U.S. oil refiners, beset by the weakest profit margins in six years, have been laying off workers, revamping operations and ratcheting up pressure on regulators and lawmakers to tweak the renewable fuel program, whose costs have ballooned, via reuters.
The top 10 U.S. independent refiners look set to take a record hit on renewable fuel credits this year. They spent $1.1 billion on the credits in the first half of the year, just short of a record $1.3 billion in all of 2013.
Refiners without operations dedicated to selling blended fuels to consumers, must purchase credits to prove compliance with U.S. clean-fuel mandates.
These "merchant refiners" are required to blend biofuels like ethanol with gasoline or other petroleum products, or else meet those obligations by purchasing paper "credits" called Renewable Identification Numbers (RINs) in an opaque market.
Meeting these standards once cost just pennies a gallon. But costs have risen in recent years and become a pressure point for independent refiners and fuel importers.
Biofuels advocates and the EPA have said refiners ultimately recoup RIN costs by including them in the price of the products they sell.
Federal regulators are due to finalize next year's mandates for biofuel use within months. Refining executives have long chafed at these requirements, and have been pointing to rising clean-fuel costs as one reason for cutting staff or overhauling operations while a glut of gasoline has squeezed margins.
Ethanol RINs are "a much higher cost than they used to be. Add to that this low-margin environment, any which way a refiner can save costs, they are going to be doing it," said Timothy Cheung, vice president at ClearView Energy Partners in Washington.
Trade sources said the situation has widened the divide within the petroleum industry between those who want to pressure regulators to tweak the existing program and those who want to push for a legislative overhaul.
Philadelphia Energy Solutions Inc, a merchant refiner, on Wednesday told employees in a letter it was cutting benefits and seeking job cuts to offset renewable fuel costs. They, and other refiners such as HollyFrontier Corp have said regulatory costs are outpacing labor costs.
"Refiners that are integrated into the retail space take money from their left pocket and put it to their right pocket - their retail arm - so they do not suffer. But merchant refiners don't have a 'right pocket'," PES CEO Phil Rinaldi said in the letter.
In 2013, refiners' complaints of rising costs caused the Obama Administration to dial back biofuels targets, sparking criticism from advocates of ethanol and other renewable fuels.
Refiners are pressuring lawmakers back from August recess to consider reforming the renewable fuel program. More than a decade old, the program has been a battleground between entrenched oil and corn interests. The U.S. Environmental Protection Agency has a Nov. 30 deadline to finalize next year's biofuels targets.
