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Valero RIN costs may rise to as high as $850 mil in 2016: company

Houston — Valero expects its RIN costs to rise to $750 million-$850 million in 2016, and called for a change of who is required to comply with the federal Renewable Fuel Standard, the company said Tuesday.

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"Costs will likely end up in the upper end of that range based on recent RINs prices," said John Locke, vice president of investor relations, said during the company's second-quarter earnings call. The company did not provide its total RIN costs for previous years.

Ethanol RINs for 2016 rose 1.5 cents to 96.5 cents/RIN Tuesday. Advanced biofuel RINs for 2016 rose 2 cents, and biodiesel RINs for 2016 rose 2.5 cents.

RIN prices have been steadily rising for several weeks. Worries about a potential lack of available RINs in 2017 were stoked by a report released in late June by Goldman Sachs that estimated that the pool of excess "carryover" RINs that provides a cushion in the marketplace will drop by 50% by the end of 2017 due to higher blending mandates.

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Valero would like to see the cost of complying with the RFS fall on rack sellers. The company filed a petition in June with the US Environmental Protection Agency, which administers the RFS, to shift the responsibility, and thus the cost of RINs. Obligated parties, currently fuel producers and importers, are required to comply by buying RINs or blending in biofuels.

This not the first time the San Antonio-based company has sought to change the definition of an obligated party under the RFS to shift compliance costs. Valero filed a petition with EPA in February to do that, and the company was among a group of independent refiners that sued the agency in the US Court of Appeals for the District of Columbia during the same month over the issue.

The cost of RINs "puts an expense on the merchant refiner that he shouldn't be bearing today and creates an unlevel playing field in the marketplace," Valero CEO Joseph Gorder said.

Refiners that do not have blending capacity can neither separate RINs from purchased biofuels to demonstrate compliance with the RFS nor sell them in the marketplace to recover some of the costs.

"The obvious operating strategy is to find ways to blend more," Gorder said when asked what the company would do if the petition to the EPA fails. "Expansion of our wholesale marketing business is something that we've got a key eye on."

He went on to mention export markets as a means of alleviating the burden of RINs costs.

"The RFS isn't [accomplishing] what it was intended to do, which was to increase the amount of biofuels blended, and we believe that's caused by this structural problem," he said.

--Wes Swift, wesley.swift@spglobal.com

--Josh Pedrick, joshua.pedrick@spglobal.com

--Edited by Derek Sands, derek.sands@spglobal.com