Prices for renewable fuel credits cracked the $1 barrier Friday and RBOB prices settled sharply higher as the war of words over who is to blame for skyrocketing credits prices also escalated.
The price for the traded Renewable Identification Numbers for corn-based ethanol settled Friday at $1.02 for 2013 RINs after hitting a high mark of $1.10/RIN. Prices for the credits, which are used to show compliance with the federally mandated Renewable Fuel Standard, have jumped from a trading range of about 2-3 cents/RIN at the start of the year.
The sharp jump in RIN prices was cited as a factor Friday as NYMEX April RBOB settled up 8.02 cents at $3.2035/gal -- the highest value for the April contract since February 26.
Some analysts speculated that rising RIN prices could begin to weigh on gasoline imports into the Atlantic Coast.
"This isn't supposed to happen -- the secondary market isn't supposed to be exploding like it is," said Phil Flynn, analyst at Price Futures Group. "The market was kind of ignoring [the cost of RINs] but now that it's out in front of everybody, it is really influencing prices today."
Rising RIN prices could also boost gasoline exports, one refiner said.
RINs have shown "an incredible spike" in a "truly artificial commodity," noted Phil Rinaldi, CEO of Philadelphia Energy Solutions, on the sidelines of the IHS CERAWeek conference this week in Houston.
"I think there's a lot of speculative pressure," he said. He likened it to a run on grocery stores ahead of a storm and "the shelves are bare."
PES owns a 330,000 b/d refinery in Philadelphia.
"I wouldn't be surprised to start seeing gasoline being exported from this country," Rinaldi said, as refiners seek to avoid RINs.
There has been talk that refiners may cut utilization rates to curb exposure to high RINs, but that won't happen to the Philadelphia refining complex, Rinaldi said.
"I'll give up utilization with my cold, dead hands," he said.
The higher RIN prices are already boosting the price of gasoline at retail, an executive at Marathon Petroleum testified Friday at a hearing held by the Environmental Protection Agency.
RIN costs have added 10 cents to a gallon of gasoline at retail, David Whikehart, director of product supply and optimization, testified at the hearing in Michigan on the agency's proposed 2013 volumes under the Renewable Fuel Standard.
Analysts and oil industry representatives say the rising prices were the result of a perceived lack of RINs due to the impending "blend wall." The "blend wall" is a description of a time when the maximum amount of the US gasoline pool has been blended with 10% ethanol. Refiners will then be under pressure to run higher ethanol blends, trade RINs or get Congress to alter the Renewable Fuel Standard.
Last year, the EPA approved plans for retail stations to offer gasoline blended with 15% ethanol, known as E15. Stations may also offer E85, but only special "flex fuel" vehicles can run on that blend.
Groups representing refiners and the oil industry have said that rising RIN prices is another reason for Congress to repeal the RFS, which mandates the blending of a rising volume of renewable fuels into the transportation fuel supply each year. Those groups have made repeal of the RFS a major policy goal this year.
But the head of an ethanol trade group said Friday the "self-inflicted blend wall" has been erected by industry groups that have worked to thwart the wide acceptance of E15 in the marketplace.
"The truth is, the E10 'blend wall' was erected by the oil companies themselves, and it is little more than a convenient excuse for their refusal to move to higher-level ethanol blends," Bob Dinneen, president of the Renewable Fuels Association, said in a blog on his groups' website.
Dinneen argued that the ability to bank and rollover RINs was meant to protect the industry against shortfalls in renewable fuels and allow them to meet their blending obligations under the RFS. It was not intended, Dinneen argued, to allow refiners to avoid having to blend physical volumes of ethanol.
"Viable options exist for breaking through the E10 'blend wall' and meeting RFS requirements with physical volumes," Dinneen wrote. "E15 and E85 blends are legally approved and offer a workable pathway for meeting increased RFS volumetric requirements. Only slight increases in E15 consumption would be needed in 2013 to satisfy this year's RFS obligations with physical gallons rather than banked RINs. If E15 accounted for just 1% of total gasoline sales in 2013, the RFS requirement for renewable fuel could be met strictly with physical gallons of ethanol."
The lack of E15 in the marketplace is not the result of oil company resistance, but concerns by marketers over liability issues and the inability of existing pumps, tanks and other infrastructure to handle the fuel, said Dan Gilligan, president of the Petroleum Marketers Association of America.
"E15 is a nonstarter for most retailers because their infrastructure is not compatible with it," Gilligan said. "There is still some risk involved when using equipment that wasn't certified for anything over E10."
Gilligan rejected the argument that oil companies have artificially created the blend wall by resisting the expansion of E15.
"Refiners cannot make retailers sell a product throughout their system that essentially violates fire codes," Gilligan said. "E15 may someday be the predominant fuel in our country, but it's a long way from that right now. And it's not the oil companies that have stood in the way, but the regulatory barriers. Retailers just need a lot more legal and regulatory comfort with E15 before they'll move forward."
