Valero presses EPA for RFS change

OREANDA-NEWS. June 14, 2016. US Environmental Protection Agency administrators should shift the burden of US biofuel blending mandates closer to retail stations, US independent refiner Valero said today.

The company, one of the largest US producers of both gasoline and ethanol, petitioned EPA to consider making rack-level sellers — rather than refiners or importers — responsible for ensuring that rising volumes of biofuels blend into the US transportation fuel supply each year under the Renewable Fuel Standard.

Moving the obligation closer to the retail sales level would improve competition for biofuels and reduce the risk of fraud or speculation in the market for credits used to prove compliance to federal regulators each year, Valero said in its petition.

"All this and more can be achieved without radically restructuring the transportation fuel market, which has been trending away from vertical integration," the company said in its filing.

Valero supported the current system requiring that refiners, importers and certain blenders bear the legal obligation for the US fuel industry to meet annual biofuel blending requirements when EPA last considered the point of compliance, in 2010.

Rules finalized last November require the industry under the program to ensure biofuels equal to the equivalent of 10.1pc of their petroleum fuel production enter the US fuel supply. Proposed volumes for 2017 rise to 10.44pc of their production.

Refiners can either blend the material into the fuel supply directly or purchase markers representing the blended fuel, called Renewable Identification Numbers (RINs), from those who do. RIN prices have climbed amid concerns that requirements exceed what US infrastructure and drivers can feasibly consume, a problem called the blend wall.

Valero and other US refiners have adopted a merchant refining model, spinning off blending and retail businesses to focus on manufacturing. This distance means that such companies cannot effectively compel changes needed to supply more biofuels, which leaves such companies vulnerable to decisions by rack-level businesses that more directly supply retailers, Valero argued.

US independent refiners HollyFrontier and CVR Energy made similar calls to change the point of obligation during public testimony last week on blending mandates proposed for next year. Both refiners lack retail businesses.

Tesoro, Marathon Petroleum and Phillips 66 all operate retail components.

Biofuels groups reached late Monday could not immediately comment on the filing. The fuels trade group Petroleum Marketers Association of America said the effort would hurt marketers and reduce competition.

The petition filed today seeks a new rule making separate from that process, focused specifically on the point of obligation. Valero made similar arguments in a protest of last year's compliance mandates still awaiting hearings in the District of Columbia Court of Appeals.