017, altered its methodology to make it easier for small refiners to claim that RFS compliance was creating a disproportionate economic hardship.

ABFA sued EPA last year after it granted nearly 50 small-refinery exemptions (SREs) for the 2016 and 2017 compliance years, a new record. In January, the circuit court granted its request that EPA provide the group with the SRE decision documents under a confidentiality agreement.

That change, which was announced in a footnote to one small refiner's request for an exemption, represented a final agency action that is reviewable by the court, ABFA said.

The biofuels group argued that under the change, EPA deviated from its past policy that required successful SRE applicants to achieve a minimum score on each of two U.S. Department of Energy screening tests that measure whether program compliance would result in disproportionate structural and economic impacts and "viability" assessment that examine whether the RFS obligation would threaten refiner's ability to compete and remain profitable.

But in the May 4, 2017 footnote, EPA said it was changing its approach to find that the disproportionate economic hardship threshold can be met when "it is disproportionately difficult for a refiner to comply with its RFS obligations -- even if a refinery's operations are not significantly impaired." The change allowed SRE applicants to qualify for a waiver even if they failed to meet the minimum score on each of DOE's two tests, ABFA said.

ABFA in its brief said that while "this was a sweeping change in methodology that would eliminate hundreds of millions of dollars of compliance obligations under the RFS program -- allowing small refiners to keep money they would have previously paid to AFBA members to buy renewable fuel and RINs [Renewable Identification Number credits] -- it was made surreptitiously. EPA did not announce this change through notice-and-comment rulemaking or a press release, but rather tucked it into footnote 10 of an informal adjudication decision document that was sent to only one refinery and was shielded from public view under dubious claims" that it was confidential business information.

In addition, the group suggested that EPA took steps to communicate the change in policy to potential SRE applicants. "Despite taking no official steps to publicize its change, word of EPA's favorable new methodology clearly spread among small refineries -- as if delivered from a soundproof phone booth -- as evidenced by the fact that dozens of small refineries began to submit petitions for extension of exemptions even though they had not pursued them in previous years.

"It cannot possibly be a coincidence that so many companies suddenly sought this economic windfall from EPA."

While EPA has claimed that the methodology changes were applied in a case-by-case basis and did not represent an official change in policy, ABFA told the court those assertions were undercut by the fact that EPA granted additional SREs in November 2017 after employing the same rationale.

AFBA said that based on its examination of the EPA decision documents, the agency granted SREs to at least 24 refineries that received a score of zero on the viability index, adding that the agency's "insistence that any structural disadvantage of a refinery amounts to disproportionate economic hardship warranting a full exemption from the mandates of the RFS program is an unlawful attempt to read the word 'hardship' out of the Clean Air Act (CAA).

"A small refinery that remains profitable and competitive despite complying with the RFS program can hardly be said to be suffering 'hardship.'"

In its filing, the group said that while the CAA gives EPA discretion to evaluate SRE petitions and make final determinations of economic hardship, "its power is not unlimited" and the agency must "articulate a satisfactory explanation for its action that makes a "rational connection between the facts found and the choices made."

ABFA also said that in evaluating the SRE petitions, EPA's analysis of "other economic factors" extended to operating losses that were not attributable to the RFS. The purpose of the waiver, the group said, "is not to ensure that all small refineries make an annual profit, but to protect small refineries from disproportionate economic hard caused by compliance with the RFS program."

In at least one instance, ABFA said, EPA "appears to have considered ... the fact that a small refinery is a co-guarantor of the debts of its corporate parents and was unable to incur new debts due to the poor financial condition of its corporate parent."

This should not have been considered, the trade group said, adding that under that practice, the agency "should likewise be able to reverse a hardship finding" in those cases where it granted an SRE to refining units owned by profitable corporate parents such as ExxonMobil and Chevron.

ABFA's petition asked the court to find EPA's alleged revised methodology for determining disproportionate economic hardship illegal.


--Jeff Barber,

Copyright, Oil Price Information Service