Oil Industry Infighting Heats up as EPA Weighs Biofuels Rule Change

Posted by Eric Haun

Oil companies showed deepening divides on the future of the U.S.
biofuels program in solicited comments from the Environmental
Protection Agency (EPA) over a plan sought by some refiners to
shift the program's financial burden to retailers and blenders.

All sides are pushing hard, seizing the opportunity to test
President Donald Trump's commitment to the program. Trump has
supported the program, but top figures in his administration have
criticized it.

Refiners, integrated oil companies, fuel retailers and biofuels
manufacturers flooded the EPA with comments on its plan to deny
requests from refiners to tweak the U.S. Renewable Fuel Standard
(RFS) by pushing the compliance burden further downstream.

Within the oil industry, the fight pits Valero Energy Corp and
billionaire Carl Icahn against refiners like Marathon Petroleum
Corp. Biofuels advocates are worried about losing progress into
the U.S. fuel stream since lawmakers established the RFS program
in 2005 under then President George W. Bush.

In November, the Obama administration EPA said it was prepared to
deny requests from oil refiners to shift compliance obligations,
but opened that decision to public comments, due on Wednesday.

Some, such as the American Petroleum Institute, have labeled the
system broken and urged dramatic overhaul. U.S. Independent
refiners such as Phillips 66 say the system is financially
burdensome and targets the wrong group.

The biofuel industry and fuel retailers have asked the EPA to
keep the program intact, saying it has achieved its goals of
reducing consumption of fossil fuels and creating jobs.

"We believe the current structure of the RFS has generally worked
to drive expanded production and use of renewable fuels in the
U.S. marketplace," Bob Dinneen, president of the Renewable Fuels
Association said in a letter to the EPA.

The final decision rests with an agency under the oversight of
Scott Pruitt, former Oklahoma Attorney General and critic of the
RFS who has pledged to scrub unnecessary regulations.

Speculation has risen that the EPA might now be more likely to
consider the change, especially after Trump announced the
installation of Carl Icahn, majority shareholder of CVR Energy
Inc, as a special advisor on regulation. Icahn has been an
outspoken critic of how the program operates. Shares of CVR have
risen 37 percent since the election.

Valero and Phillips 66 contend the current program structure
distorts the market. Each year, EPA requires fuel companies to
blend biofuels into the gasoline and diesel pool. Companies can
either blend or buy compliance credits, known as Renewable
Identification Numbers (RINs), from those who have.

Prices of these credits jumped after EPA set targets for biofuels
use in 2017 that were higher than some anticipated. Oil refiners
without significant retail arms, including Valero, reported
paying a record amount for these credits last year. RIN prices
have tumbled since the election.

Valero is the country's largest oil refiner and one of the
country's largest ethanol producers, but has limited capacity to
blend after it sold its retail segment in 2013. It contends that
fuel retailers including Casey's General Store benefit unfairly
from selling RINs generated from their blending operations.

Casey's countered in its comments to the EPA that there was "no
explicit connection between Casey's motor fuel profitability and
RIN values."

Marathon, which has invested heavily in increasing its ability to
blend biofuels, in comments to the EPA dated Feb. 21 said it
opposed shifting the burden to retailers and blenders, arguing it
would create risk for the viability of the RIN market by adding
more companies to the list of those required to prove they are
using biofuels.

"The Renewable Fuel Standard is broken, and changing the point of
obligation only pushes these problems to a different group of
entities," said American Petroleum Institute Downstream Group
Director Frank Macchiarola in prepared remarks on Wednesday.

The issue has even divided small and large fuel retailers.

The Small Retailers Association told the EPA its members cannot
compete with larger ones who can blend gasoline and generate
sellable credits that lower their cost.

"They are then able to use this profit to roll up small
businesses," the group said.

(By Chris Prentice; Additional reporting by; Jarrett Renshaw;
Editing by David Gregorio)

Feb 23, 2017

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