Stakeholders try to determine impact on RINs of proposed PES-US EPA pact

Houston (Platts)--13 Mar 2018 648 pm EDT/2248 GMT

Supporters and critics of the US' biofuels policy spent Tuesday trying to sort out just what a proposed agreement between an East Coast refiner and the US Environmental Protection Agency concerning the former's obligations under federal blending mandates means for the future of the renewable fuels credits market.

The proposed agreement would allow Philadelphia Energy Solutions to use its existing stockpile of Renewable Identification Number credits to satisfy its entire obligation under the Renewable Fuel Standard. The agreement, if approved, would save the refiner hundreds of millions of dollars.

US Senator Chuck Grassley, Republican-Iowa, and a top supporter of the nation's biofuels industry, questioned whether the blending mandate and other refiners were getting shorted in the agreement.

"How are the RIN obligations being treated compared to the other obligations of PES?" he said. "Does this set an unfair precedent for other refiners that continue to act in good faith to comply with the law?"

Prices for Renewable Identification Numbers dropped to the lowest level in nearly a year Tuesday, a day after the proposed agreement was published. S&P Global Platts assessed D6 ethanol RINs for 2018 compliance at 38.5 cents/RIN Tuesday, the lowest level for a current-year ethanol RIN since Platts assessed them at the same level on March 17, 2017. Platts assessed 2018 D6 RINs as 40 cents on Monday.

However, market participants did not expect too much fallout in the near term from the proposed settlement.

"It's really no impact on markets other than if you try and read into it that EPA is really going out of its way to help refiners," said one source familiar with RINs markets.

"But a one-off $250 million adjustment to the 'RIN bank' by not making PES buy them doesn't really change much when you are talking about 15 billion in annual [RINs] demand requirements," the source said.

The source added that even if it is unlikely that many refiners would begin declaring bankruptcy, the proposed settlement could encourage some stronger negotiating.

"Well, you will get threats," the source said.

Among the worries for biofuels supporters are whether the agreement would set a precedent for refiners and fossil fuel importers to avoid blending requirements.

A consultant focused on the US transportation fuel industry agreed that could be the case.

"You will see a lot more people asking for that," Michael Leister of Stillwater Associates told the American Fuel & Petrochemical Manufacturers annual conference in New Orleans. "My guess is that the current administration really doesn't want see a large refinery with a lot of employees go out of business in their first term."

Leister said he expects the administration will be listening to other appeals and trying to figure out how real those claims are and see what they are going to do with them.

PES filed for bankruptcy in January, citing RIN costs as a major cause. On Tuesday, PES CEO Greg Gatta said the agreement "alleviates a portion of the company's current RINs burden" and puts it on "a stable path towards emergence and future success."

"If it were not for the settlement, we would face a real prospect of closure, laying off 1,100 skilled workers and damaging the energy supply and security of the Northeast United States," he said in a statement. Renewable fuel supporters roundly criticized the decision late Monday. Bob Dinneen, CEO of the Renewable Fuels Association, the US ethanol industry's trade group, said the proposed settlement rewarded "bombast behavior and it sets an extraordinarily bad precedent."

The EPA issues RINs to track renewable fuel usage throughout the supply chain. Refiners and importers -- called obligated parties -- use them to show the EPA that they have fulfilled their mandated government use of renewable fuels. If the obligated party has not used enough physical product, it can buy RINs to satisfy the quota.

The Department of Justice will publish a notice of the proposed settlement in the Federal Register and solicit public comment for 10 days. After the comment period closes, the government will "evaluate any comments received, determine whether any comments disclose facts or considerations that indicate that the proposed settlement is inappropriate, inadequate or improper, and advise the court whether the United States requests that the settlement agreement be entered," Acting Assistant Attorney General Jeffrey Wood said in the Monday court filing.

--Wes Swift,

--Josh Pedrick,

--Janet McGurty,

--Meghan Gordon,

--Edited by Keiron Greenhalgh,

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