House Democrats Propose Nationwide LCFS, Other Measures in Broad Climate Report

June 30, 2020

U.S. House Democrats on Tuesday backed the creation of a nationwide Low Carbon Fuel Standard (LCFS) program as part of broad plan aimed at cutting U.S. greenhouse gas emissions to zero by midcentury.

The report, more than 500 pages, was released by House Speaker Nancy Pelosi (D-Calif.) and Rep. Kathy Castor (D-Fla.), who chairs the House Select Committee on the Climate Crisis.

In a preface to its Climate Crisis Action Plan, the committee acknowledged that its recommendations come at a time when the U.S. is reeling from the coronavirus disease 2019 (COVID-19) pandemic. But it added that the proposed solutions, including "building and rebuilding America's energy, transportation and manufacturing infrastructure" to emit less carbon and be more resilient to climate change "offer on opportunity to propel the economy forward."

"Solving the climate crisis is hard work, but it provides a pathway to millions of good-paying, high-quality jobs that can fortify and expand America's middle class.

The proposals include requiring electric utilities achieve net-zero carbon emissions by 2040 and mandating that automakers sell only electric vehicles by 2035. Further, the plan calls for investments in infrastructure, agriculture, public health, disproportionately exposed communities and protections for land, water, oceans and wildlife.

The report, however, still sees a role for biofuels, including ethanol, biodiesel, renewable diesel, advanced biofuels, renewable natural gas and cellulosic biofuels, which are mentioned more than a dozen times.

The plan cites the 2022 transition year of the Renewable Fuel Standard (RFS) as an opportunity to "build on the RFS and transition to a program that encourages the development and production of liquid fuels that meet certain carbon emissions standards." Starting in 2023, congressionally set mandatory blending volumes expire and EPA will have a greater role in determining annual renewable fuel blending targets.

The report provides an overview of California's LCFS program and makes recommendations for how it might work on a nationwide scale. While the plan emphasizes the importance of a transition to zero-emissions technologies and electric vehicles, it said a nationwide LCFS should be established to help curb pollution from transportation fuels. The report also mentioned the proposed framework for a Midwest Clean Fuel Standard, which was released by the Great Plains Institute in January.

The committee also recommended that until Congress creates a national LCFS program, it should direct EPA "to complete any necessary rulemakings or other administrative steps necessary to allow the generation of eRINs for biogas-derived electricity used as a transportation fuel."

The agency is being sued for its failure to approve such projects to receive credits under the RFS. California's LCFS allow renewable electricity used in transportation to generate program credits.

In addition, the plan calls for the broad deployment of carbon capture and storage (CCS) technologies and incentives for increasing carbon sequestration in agriculture.

The report was welcomed by biofuels industry groups, including ethanol groups which earlier opposed California's LCFS because they saw it as a threat to ethanol's place in the transportation fuel mix.

"RFA continues to analyze the report, but at first blush we are highly encouraged by the Select Committee's acknowledgement that renewable fuels like ethanol can play an important role in reducing the carbon impacts of our nation's transportation sector in the future," Renewable Fuels Association (RFA) President and CEO Geoff Cooper said in a statement.

"RFA agrees with the committee that widespread use of liquid fuels and internal combustion engines will continue for decades to come, and we welcome the recommendation to create a nationwide technology- and feedstock-neutral Low Carbon Fuel Standard.

"The Committee correctly points out that the LCFS policy model already has a proven track record and that renewable fuels have played a crucial role in achieving the objectives of the California LCFS. We also concur with the committee's position that high-octane, low-carbon fuels could deliver substantial carbon benefits at a low cost in the years ahead," Cooper added.

Growth Energy CEO Emily Skor pointed to data showing that U.S. ethanol reduces carbon emissions by 39% or more and that the recorded carbon intensity (CI) of ethanol has declined nearly 33% since 2011. Further, she said biofuels have so far delivered nearly 80% of carbon reductions under California's LCFS program.

"We appreciate the hard work of lawmakers seeking to accelerate our progress toward a healthy climate and are pleased that this report recognizes that a zero-carbon future must include all clean transportation solutions -- from ethanol to electric vehicles," Skor said. "We stand ready to explore policies and opportunities which showcase low-carbon, liquid fuels' role in reducing emissions and pollution, and driving innovation for low-to-zero carbon renewable fuels."

American Coalition for Ethanol (ACE) CEO Brian Jennings also commended the committee for including its recommendation that Congress should develop an LCFS program.

"It is gratifying so many in Congress are recognizing that increasing the use of ethanol is part of the solution to further reduce greenhouse gas (GHG) emissions," Jennings said. "Properly crafted low carbon fuel policy built on top of the Renewable Fuel Standard's success in beginning to break our country's reliance on petroleum is one of the most meaningful things Congress can do to address climate change."

The full report is available at: https://climatecrisis.house.gov/report, and click on "Read the entire report."

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com;

--editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service


EPA to Propose Splitting 500-Million-Gal RFS Remand in 2021, 2022: Sources

June 16, 2020

EPA is expected to propose as early as next month a 250-million-gal increase in the 2021 Renewable Volume Obligation (RVO) and another 250-million-gal boost in the 2022 RVO to comply with a remand order the U.S. Court of Appeals for the District of Columbia Circuit issued nearly three years ago, according to several sources familiar with the agency's plans.

Sources said EPA will likely propose adding the first 250-million-gal increase through a "supplemental RVO" and will follow that with an identical boost in 2022.

The agency submitted its proposed 2021 Renewable Fuel Standard (RFS) targets to the White House Office of Management and Budget (OMB) for review on May 13. OMB review typically takes 30 days to complete, and EPA has traditionally published its proposals within six to eight weeks of sending them to OMB, meaning the agency is likely to make the proposed blending targets public sometime in the first two weeks of July.

The D.C. Circuit in a July 2017 ruling found that EPA erred when it broadened the RFS definition of inadequate domestic supply of biofuels to include "real-world constraints," including the E10 blendwall and the market's ability to consume increasing volumes of renewable fuels to justify cuts to the 2014-2016 RVO below levels set by Congress.

In releasing its draft 2020 RVO last summer, EPA, however, said it did not plan to increase the annual blending targets to account for the court's ruling, saying such a retroactive adjustment would be "unduly burdensome and inappropriate" and would do little to encourage additional biofuels production.

The more likely result of such a step, it added, would be a drawdown on the number of banked Renewable Identification Number (RIN) credits, a step it characterized as inappropriate.

But the agency appeared to change its mind when it issued the final 2020 RVO in December, saying then that it intended to address the remand in a "separate action" that it planned to issue early this year, citing the number of comments it received on the issue. EPA has yet to detail that action as the midpoint of 2020 approaches.

The biofuels industry has been urging EPA for years to make good on the 2017 court ruling.

Renewable Fuels Association (RFA) President and CEO Geoff Cooper has repeatedly pressed EPA to increase RVOs by 500 million RINs to comply with the court's ruling. RFA Chief Economist Scott Richman urged EPA in public testimony last summer on the proposed 2020 RVO to either increase this year's blending target by 500 million gal or spread the requirement across the 2020 and 2021 compliance years.

"EPA has also thumbed its nose at the DC Circuit, which ruled that EPA must address the illegal waiver of 500 million gallons in the 2014-2016 RVO," Growth Energy Vice President of Regulatory Affairs Chris Bliley said in testimony he presented on the proposed 2020 RVO. "We've waited for two years and what has EPA done to address those lost gallons? Absolutely nothing, saying that it is too difficult."

Should EPA decide to add the remanded gallons to the 2021 and 2022 RVOs, values for D6 ethanol RINs may head higher. Such an increase, according to one RIN trader, could lead to a "pop" in RIN credit prices.

"If you tell refiners they're finally going to be on the hook for those 500 million RINs, I'd definitely expect to see more buying," he said. "Maybe even a jump in prices."

Ethanol-related D6 RINs values in early June topped 50cts for the first time since March 2018 when the Trump administration approved a record number of small-refinery exemption (SRE) requests that for a time pushed credit prices below the 10ct mark.

Values have recovered steadily this year since the 10th U.S. Circuit Court of Appeals in January ruled that the agency exceeded its authority when it granted three SREs for the 2016 and 2017 RFS compliance years and improperly considered factors other than the cost of RFS compliance when it was determining whether the refiners were suffering disproportionate economic hardship. The agency has yet to say whether it will apply the 10th Circuit's ruling nationwide.

"The agency has ignored this issue for long enough," Advanced Biofuels Association (ABFA) President Mike McAdams said. "Responding to the federal court's direction from 2016 to offset what occurred to the tune of 500 million RINs is totally justifiable. Every little bit helps for our industry."

Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw said Monday he wants to see the fine print of any plan by EPA to make good on the court's remand.

"We've never demanded it, but any notion that you couldn't do this in one year is a little bit silly considering they're sitting on over a billion RINs in the piggybank, which the 10th Circuit Court ruled shouldn't be there," Shaw said.

"Enforcing the court ruling is great, but it won't be meaningful if they continue to skirt the law of the RFS with new provisions. You've got to look at the overall picture."

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com;

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service



Citing COVID-19 Harm, Five States' Governors Ask EPA to Waive RFS Obligation

April 16, 2020

Five refining-state governors have asked EPA Administrator Andrew Wheeler to grant an "appropriate waiver" of the Renewable Fuel Standard's (RFS) 2020 biofuel blending targets, citing the economic downturn caused by the coronavirus 2019 (COVID-19) pandemic.

In Wednesday letters, the governors -- Republicans Greg Abbott of Texas, Gary Herbert of Utah, Kevin Stitt of Oklahoma, Mark Gordon of Wyoming -- said the RFS allows the agency to waive an annual Renewable Volume Obligation when it determines that meeting the requirements could cause severe economic hardship to a state, region or the nation. The governors said EPA must take into account the state of the refining sector, which is with sharp declines in gasoline and jet fuel demand as more people stay at home in an effort to limit the virus's spread. Louisiana Democratic Gov. John Bel Edwards submitted his request to EPA on April 7.

"It must then determine whether the implementation of the current RVO, including costs associated with the recent tripling in the price of renewable identification numbers (RINs), present a clear threat to the industry under such circumstances; and then, upon determining whether harm inflicted on a sector as vital as refining and allied aspects of the refining supply chain, constitute an appropriate basis for granting a waiver under the cited provision," the Republican governors' letter said.

State governors have made similar requests in the past, most recently in 2018, but EPA administrators -- including Scott Pruitt -- has denied the requests saying they had contained insufficient analysis and information to demonstrate the RVO was causing "severe economic harm."

"In the past, EPA has failed to grant waivers at the request of governors based on adequacy of documentation," the governors said in their letter. "However, current extraordinary circumstances represent a material change in condition since the last time EPA entertained such requests."

The governors also said the Clean Air Act does not require that the waiver request be limited to situations in which the harm associated with RFS compliance is the only source of stress on the economy. The governors argued that severe harm to the energy economy is expected to result from depressed demand for transportation fuel.

"For many U.S. refineries, RFS compliance has been one of their top annual operating costs - even higher than employee payroll," American Fuel & Petrochemical Manufacturers (AFPM) president and CEO Chet Thompson said in a statement. "This is an indefensible burden, especially now as COVID-19 has upended the market for gasoline and refined products and the refining industry nationally is running at low enough capacity that facilities are being forced to idle.

"Governors recognize the threat the RFS poses to the health of America's refining sector and momentum is building in the states to push back. AFPM is supportive of these governors' efforts to stand up for the women and men in our industry who are keeping America's refineries online. We urge Administrator Wheeler to listen to them. Refineries are critical national security assets and cannot afford the unachievable RFS on top of COVID-19."

Biofuels groups didn't share Thompson's view.

"It's clear they know absolutely nothing about how the Renewable Fuel Standard actually works," Renewable Fuels Association (RFA) President and CEO Geoff Cooper said in a Thursday statement. "They outrageously claim that a waiver is needed because of 'depressed demand for transportation fuel.' But because EPA translates the RFS into a percentage each year, the renewable fuel blending requirements already adjust in tandem with changes in gasoline and diesel consumption. So, if COVID-19 causes 2020 gasoline and diesel demand to drop 15 percent, for example, the renewable fuel blending requirements drops by the exact same amount.

"In any event, the EPA has no authority to grant relief when the RFS itself is not the cause of the 'severe economic harm,' a fact that has been reconfirmed by EPA multiple times in the past when it denied similar nonsensical waiver requests. The governors themselves acknowledge the problems facing refiners today are driven by COVID-19 and cratering oil prices, not the RFS. These same factors are impacting the ethanol industry as well, and to an even greater extent: Nearly half of the nation's ethanol production capacity has been idled as a result of falling gasoline demand. A general waiver at this point would only serve to close more ethanol plants and kill more jobs across rural America."

"This is an offensive attempt by refiners to steal markets from struggling biofuel producers and farmers," Growth Energy CEO Emily Skor said. "Any move to unravel the RFS now would dim any hopes of economic recovery in rural America, where so many in the U.S. biofuel industry have been impacted by furloughs and plant closures, and millions of farmers are struggling to stay afloat.

"We've seen the courts reject this kind of abuse before. Even oil companies admit that biofuel credits don't impose a real cost on refiners. We see this as a non-starter and call on this administration to focus on restoring - not destroying - rural jobs."

"EPA has no other choice than to reject this most recent ploy to waive the RFS based on precedent from previous waiver appeals in 2008 and 2012 which require EPA to determine that the RFS itself must be proven to be the cause of severe economic harm to justify a waiver, not outside factors such as coronavirus or a drought," American Coalition for Ethanol (ACE) CEO Brian Jennings said. "The RFS is clearly not the cause of the economic catastrophe brought on by coronavirus and the Saudi-Russian oil price war, and the oil industry should direct its blame elsewhere.

"We remind the Administration that oil refiners are not the only ones suffering from the economic fallout of the current situation. Ethanol producers, and the farmers supplying them corn, are suffering a proportional economic disaster.

EPA should in fact do the opposite of the governors' request and issue an interim rule to increase the RVO for 2020 to the percentage necessary to ensure that the full 20.09 billion gallons required by law are used."

University of Illinois economist Scott Irwin warned of the waiver scenario in an interview with OPIS last week.

"If there was ever a time where you could make that case, it has to be now," Irwin said. "It has to be severe economic harm to the nation. I think they would have a dramatically more receptive ear to that argument in the Trump Administration than the last time."

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com;

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service


RINs Hold Up as Energy Prices Falter; Analysts Say Credits Are Undervalued

April 14, 2020

As energy prices have tumbled in the wake of the coronavirus disease 2019 (COVID-19) pandemic, one commodity -- Renewable Identification Number (RIN) credits under the Renewable Fuel Standard (RFS) -- has largely gone unscathed.

From March 1 to April 1, front-month WTI crude oil futures fell nearly 57%, RBOB gasoline futures dropped 65%, and ethanol futures declined by 35%.

Although 2020 vintage ethanol-related RINs D6 RINs dipped about 20% over the same period, they were assessed by OPIS on April 13 at 37.5cts, a half cent above the March 2 assessment and just 2.5cts under a two-year high of 40cts hit on March 5.

"They're like cockroaches in a nuclear war," one trader joked about RINs' immunity from the broader market downturns.

In fact, the trader and several other market sources said they consider RINs to be undervalued, largely because the credits are the currency of compliance under the RFS program that is driven more by policy and legal directives than the traditional rules of supply and demand.

"Since the EPA hands refiners and obligated parties percentages to meet their renewable fuels obligations, when the demand for gasoline and diesel decline, the demand for ethanol and biodiesel is also going to decline because the percent is based on each gallon," Andy Lipow, president of Houston-based consultant Lipow Oil Associates, said. "As a result, unfortunately for the renewable fuel groups, they're seeing a drop in demand that is in line with the drop in the demand for gasoline and diesel. That mitigates any upward pressure on the industry having to buy RINs."

But Lipow said that because the decline in gasoline values have greatly outpaced the drop in ethanol prices, he believes current RIN values appear to be "pretty weak." On March 9, RBOB gasoline futures for the front-month contract shed nearly 25cts while ethanol futures fell less than 3cts, pushing gasoline futures below ethanol futures for the first time in nearly three years.

The last time ethanol futures held a premium to gasoline futures -- July 2, 2017 -- D6 RINs were assessed by OPIS at 73cts, nearly double their current levels.

Ethanol's premium to gasoline approached 50cts at its widest spread in mid-March but has since slipped back to about 20cts. When ethanol holds a premium to gasoline, the financial incentive of higher blends of ethanol such as E15 and E85 is reduced and even E10 blends can come under pressure if a refiner can buy RINs rather than blend ethanol with gasoline, one analyst said.

But the analyst said that at least so far through the demand destruction brought on by the widespread stay-at-home orders, the decline in ethanol demand has closely matched the decline in gasoline demand, a sign that blend rates are holding relatively steady.

In addition, even when ethanol is priced at a premium to gasoline, the biofuel's value as an octane booster is more influenced by how it compares with the cost of the alternative oxygenate aromatics, which -- even with the sharp drop in upstream crude oil prices -- are still more expensive than ethanol, according to analysis from University of Illinois economist Scott Irwin.

So, if blend rates and the refiner appetite for RINs stay balanced, the main driver of RINs values becomes what the market has been watching closely for the last two months -- how the Trump EPA will handle the 10th U.S. Circuit Court's January ruling that most agree severely limited the agency's ability to grant small-refinery exemptions from the RFS.

EPA decided against appealing the ruling and the court last week denied an appeal from refiners HollyFrontier and CVR Energy. The refiners have 90 days from April 7 to appeal to the Supreme Court, a move that is being considered, according to the Fueling American Jobs Coalition (FAJC), which represents merchant refiners, refinery unions and small fuel retailers.

Lipow and Irwin agree there is a very low probability such an appeal will succeed, and both are convinced SREs, which have slashed RIN demand and prices over the past several years, will effectively end.

Irwin said that if the EPA were to apply the 10th Circuit Court ruling nationwide and not just the six states under the scope of the ruling, then the SRE program would be over.

If that happens, refiners who oppose the RFS are already gearing up to demand EPA adjust its final 2020 Renewable Volume Obligations (RVO), which was increased to account for volumes the agency expected to waive through SREs.

"That's the big question right now, and that of course, has to be factored into RINs pricing as well," Irwin said. "I've learned to never underestimate the clever lawyers out there, but it'd be very difficult to find a pathway to do that. Either they're going to have to have a reversal at the Supreme Court or it's dead."

Irwin believes D6 RINs prices should be at parity with D4 biomass-based diesel RINs, under the assumption that the SRE program is finished and the 2020 RVO will be enforced without change. D4 RINs have lately held a premium of 20-25cts over the D6 RINs.

"When the conventional ethanol mandate is above the E10 blend wall, the value of a D6 RIN effectively becomes the value of a D4 RIN because biodiesel becomes the marginal gallon to fill that conventional ethanol mandate," Irwin said. "I think there's a sense of safety because EPA said last year there's a roughly 3-billion RINs [bank], but in aggregate, that RINs stock has effectively disappeared with the additional obligation that has been imposed with the disappearance of the SRE program."

Irwin said he believes some trends could develop in the coming weeks and months as energy markets struggle to adjust to the pandemic.

"We are clearly in an environment of what I call, 'spiky economic behavior,'" Irwin said. "When you turn this economic machine back on, there will inevitably be some difficulties getting things turned back on at the same rate. The whole system really runs on a just-in-time inventory approach. We don't realize how tightly calibrated that system is. We've never done anything like this before.

You run out of adjectives to describe what we're dealing with. Turning the key back on is going to be very interesting."

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com;

--Editing by Jeff Barber, jbarber@opisnet.com

 

Copyright, Oil Price Information Service


Aemetis Ships Ethanol for Hand Sanitizer, but Demand Impacts Seen as Limited

March 20, 2020

Aemetis on Friday said it has begun shipping 200-proof alcohol to hand sanitizer manufacturers, but ethanol industry experts say that despite the spike in demand because of coronavirus disease 2019 (COVID-19), the product is unlikely to offer much of a lifeline to ailing ethanol producers.

The Cupertino, Calif.-based company said its 65 million-gal/year plant near Modesto is sending its product for hand sanitizer production just two days after the U.S. government granted exemptions to allow certain alcohol fuel permit holders to sell ethanol for use in hand sanitizer, according to a statement from the U.S. Treasury's Tobacco Tax and Trade Bureau (TTB). The company did not disclose volume information.

The moves came amid a sharp rise in demand for hand sanitizer due to the COVID-19 pandemic.

"Aemetis is moving quickly to help address the significant demand for hand sanitizer products in light of the COVID-19 pandemic during this time of national emergency," said Andy Foster, president of Aemetis Advanced Fuels Keyes. "As the [World Health Organization and the Centers for Disease Control and Prevention] strongly recommend the use of hand sanitizer products to help prevent the spread of coronavirus, Aemetis is utilizing our ethanol production capability to address the current shortage of hand sanitizer by increasing the supply of high-proof alcohol used in the manufacturing of sanitizer products."

On a Thursday conference call with reporters hosted by the Renewable Fuels Association (RFA) to discuss challenges facing the industry, Chippewa Valley Ethanol Company General Manager Chad Friese said that making the grade of ethanol for hand sanitizer requires a completely different specification from that for the fuel market.

Friese said most ethanol facilities are not designed for this type of production, which requires pharmaceutical-grade ethanol. Friese added that the producers turning to this option also could run into problems transporting the product and cautioned that plants' ability to operate may be compromised by the coronavirus outbreak.

The newfound demand for ethanol for hand sanitizer production comes at a painful time for U.S. ethanol producers. With the broader energy complex tumbling in recent weeks, ethanol prices plunged to record lows -- on Tuesday and Wednesday, every OPIS ethanol assessment reached all-time lows, with Chicago Argo ethanol being assessed below $1/gal for the first time in the assessment's nearly 17-year history.

As a result, margins have trended deep into negative territory, also hitting levels never before seen. One trader estimated that by the end of March, ethanol producers will likely face losses around 30cts for every gallon produced, down from slim but positive margins around 5cts/gal at the beginning of the month.

"This will not be the industry's savior," the trader said about the demand for ethanol to be used toward hand sanitizers.

The trader stressed that any new demand for hand sanitizer would still be sharply exceeded by demand losses tied to the drop in gasoline consumption.

Blender net input demand for the week ending March 13 was at 915,000 b/d, down just 4,000 b/d from the previous week and slightly above the year-ago level of 909,000 b/d. Most industry watchers, however, believe that number will decline significantly in coming weeks.

Another trader said the vast majority of ethanol plants are not set up to store 200-proof ethanol and the move would require major capital investment. Most plants load from big tanks that have corrosion inhibitors, which cannot be in human contact products so a producer would need to load from a special tank, the trader said.

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com;

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service


Biofuel and Farm Leaders Continue to Press White House on SRE Court Ruling

March 11, 2020

Midwestern biofuel and agricultural officials on Wednesday kept up their campaign to persuade the Trump administration against appealing a January ruling by the 10th U.S. Circuit Court of Appeals that would all but eliminate EPA's ability to grant small refiners economic hardship waivers for compliance with the Renewable Fuel Standard (RFS).

Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA), an ethanol industry trade group, said in an interview that the Trump administration's request to the court for a two-week extension of the appeals filing deadline came as a surprise.

"I think all the indications we have been getting led us to believe that the EPA would not be seeking an appeal, and that EPA would be taking steps to apply the decision nationally," Cooper said. "We felt like things were headed down the right track until late last week."

The U.S. Department of Justice late Friday asked the 10th Circuit to extend the March 9 deadline for appeals by 15 days. On Monday, the court granted the request. In its filing DOJ said the administration had not yet made a decision on whether it would appeal, but wanted additional time to consider the ruling.

In its Jan. 24 ruling, a three-judge panel on the 10th Circuit directed EPA to revoke three small refiner exemptions it granted to HollyFrontier and CVR Energy for the 2016 and 2017 RFS compliance years, finding that the agency exceeded its authority in approving the waivers because the Clean Air Act prevents it from extending exemptions to any small refineries whose earlier waivers had lapsed.

The court also found that in granting the waivers, EPA exceeded its statutory authority by considering economic hardship "caused by something other than compliance" with the RFS.

While the ruling affects only those refineries within the 10th Circuit's jurisdiction, program observers said EPA would find it difficult not to apply the decision nationally, a move that would all but eliminate the SRE program.

Since 2017, the agency has granted 85 SRE petitions, a sharp increase over the numbers approved in earlier years.

In a call with reporters on Wednesday, biofuel and farm officials voiced frustration with the administration's decision to ask the court for more time to consider whether it will appeal the ruling to the full circuit court.

Kevin Ross, an Iowa corn farmer and board president at the National Corn Growers Association, said farm groups had formed a "united front" on the issue and were ready to move along with the ruling.

"We were very excited to see the way this came back a few weeks ago, but we certainly don't believe that any appeals are necessary in any case as this was a three to zero decision and the likelihood of overturning any of those is very slim," Ross said.

Ross said he felt the EPA should apply the decision nationally "as they are supposed to."

The administration's decision to request an extension was especially confusing given U.S. Agriculture Secretary Sonny Perdue's public comments two week ago that he believes EPA should apply the ruling nationally, they said.

"Just a couple of weeks ago at the Commodity Classic, thousands of us applauded when Secretary Perdue assured farmers that this court case would finally end EPA's demand destruction," Dave Walton, a soybean farmer from Wilton, Iowa, said.

"Make no mistake, this decision could derail rural recovery at a time when we are already struggling to maintain a positive profit margin."

Should the administration choose to appeal the ruling, most in the biofuel and legal communities believe it unlikely the full 10th Circuit will overturn the panel's finding. But Cooper said the time it would take to complete the process would add to the already-considerable uncertainty in ethanol and farm markets.

"We know that we would have 14 days from the date of a rehearing request being filed to respond to that request, and then following that it could take the court a matter of weeks or even months to decide whether they want to grant a rehearing and rehear the case," Cooper said. "So, it could be summer before we would know if the court would want to rehear the case, or denies the request from EPA and the refiners."

Further, it is unclear how EPA will treat the nearly two dozen pending petitions for SREs for the 2019 compliance year should it file an appeal.

"There are currently 23 pending petitions for the exemptions, and we believe thoroughly that this ruling prevents the EPA from granting those petitions," Erik Huschitt, CEO and general manager of Badger State Ethanol, said.

Cooper said the agency could elect to deny all of the petitions based on the court's January ruling, but lacks the legal authority to grant any before the final outcome of the court's ruling has been decided.

"If they are leaning toward approval of any of those petitions, it is our strongly held position that they need to delay any action until that all plays out," he said.

The biofuel producers and farmers on the call said a decision by the administration to accept the court's ruling would be an opportunity for President Donald Trump to generate some election-year good will in the politically important Midwest.

"On the countryside we talk about this issue a fair amount, and the support for Trump comes and goes based on issues and how they affect agriculture," Walton said. "President Trump vowed to protect the RFS and now he needs to stand up."

 

--Reporting by Patrick Newkumet, pnewkumet@opisnet.com;

--Editing by Jeffrey Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service

Ethanol Producers Ask Whether It's Time for Growth Energy, RFA To Merge

February 13, 2020

After suffering through nearly two years of tough market conditions and efforts in Washington to weaken the Renewable Fuel Standard (RFS), a number of ethanol producers are asking whether it's finally time for the industry's two largest trade groups -- Growth Energy and the Renewable Fuels Association (RFA) -- to combine operations.

Such a consolidation, the producers said, would save money at a time when the industry is increasingly strapped for cash and could strengthen ethanol's clout in Washington.

Multiple sources interviewed by OPIS said talks have ramped up in recent months over the possibility of trying to bring the two groups together to cut down on membership dues and other costs.

"I think there is a fair amount of interest among the different industry associations and a number of the different plant members that are in different associations," said Mark Marquis, CEO of producer Marquis Energy and Growth Energy board member. "I think there is a fair amount of appetite for, 'Could we be more effective, have a more united voice, a stronger voice? Could we be more cost effective if we could find a way to operate more closely as an industry?'

"I think there is an appetite out there for that."

RFA was founded in 1981, and Growth Energy was established in 2008. While discussions about the possibility of merging the two organizations have periodically cropped up over the past 10 years, they have not advanced.

Industry sources, however, said that while such conversations have resumed, they could not confirm whether representatives from Growth Energy or RFA were involved. One producer source said the topic has not been discussed with members of either group in any official board meetings or conference calls.

Two sources, who asked not to be identified, confirmed that a group of 20 to 30 producers met last summer in Chicago to talk about whether they should press the two groups to merge. A straw poll taken at the meeting showed the industry was split over a combination, with half favoring it and the other half supporting the current arrangement.

Growth and RFA believe the current arrangement is working and that the two groups have repeatedly and effectively joined forces on key industry initiatives.

"RFA continues to closely collaborate and cooperate with all other trade associations and renewable fuel advocates, and we believe the industry is more unified and better organized today than ever before," an RFA spokesman told OPIS. "Our recent policy successes -- from securing year-round E15 approval to ensuring SREs [small refinery exemptions] are prospectively reallocated -- simply would not have been possible without complete solidarity and a consistent message.

"We remain committed to ensuring there is no confusion about the ethanol industry's goals and priorities, and we continually strive to improve communication and coordination with all partners and allied organizations."

Growth echoed RFA's position. "As we saw last fall, we are a force to be reckoned with when we work together, and Growth Energy remains committed to working alongside all of our allies to advance the industry's priorities," a spokeswoman said.

Marquis said it's still unclear how a consolidation -- should it happen at all -- would occur. But he said there have been talks about the possibility for at least a year.

"I think it is possible in 2020 to have some realities of unification across the ethanol producer industry," he said. "I don't know how I would handicap it as far as odds, but I think there is reason to be optimistic that 2020 could be a year of getting stronger and more efficient as an industry."

While a consolidation could provide cost savings, a number of producers said they believe a combination could give the industry a greater voice in Washington, particularly at a time when the Trump administration has adopted policies -- chiefly, a sharp increase in the number of EPA-approved SREs from the Renewable Fuel Standard (RFS) -- that has caused values for Renewable Identification Number (RIN) credits to plunge. That issue, however, could go away this year depending on how EPA decides to respond to last month's ruling from the 10th U.S. Circuit Court of Appeals that has thrown into doubt the agency's legal authority to grant the waivers.

"I think we as an industry saw last September when we were working with the White House on some of the RFS items that when we were able to align all of the ethanol advocacy groups as well as corn growers and some of the other organizations that fell in line to support agriculture, that's when we got the best support of our senators," one producer executive said. "The more alignment we can have allows all of our champions to do their jobs better, and I think it is better for all of us."

Another producer said the conversations among members aimed at trying to accomplish a merger are not new but could continue to intensify as the industry faces new obstacles from Washington or further financial woes.

"We are always interested in seeing unity in the industry," the producer said.

"Both organizations have a lot more in common than not, so if it can be determined that there would be greater strength and more impact from coming together and working together closely, that would serve our industry very, very well."

The push by some in the industry toward a consolidation of Growth and RFA comes as producers endured two of their worst years in 2018 and 2019.

A representative Iowa ethanol plant saw average losses of about $1.6 million in 2019, following estimated losses around $2.2 million the year before as higher production and the continued loss of China as an export market dragged down prices, University of Illinois economist Scott Irwin said this month. Multiple plants were either forced to cut production rates or shut down.

Should the industry margins remain under pressure or should it continue to confront new challenges to the RFS, some producers appear to be convinced that having a single voice in Washington may be the best course.

"I think there is a need to be more efficient and to not have two messages out there that are confusing," Marquis said. "We don't want to get too many competing or confusing messages to keep us from being effective in the marketplace and in the political world."

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com

--Reporting by Michael Schneider, mschneider@opisnet.com

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service


Ethanol Groups to Meet With EPA Next Week to Discuss SREs' Future: Sources

February 12, 2020

HOUSTON -- Ethanol industry officials are scheduled to meet next week with EPA on how the agency may respond to last month's 10th U.S. Circuit Court of Appeals ruling revoking three small refinery exemptions (SREs) and are expected to press the agency to apply the decision nationally, according to sources attending the National Ethanol Conference here.

Much of the discussion on the sidelines of the conference focused on how the U.S. Environmental Protection Agency will administer the SRE program in the wake of the court's decision. At next week's meeting -- which multiple sources described as a "negotiation" -- the industry groups are expected to ask EPA to apply the ruling on a national scale, a step that could effectively end the SRE program.

The groups involved in the lawsuit that led to the court's ruling include the Renewable Fuels Association (RFA), the American Coalition for Ethanol, the National Corn Growers Association and the National Farmers Union.

"Our hope is that the agency sees the light of day on this, to do the right thing and phase out the program that Congress always intended to be short-lived," Matthew Morrison, counsel to the RFA, said in a presentation National Ethanol Conference on Tuesday.

The 10th Circuit's ruling applies to all new exemption decisions within six states covered by the 10th Circuit -- Colorado, Utah, Wyoming, Kansas, Oklahoma and New Mexico, Morrison said. Those states make up about one-third of total small refinery capacity or roughly 650,000 b/d, Morrison said.

But if the ruling were applied nationally by EPA, Morrison said he believes there would be only seven small refineries eligible to receive exemptions. He said those "lucky seven" refineries were those that received exemptions in 2015. While the identities of those refineries have not been made public, multiple sources said they believe five of them have since ceased operations and the other two have had their exemptions lapsed, meaning they would no longer be eligible to receive new exemptions.

If that's the case and if EPA were to apply the court's ruling nationally, it could mean an effective end to the SRE program, sources said.

"I wouldn't even call that the 'dream scenario,' " one source said. "That's what should happen."

Another industry source said the ethanol groups plan to press EPA to require the three refineries -- HollyFrontier's Cheyenne and Woods Cross refineries and CVR's Wynnewood facility -- whose hardship waivers were overturned by the court to make good on the excused blending obligations for 2016 and 2017, mostly likely by acquiring additional Renewable Identification Number credits.

In remarks he made at the conference on Tuesday, Morrison said that applying the ruling nationally would avoid creating an uneven playing field for refiners, be consistent with agency precedent, avoid regulatory complexity and restore stability to the RFS program.

The number of SREs granted by EPA has increased dramatically under the Trump administration. The agency granted 19 of 20 SRE petitions in 2016, 35 of 36 eligible and maintained petitions in 2017, and 31 of 37 eligible and maintained petitions in 2018. There have been 21 petitions for 2019 exemptions filed so far, according to the most recent EPA data.

 

--Reporting by Jordan Godwin, jgodwin@opisnet.com

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service

 


Ethanol Industry Should Push for Low-Carbon Octane Standard: RFA CEO

February 11, 2020

HOUSTON -- The U.S. ethanol industry should push for a Low Carbon Octane Standard to help the industry continue to grow demand for its fuel, Renewable Fuels Association (RFA) President and CEO Geoff Cooper said Tuesday.

In his state-of-the-industry address at the 25th National Ethanol Conference (NEC), Cooper said a new standard focusing on ethanol's octane benefits could provide the growth the industry needs.

"As we write the next chapter of renewable fuels policy, RFA and its allies believe ethanol has a tremendous opportunity to serve as the key ingredient of a future high-octane, low-carbon fuel that delivers significant benefits to American consumers," Cooper said.

He said two key features of the program include establishing a minimum octane standard for gasoline, preferably at the 98 RON level, and a requirement that the octane boost comes from sources or processes that reduce lifecycle greenhouse gas (GHG) emissions from a hydrocarbon baseline.

Cooper said the program would include provisions to remove or repair what he called "problematic regulatory barriers" including ensuring parity in the regulation of volatility for all ethanol blends, improving EPA's fuel certification process and substantially revising and updating EPA emissions modeling tools.

"In addition, the policy would stimulate competition and flexibility by compelling the transition of retail infrastructure to accommodate higher ethanol blends like E25 or E30," Cooper said. "Finally, the program would restore the incentive for automakers to build more flex fuel vehicles and engines optimized for higher blends of ethanol."

Cooper's call for a low-carbon, nationwide octane standard comes after the biofuels industry largely rejected a bill proposed by two U.S. House Republicans in late 2018 that would have required automakers to warranty their vehicles to run on 95 RON octane and ethanol blends of up to 20% starting with the 2023 model year.

In exchange, the proposal would have amended the Renewable Fuel Standard (RFS) program to end the annual conventional ethanol mandate after 2022 and phase out the rest of the program for advanced and cellulosic biofuels and biomass-based diesel after 2032.

The industry was concerned that the proposed octane standard would not allow ethanol blends above 20% to enter the market and that the measure would not bar refiners from turning to other, non-ethanol octane boosters. They also said the proposal would not provide the industry with the same market certainty and growth potential as the RFS.

Cooper told OPIS that he doesn't necessarily view the proposed low-carbon high-octane standard as a replacement for the RFS.

"We aren't looking at a low-carbon octane standard as a replacement for the RFS, we see it as something that could layer very well on top of the RFS or a complimentary renewable fuel standard," Cooper said. "Again, the intent is that the source of octane ought to be clean renewable fuel, and if you have the RFS as sort of a backdrop it helps to ensure that. "

 

Cooper's support for a high octane standard comes after a rocky year for the industry.

Cooper said demand took a hit from the rampant small refinery exemptions (SREs) granted by the Trump administration's Environmental Protection Agency under the Renewable Fuel Standard (RFS).

"We expected that the RFS and burgeoning export markets would continue to drive the incremental demand growth that our industry had become so accustomed to over the past decade," Cooper said. "We planned for growth. You invested in growth. But it simply didn't materialize in 2019."

Cooper said U.S. ethanol ended a six-year streak of growth in 2019, as output dropped 300 million gal in 2019 at 15.8 billion gal.

Overall ethanol exports fell by 13%, or 200 million gal, Cooper said, while imports reached a six-year high on account of 200 million gal of Brazilian ethanol flowing into California ports.

He added that although poor weather contributed to a drop in ethanol output, he mostly attributed the loss to "a disaster of an entirely different sort: policy uncertainty, bureaucratic meddling, and vexing marketplace barriers."

Cooper also criticized "protectionist trade barriers" that he said shut off access to the Chinese market and reduced shipments to Brazil by 32% from 2018.

Despite ongoing issues of trade and domestic uncertainty, Cooper noted President Donald Trump's directive eliminating summertime restrictions made it clear that "we were definitely heading in the right direction as the year came to a close."

He expressed optimism for the industry, citing congressional approval of the U.S.-Mexico-Canada trade agreement, passage of a spending bill that extended key biofuels tax provisions, the announcement of a phase one trade deal with China and a commitment from the administration to invest more in E15 as milestones that would not have been possible without "our industry maintaining its focus and tenacity."

 

--Reporting by Patrick Newkumet, Patrick.newkumet@ihsmarkit.com and Jordan Godwin, Jordan.godwin@ihsmarkit.com;

--Editing by Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service

 


EPA Targeting Dec. 20 Release of Final 2020 Renewable Fuel Volumes

December 3, 2019

DANA POINT, Calif. -- EPA is targeting a Dec. 20 release of its final 2020 Renewable Volume Obligation (RVO) rule, agency officials have told biofuel industry representatives.

The Dec. 20 target would land on the Friday before Christmas and come three weeks after the comment period closed on a supplemental rulemaking the agency released in mid-October. The agency is required under the Renewable Fuel Standard (RFS) statute to release annual renewable fuel blending targets by Nov. 30 of the previous year but has missed that deadline in the past.

"They know that they're already behind schedule so that's a date that they have circled," a biofuel industry source told OPIS at the RNG 2019 Conference here.

"They also know that they have a lot of work to turn around in a three-week period."

Word that EPA could release the number before Christmas comes a day after Frank Machiarrola, senior vice president of policy, economics and regulatory affairs with the American Petroleum Institute (API), offered a "ballpark estimate" that would have the agency issue a final RVO in late December or early January. EPA, he said, will clearly need additional time, but "we're in uncharted territory."

The agency in July proposed an RVO of 20.04 billion gal of renewable fuels to be blended next year, a 120-million-gal increase from this year's 19.92 billion gal. Within that total, EPA left unchanged the volume for conventional biofuel at 15 billion gal, the statutory level, and proposed to increase the advanced biofuel volume to 5.04 billion gal from 4.92 billion gal this year.

The 2020 total includes the already-finalized 2.42-billion-gal RVO for biomass-based diesel (BBD). EPA, which is required to set BBD volumes a year ahead of the others, has proposed to maintain that target for 2021. The cellulosic biofuel target was set at 540 million gal, up from the 2019 target of 420 million gal.

EPA in mid-October requested comment on a plan that would see it redistribute volumes of gasoline and diesel lost to RFS compliance through small-refinery exemptions (SREs) based on a three-year rolling average of relief recommended by the U.S. Department of Energy.

The proposal was widely criticized by the biofuels industry, which argued that it fell short of a commitment it believed it had received from the Trump administration that would prohibit EPA waiving more gallons than it would prospectively reallocate when developing annual RVOs.

--Jordan Godwin, jgodwin@opisnet.com

Copyright, Oil Price Information Service


Biofuels Proponents Urge EPA to Change Supplementary Proposal

October 30, 2019

YPSILANTI, MICH. -- Biofuels industry proponents on Wednesday urged the U.S. Environmental Protection Agency (EPA) to consider changing its proposed supplemental rulemaking for how it will factor in small-refinery exemptions (SREs) in setting annual Renewable Volume Obligations (RVOs) under the Renewable Fuel Standard (RFS).

About 60 biofuels advocates, mostly representing fuel and feedstock producers, testified before EPA here, saying the proposal would cause further harm to their industries.

In its supplemental rulemaking proposal released on Oct. 15, EPA said it would project the volume of gasoline and diesel that would be lost to RFS compliance through SREs based on a three-year rolling average of the relief recommended by the U.S. Department of Energy (DOE), including petitions where DOE had recommended the agency provide partial exemptions.

American Coalition for Ethanol (ACE) CEO Brian Jennings said the prospective calculation methodology "betrays" what was represented to the industry in negotiations with the Trump Administration, calling it a "classic bait-and-switch."

"Refiners should no longer be allowed to drive the RFS into the ditch," Jennings said. "It's time for EPA to finally take back the keys to the program."

Renewable Fuels Association (RFA) President and CEO Geoff Cooper cited a six-fold increase in the reduction of blending requirements in the three-year period from 2016 to 2018 when compared to the three-year period from 2013 to 2015. Cooper added that proving economic hardship under the SREs should be more difficult for small refiners considering the depression of Renewable Identification Number (RIN) credits values.

"Unfortunately, the proposed supplemental rule bases its estimates of gasoline and diesel that will be exempted in 2020 on the historical recommendations for exempted volumes it received from the Department of Energy rather than the actual exemptions it has granted," Cooper said. "The problem with this proposal is that EPA has typically ignored DOE recommendations in deciding SRE petitions."

Growth Energy CEO Emily Skor urged EPA to use the rolling average of actual exempted volumes from the three most recently completed compliance years in the final rule, as she said was promised by the administration.

"As drafted, EPA's plan fails to accurately account for lost gallons and betrays President Trump's promise to rural America," Skor said. "It cuts the fix we were promised in half, if not more, and destroys what may be our last chance to bring back the ethanol plants that have shut down and help ease the burden facing American farmers."

National Biodiesel Board (NBB) Director of Regulatory Affairs Kate Shenk echoed Skor's calls to change the way it considers the exemptions in the final rule, adding that the agency should limit the number of SREs it issues.

National Corn Growers Association (NCGA) Ethanol Action Team member Brian Thalmann said Midwest farmers have been disproportionately harmed by EPA's recent actions around the RFS.

"We're in the thick of harvest and, quite frankly, I would rather be in the field. But the issue we're discussing today is too important to corn farmers like me not to be here," Thalmann said. "I have a simple message -- when it comes the Renewable Fuel Standard, we need EPA to follow the law. As farmers, we follow rules put in place by state and federal agencies, including the EPA. We are simply asking EPA to do the same for us."

Iowa Renewable Fuels Association (IRFA) Executive Director Monte Shaw emphasized what a tremendous loss the 2019 compliance year could be for the ethanol industry. Iowa Secretary of Agriculture Mike Naig also testified, painting a bleak picture of the economic harm done to farmers in his state.

"Ethanol plants have been shut down and hundreds of families have been impacted by those closures," Naig said. "They've been forced to make hard, life-changing decisions because of EPA's failure to uphold President Trump's promises."

About a dozen petroleum industry advocates also testified against the proposals on Wednesday morning.

"The misguided policy to exempt small refinery exemptions punishes the companies already complying with the standard," American Petroleum Institute (API) senior policy advisor Patrick Kelly said. "Reallocating these exemptions distorts the competitive marketplace."

Tim Hogan, Director of Motor Fuels for the American Fuel & Petrochemical Manufacturers (AFPM), said his group opposes reallocation of SRE volumes and said the SREs are a symptom of a larger problem that the RFS mandates are unrealistic.

"Biofuels groups have established a false narrative that biofuel volumes have been lost or unrealized -- this is verifiably false," Hogan said. "Government data shows year-over-year increases in ethanol blend rates."

Fueling American Jobs Coalition representative Alex Gazmararian said EPA's proposal of forecasting future SREs is "arbitrary and capricious," calling the proposal "unlawful."

"The supplemental proposal is deeply flawed because it's based on the false premise that SREs destroy ethanol demand," Gazmararian said. "Independent analysis and empirical data alike prove these exemptions have no impact on ethanol production, while keeping RFS compliance costs in check."

--Jordan Godwin, jgodwin@opisnet.com

Copyright, Oil Price Information Service


EPA Adm. Wheeler Says RFS Ethanol Volumes Will Net 15 Billion Gal

October 8, 2019

Future conventional ethanol volumes under the Renewable Fuel Standard (RFS) will "net out at" 15 billion gallons as EPA begins to prospectively account for small-refinery exemptions (SREs), agency Administrator Andrew Wheeler said on Tuesday.

Wheeler's comments, which came during an interview on WZFG radio in North Dakota, were made a day after President Donald Trump said conventional ethanol volumes next year will be "close to 16 billion" gallons.

Trump originally misspoke, saying the volumes will be close to 16 billion barrels, rather than gallons, but he was quickly corrected by Iowa Lt. Gov. Adam Gregg at a White House ceremony for the U.S.-Japan trade agreement.

"That's a lot of gallons," Trump said. "So I think they - so they should like me out in Iowa and all of the different places, huh?"

"Very appreciative of your actions, sir," Gregg said, to which Trump replied, "I think so."

Trump was touting his administration's compromise proposal, released Friday, on how EPA will handle RFS obligated volumes lost to SREs.

In an outline of the plan released Friday, EPA said it would release a supplementary proposal to begin accounting for SREs on a three-year rolling average. The plan was hailed by most biofuels advocates and industry groups as a win, but uncertainty around the specifics of the proposal remain.

Asked during the radio interview whether EPA sides with refiners over farmers on the RFS, Wheeler said the Obama administration's policy toward SREs was successfully challenged in court by small refiners. He added that under the Trump administration, the volumes waived by SRE dropped to 1.4 billion gal in 2018 from 1.7 billion gal in 2017.

"Going forward, we're going to estimate how many small-refinery exemptions we expect to grant next year and increase the number for 2020 by that amount," Wheeler said. "So, at the end of the day, we will net out at the 15 billion gallons that's in the Clean Air Act for the ethanol program."

In its Friday press release, the agency said, "EPA will seek comment on actions to ensure that more than 15 billion gallons of conventional ethanol be blended into the nation's fuel supply beginning in 2020."

Whether the total will be "net" 15 billion gallons as Wheeler said Tuesday, "more than 15 billion gallons" as EPA said Friday or "close to 16 billion galls" as Trump said Monday remains unclear.

The proposal has had a bearish reaction on ethanol-related D6 Renewable Identification Number (RIN) credit values, which have tumbled nearly 30% from Friday's peaks of 27cts/RIN to as low as 19.5cts/RIN on Monday.

"Going forward, it should not impact or hurt the corn farmers," Wheeler said.

"We'll still have some small-refinery exemptions, but it should not negatively impact the corn farmers or the ethanol industry, and we'll end up at the 15-billion-gallon level."

Wheeler also highlighted the warm reception the proposal received by most in the ethanol industry.

"I think people are very pleased with the compromise," Wheeler said. "The small refineries are pleased that they will still get that relief if they need it, and the ethanol industry across the board has been very pleased and has spoken in favor of it to make sure that we net out the 15 billion gallons."

--Jordan Godwin, jgodwin@opisnet.com

Copyright, Oil Price Information Service


As Ethanol Margins Return, So Could Production: Sources

October 1, 2019

With ethanol prices rallying for much of the last week, values touched levels not seen in more than two years, boosting margins to their highest levels in at least six months.

But the question many in the market are now asking is, "How long can the higher prices last?"

"We're about to find out in the next two weeks," one ethanol trader said. "We'll see how disciplined the industry can be."

The OPIS Chicago Argo ethanol assessment on Monday jumped to $1.64/gal, up nearly 25cts, or 18%, over the last week of September. The OPIS September average of $1.3909/gal was up from $1.3640/gal in August and $1.2778/gal in September 2018, closing out the third quarter at an average of $1.4162/gal, the highest since Q2 2018.

That boost sent margins at a representative Iowa dry-mill ethanol plant to 18.2cts/gal on Sept. 27, the highest level since late March, according to the most recent weekly data released by Iowa State University's Center for Agricultural and Rural Development (CARD). The margin, which frequently dipped into negative territory this summer, averaged just 3.9cts/gal in Q3, down from 4.2cts/gal in Q2 and 19.52cts/gal in Q3 2018.

The irony for many ethanol producers, however, is that margins have begun to rebound only after the industry finally began to make material production cuts.

Ethanol prices rallied in the back half of last week after the U.S. Energy Information Administration (EIA) on Wednesday released its weekly data that showed production had fallen to a three-year low in the week ended Sept. 20.

EIA estimated production that week at just 943,000 b/d, down 60,000 b/d from the previous week to the lowest level since the week that ended April 29, 2016, when output was 923,000 b/d.

The Q3 average production rate (with one reporting week remaining) was at 1.026 million b/d, down 2.5% from the Q2 average of 1.052 million b/d and nearly 3% from 1.058 million b/d in Q3 2018.

Roughly a dozen ethanol plants with annual production capacity approaching 800 million gal/yr, or more than 52,000 b/d, have been shut. Many in the industry have blamed the closures on the poor margin environment and the wave of small-refinery exemptions (SREs) granted by the Trump administration.

One of the most recent plants to go offline, Siouxland Energy Cooperative, two weeks ago said it was idling production at its 70-million-gal/yr plant in Sioux Center, Iowa, and blamed the SREs for undermining the Renewable Fuel Standard and reducing ethanol demand by "4 billion gallons."

Further, an unknown number of plants are producing well below nameplate capacity, with many producing at minimum levels to meet their contracted volumes, sources said.

"A lot of people had to make a lot of tough decisions over the past few months," one producer source said. "But once margins are back, a lot of that production will come right back with it."

Several sources estimated Tuesday that plants in "warm shutdown mode," rather than a full-blown idle, could likely come back online in less than two weeks.

Those units that have fully shut, however, would likely need at least a month to come back online, and those owners of those plants would likely want to see more proof that the higher margins will be sustained for a longer period before they decide to resume production, the producer source said.

"If this rally is for real and prices are really back, you'll see plants ramp up again, maybe even as soon as by the end of the month," the source said.

"Won't take long."

--Jordan Godwin, jgodwin@opisnet.com

Copyright, Oil Price Information Service

 


EPA Official Says Agency 'Anticipates' Releasing 2020 RVO by Nov. 30

September 24, 2019

CHICAGO -- EPA "anticipates" that it will release its final 2020 Renewable Volume Obligation (RVO) by the statutory Nov. 30 deadline, Dallas Burkholder with the agency's Office of Transportation and Air Quality said Tuesday at the OPIS 11th annual RFS2, RINs and Biodiesel forum here.

Burkholder's comment comes as the White House continues to work toward completing package of proposals designed to placate a biofuels industry angry over EPA's increased approval of small refinery exemptions (SREs) under the Renewable Fuel Standard (RFS).

Sources familiar with the White House talks believe the administration will look to significantly boost next year's renewable fuel blending targets and could seek to add still more volume by restoring some of the gallons waived through prior-year SREs.

Burkholder said that while EPA is still awaiting word from the administration, it does not have a set, "go, no-go" date by which it must receive a proposal in time to incorporate it into a final RVO.

The agency, he said, has a range of "flexibilities" that would allow it to incorporate the proposal and still meet the Nov. 30 deadline, he said.

--Jeff Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service