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US biofuel makers say EPA deal does not fully account for refinery waivers

Highlights

EPA proposes boosting 2020 mandate by 770 million RINs

Figure relies on DOE recommendation, not waived volumes

Platts Analytics sees US ethanol demand growing less than 1%

Washington — The fine print of the Trump administration's proposal to expand next year's biofuel mandate to account for small refinery waivers landed with a thud in the ethanol industry, meaning no end in sight for the policy debate and supply/demand uncertainty for both biofuel makers and oil refiners.

Biofuel groups said Wednesday that the proposal would not ensure that 15 billion gallons of conventional ethanol gets blended into the US fuel supply next year, as the Environmental Protection Agency had promised when it struck a deal earlier this month to ease farm-state anger over the small refinery waivers.

EPA proposed Tuesday increasing the 2020 biofuel blending obligations of larger refiners by 770 million Renewable Identification Numbers to account for the average annual waivers granted over the past three years.

RINs are tradable credits EPA issues to track production and use of alternative transportation fuels. For corn-based ethanol, one gallon of ethanol yields one RIN.

But EPA based its projection for next year's waivers on the Department of Energy's recommendations for 2016-18 small refinery waivers, which were lower than the exemptions EPA ultimately granted.

"In some instances, the EPA granted full exemptions, where DOE recommended 50% relief," said Corey Lavinsky, S&P Global Platts Analytics' adviser for global biofuels analytics.

Had EPA used its actual waivers for the projections, it would have had to increase the 2020 biofuel mandate by 1.35 million RINs.

BIOFUEL DEMAND OUTLOOK

Platts Analytics estimates that reallocating 770 million RINs prior to the 2020 compliance year would prevent the loss of about 28,000 b/d of ethanol demand and 15,000 b/d of biomass-based diesel demand.

US ethanol demand is now forecast at 942,000 b/d in 2020, up less than 1% from 936,000 b/d this year, with biodiesel demand at 173,000 b/d in 2020, up 6% from 163,000 b/d this year, Platts Analytics said.

"The increased demand will put upside pressure on the prices of ethanol, biomass-based diesel and RINs," Lavinsky said.

S&P Global Platts assessed D6 ethanol RINs at 16.25 cents/RIN Wednesday, down 0.5 cent from Tuesday and down 7.75 cents since EPA announced the biofuel deal October 4.

WEAKER RINs

ClearView Energy Partners analyst Neelesh Nerurkar said in a note that the response from the biofuel industry indicates that the policy and court battles over the Renewable Fuel Standard will continue.

He said the slip in RINs prices since the announcement of a deal -- despite it increasing refiners' overall blending obligation -- will likely further disappoint the biofuel side.

"We think the slide may in part be attributable to how the administration did not propose increasing [required volume obligations] on top of future reallocation as media reports prior to October 4 had suggested it might consider," Nerurkar said.

EPA will hold a hearing on the proposal October 30, followed by 30 days of public comment. The time line makes it unlikely the agency will release the final 2020-21 biofuel blending volumes by Congress' November 30 deadline.

-- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com

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