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White House postpones talks on US biofuel mandate: refinery source

Highlights

The White House has postponed a fourth round of talks between refineryand biofuel interests about reforming the US biofuel mandate, accordingto a refinery source close to the negotiations.

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The meeting set for Thursday may have been overtaken by an announcementon President Donald Trump's proposed steel and aluminum tariffs.

It would have been Trump's fourth meeting on proposals to reform theRenewable Fuel Standard and the third in just two weeks.

Renewable Identification Number prices have plunged 27% since February22, the day before reports emerged that the White House had invitedsenators on both sides of the debate for a summit last week.

S&P Global Platts assessed D6 ethanol RINs for 2018 compliance at 48.25cents/RIN Wednesday, up 0.25 cent from Tuesday but down 18 cents sinceFebruary 22.

Weaker RIN prices reflect expectations that the Trump administration orCongress will ease the biofuel mandate and refiners will need fewer ofthe credits to comply.

But Scott Irwin, an RFS expert and University of Illinois agriculturaleconomist, said RIN traders have sent prices tumbling in the past whenchanges to the RFS never materialized.

"The RINs market has made this exact same mistake several times in thelast few years," he said.

After the last White House meeting on March 1, senators on both sides ofthe issue said they would keep working toward a solution that lowers RFScompliance costs for refiners while expanding markets for ethanol. Butethanol supporters, including key Senator Chuck Grassley(Republican-Iowa), said they would not accept a bargain that tradeshigher ethanol blends for a price cap on RINs.

Grassley said a federal waiver allowing sales of E15, or gasoline blendedwith 15% ethanol, could alone lower high RINs prices once ethanol demandcrosses 15 billion gal/year.

Neelesh Nerurkar, an analyst with ClearView Energy Partners, said Trump'sreported endorsement of a RIN price cap and an idea to limit it to twoyears could improve its prospects, but economic and legal challengesremain.

ClearView estimated that a 10-cent cap for D6 ethanol RINs implementedbefore prices started rising in 2013 would have turned a 22-cent/galincentive to blend ethanol into a 30-cent/gal disincentive. "To keep theblending incentive positive, we estimate that a cap would have needed tohave been more than 42 cents/gal," Nerurkar said in a note to clients.

"Irrespective of whether White House meetings end in a deal, the meetingsthemselves may help reduce compliance costs," he said. "Our review ofnine instances of RFS reform news or meetings during last year found thatthey brought RIN prices down by an average of 6% over two days."

A January bankruptcy filing by Philadelphia Energy Solutions ratcheted upthe debate surrounding RFS reform. The refiner asked the bankruptcy courtto waive its debt of RINs, the tradable credits issued by EPA to trackproduction and use of alternative transportation fuels. For corn-basedethanol, one gallon of ethanol yields one RIN.

The RFS requires refiners and importers to blend 19.29 billion gallons ofrenewable fuel into the US transportation fuel supply in 2018, includingan implied 15 billion gallons of conventional ethanol. The conventionallevel is unchanged from 2017. -- Meghan Gordon, meghan.gordon@spglobal.com

-- Edited by Kevin Saville, newsdesk@spglobal.com