Biofuel mandates need federal investigation: CVR

OREANDA-NEWS. July 29, 2016. Federal trade regulators should investigate the market for credits used by refiners and other companies to show compliance with US biofuel mandates, CVR Energy chief executive Jack Lipinski said today.

Prices for renewable identification numbers (RINs) that have this month averaged almost three times what they cost a year ago reflect an opaque and "contrived" market, not fundamentals, Lipinski said during a conference call on earnings.

The Federal Trade Commission (FTC), Commodity Futures Trading Commission (CFTC) or inspector general of the Environmental Protection Agency, which administers the mandates, should investigate the market, he said.

"This is the most egregious tax, and we are being regulated by people who don't understand our industry, don't understand how the markets work physically and financially," Lipinski said.

CVR would meanwhile continue to hunt for potential acquisitions to help meet obligations under the current law and help it expand out of the midcontinent. That did not include retail, which Lipinksi said would put the refiner in a business it did not want without solving the problem.

"We would have to spend several times our market cap to buy a retail company suitable in size for us to control the blending," he said.

Refiners, importers and other companies adding to the US transportation fuel supply must each year ensure drivers consume minimum volumes of biofuels determined by the Environmental Protection Agency. Obligated companies submit RINs acquired by blending fuels or by purchasing the credits from companies that do to prove compliance with the law.

The regulation has become particularly costly for merchant refiners — companies focused solely on the manufacturing, rather than distribution, of refined products. Because blending companies face no obligation under the mandates, the EPA has created an incentive for those companies to limit biofuels blending and drive up the prices of RINs, the refiners allege.

"RINs cost through the end of this year will approximate half of all the capital expenditures we made to upgrade our facilities, with nothing to show for it," Lipinski said.

The refining industry has sought an outright repeal of the mandate and supported legislation in the US House of Representatives that would limit blending requirements to a lower, more easily achieved volume. Lipinski said CVR supports the mandates — the company also produces fertilizer — but that EPA must fix how the program was administered. The US independent refiner supports a Valero petition and lawsuit pushing the agency to change which companies are obligated to ensure the US meets blending requirements.

CVR had not at the time of the call made a formal complaint to any of those agencies, the company said. But the agencies do not require a complaint to begin an investigation.

CVR's efforts to diversify could mean a hunt for other refineries, especially in the Rocky Mountains or US Gulf coast, where complexity, broader crude availability and growing export markets have put refineries at a premium.

Only one region was definitively ruled out by Lipinski.

"I had enough brain damage running a west coast refinery to last me a lifetime," Lipinski said. "I'm just a little bit gun shy of walking into California with their regulations and everything else, which make the RINs debacle look like a Christmas party."