Proposed US mandate lifts advanced biofuels

OREANDA-NEWS. May 19, 2016. US fuel blending mandates proposed today sharply increase advanced biofuel requirements while capping space for ethanol and continue to trail the program's original statutory requirements.

Refiners, blenders and other obligated companies must ensure 18.8bn USG of total biofuels enter the US transportation fuel supply in 2017 under the Environmental Protection Agency proposal, a roughly 4pc increase from this year.

Advanced biofuels requirements increase by almost 11pc to 4bn USG under the proposal. Half of the larger advanced fuels requirement must come from a 2bn USG biomass-based diesel mandate EPA set last November. Another 312mn USG must come from cellulosic ethanol, an increase of 36pc. Although the Renewable Fuel Standard (RFS) does not mandate the use of ethanol, the implied demand for the gasoline blendstock under the proposal rises to 14.8bn USG.

The 18.8bn USG proposal increases from 2016 volumes but falls short of the 24bn USG envisioned by Congress in 2007. EPA has defended such reductions as consistent with Congressional intent because the program includes waivers allowing the agency to consider supply.

The agency has included the ability to distribute and consume statutory volumes of biofuels in that consideration, an interpretation the ethanol industry has challenged in court and criticized again today.

"The agency continues to cater to the oil industry by relying upon an illegal interpretation of its waiver authority and concern over a blend wall that the oil industry itself is creating," said Bob Dinneen, chief executive of the trade group Renewable Fuels Association.

Refiners complaints about the program have also increased this year amid higher compliance costs and poorer ethanol blending margins. Prices for renewable identification numbers (RINs) used to show compliance with the program increased by 40pc following EPA's publication of final 2014, 2015 and 2016 volumes on 30 November. Current year RINs traded as high as 84?/RIN ahead of the proposal release, and were 6pc higher than yesterday's settle at the time of its publication, based on Argus assessments.

"Congress, if this gets too far out of whack, is willing to act," HollyFrontier chief executive George Damiris said during a call discussing first quarter earnings. "They won't let this get to a point where there's just not enough RINs and you start paying absurd prices."