Ethanol Falls as EPA Considers Scaling Back U.S. MandateChristine Harvey and Lucia Kassai
Ethanol fell for the first time in five days after the U.S. Environmental Protection Agency said it may scale back requirements on its use. Renewable Identification Numbers, or RINs, sank to the lowest since February.
The biofuel tumbled 0.6 percent. A proposal from the EPA would cut the mandate to 15.21 billion gallons for renewable fuels in 2014 from 18.15 billion established by a 2007 law, according to an internal document provided to Bloomberg.
The agency would call for the use of 13 billion gallons of conventional corn-based ethanol and 2.21 billion gallons of advanced biofuels, down from 13.8 billion and 2.75 billion respectively this year, according to the proposal. RINs, which rose to a record $1.43 a gallon on July 18, are certificates attached to each gallon of biofuel that are submitted to the government and can be traded among companies.
“The whole focus right now is the EPA,” said Justin Dirico, manager of the biofuels desk at Eagle Energy Brokers LLC in New York. “There’s a rumor they’re going to reduce the 2014 requirements, which will affect ethanol further down the curve but we’re still seeing a bit of the effect today. Producers are locking in positive margins now.”
Denatured ethanol for November delivery dropped 1.1 cents to settle at $1.718 a gallon on the Chicago Board of Trade. Futures are down 22 percent this year.
RINs for 2013 slumped 12 cents to 30 cents a gallon, the lowest level since Feb. 19, according to data compiled by Bloomberg. That compares with a value of 7 cents at the end of 2012. Advanced RINs, which cover biodiesel and Brazilian sugarcane-based ethanol, dropped 10 cents to 42 cents a gallon.
“If the mandate will be a lot easier to achieve, I can assume there won’t be a lot of demand for RINs,” Christina McGlone, a strategist at Deutsche Bank AG, said today in a telephone interview from Greenwich, Connecticut.
The proposal, dated Aug. 26, just days before a plan was officially submitted to the White House for review, may be revamped before going into law.
“At this point, EPA is only developing a draft proposal,” Gina McCarthy, administrator of the EPA, said in a statement. “The agency has made no final decision on the proposed renewable fuel standards for 2014.”
Under the current renewable fuels standard, refiners such as Valero Energy Corp., the world’s largest independent refining company, and Exxon Mobil Corp. must use a certain amount of those fuels each year, with their target determined by their share of the fuel market.
Bill Klesse, Valero’s chief executive officer, wrote the EPA on Sept. 9 asking it to waive volume requirements under the program, citing higher costs for RINs.
Refiners retain the certificates to show compliance or to trade it to another party. At the time, RINs had increased because of falling gasoline demand and higher biofuel consumption targets.
“Any relief from the Renewable Fuel Standard would be welcome and appreciated, but Valero’s RINs costs for this year are still expected to be between $600 million and $800 million,” said Bill Day, a company spokesman based in San Antonio.
Gasoline for November delivery sank 3 cents, or 1.1 percent, to settle at $2.6681 a gallon on the New York Mercantile Exchange.
Ethanol’s discount to gasoline narrowed 1.9 cents to 95.01 cents a gallon. The spread settled yesterday at the highest level since Sept. 13.
In cash market trading, ethanol rose 8 cents to $2.205 a gallon on the U.S. West Coast, according to data compiled by Bloomberg. The biofuel added 3 cents on the Gulf Coast to $2.18, 3 cents in Chicago to $2.08 and 1.5 cents in New York to $2.315.
New York’s premium to Chicago narrowed 1.5 cents to 23.5 cents a gallon, while the West Coast traded at a premium of 2.5 cents to the Gulf Coast, from a discount of 2.5 cents yesterday.