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US biofuel mandate critics hope refinery bankruptcy adds momentum to reform debate

Washington (Platts)--22 Jan 2018 453 pm EST/2153 GMT


Oil refiners and lawmakers critical of the US biofuel mandate were hopeful Monday that a Northeast refinery's bankruptcy filing would add new urgency to efforts to reform the policy.

Philadelphia Energy Solutions told employees Sunday that it was filing for bankruptcy so that it could restructure debt and keep operating. It blamed the biofuel mandate and mounting costs from the program's Renewable Identification Numbers for its financial woes.

It is not yet clear if the bankruptcy court will allow it to retire its existing RINs debt. The Environmental Protection Agency did not respond to a request for comment on the issue.

RINs prices did not react sharply to the bankruptcy filing.

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S&P Global Platts assessed D6 ethanol RINs for 2018 compliance at 65.25 cents Monday, down 1.5 cents/RIN from Friday. D4 biodiesel RINs were assessed at 77.25 cents Monday, down 0.25 cent/RIN from Friday.

While no clear path has emerged to reform the Renewable Fuel Standard, its critics say the optics of the refinery bankruptcy--in a blue collar state that was critical to President Donald Trump's election--could advance the debate in their favor.

"I think this is really catching the White House and the administration off guard," said Joe McMonigle, an oil analyst for Hedgeye Potomac Research and former Department of Energy chief of staff during the George W. Bush administration. "Yes, there were signs that this could happen, but I don't think anyone thought it could happen so quickly."


GETTING TRUMP INVOLVED


Senator Pat Toomey, Republican-Pennsylvania, said Monday the biofuel policy was "the primary cause for this bankruptcy filing, and it must be fixed."

"I've had extensive conversations with PES management, senior EPA officials, my Senate colleagues and directly with President Trump in an effort to resolve this situation," Toomey said in a statement.

Trump became involved in the debate last fall after Senator Ted Cruz, Republican-Texas, urged him to invite both sides of the debate to the White House. The parties left with instructions to reach a compromise, but no progress has been made, sources said.

Representative Bob Brady, Democrat-Pennsylvania, whose district includes the refinery, said "out-of-control costs" of RINs were threatening the area's energy sector and living-wage jobs.

"I will continue to work with the unions, the company and my colleagues to convince the Trump administration to bring sanity to the Renewable Fuel Standard," he said in a statement.

Geoff Moody, vice president for government relations of American Fuel and Petrochemical Manufacturers, said the trade group for refiners is looking for short-term solutions to reforming the RFS, such as getting more RINs into the market or capping their price. He sees promise in Cruz' discussions with the White House.

"There are conversations now that are happening with various sides that haven't happened before," Moody said. "So we're optimistic that there's interest on all sides to get to some kind of solution that works for everybody involved."


'ANTIQUATED TECHNOLOGY'


Matt Lucey, president of fellow Northeast refiner PBF Energy, called PES "the canary in the RINs coal mine."

"Congress' intent for the Energy Independence and Security Act was to become more energy sufficient, not shut down domestic refineries," Lucey said.

"Right now, we have a $17 billion RIN market that only serves to subsidize foreign biodiesel, integrated oil companies, large retailers and speculators at the expense of merchant American refiners and the American consumer."

But Bob Dinneen, president and CEO of the Renewable Fuels Association, an ethanol trade group, said PES' financial woes had little to do with the biofuel policy.

"Wall Street analysts, academic researchers, EPA officials, and even some other oil refiners have said repeatedly that RINs don't negatively affect refining margins," Dinneen said. "PES is the oldest refinery in the country with antiquated technology that is captive to the higher-priced Brent crude index.

"Like other refiners, PES could have made investments in blending more renewable fuels. It chose a different course, slavishly pursuing a change in the law that fit its flawed business model."

-- Meghan Gordon, meghan.gordon@spglobal.com
-- Edited by Valarie Jackson, newsdesk@spglobal.com



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