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© 2013 Platts, McGraw Hill Financial. All rights reserved.
RINs and US Distillates Exports
Matthew Cook, Sr. Managing Editor – US Clean Products January 31, 2014
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• The US exported more distillates than ever – Supported by cheap crude and weak domestic demand – RINs provided incentives
• RINs landscape could change – EPA yet to issue final decision
• Will the trends continue into 2014? – Refiners looking to expand
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A look back at 2013
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US exports grew to record heights
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Source: US Energy Information Administration
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US Distillate Exports
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Source: US EIA
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US Distillate Production
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Source: US EIA
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US distillate demand stable
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Source: US EIA
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Excess distillate production
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Source: US EIA
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The four-letter word of the year
• What are RINs?
– Renewable Identification Number
– Renewable fuel credit required for US refiners, importers and blenders
– Credit required to meet US renewable fuel mandate
• What’s the big deal?
– Gasoline consumption sharply lower than anticipated
– The “Blend wall”: Literally not enough gasoline consumed to meet federal mandate with current fuel blends
– Gasoline producers still on the hook to meet requirements; sharp increase to fuel production costs
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RIN lifecycle
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Source: US EIA
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Renewable credits blow out
• Ethanol, the biggest driver, went from $0.03/RIN in 2012 to peak at $1.44/RIN in July.
• Per-gallon RVO basket: ~10% of ethanol RIN value
10 Source: Platts data
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Unintended consequences
• Implications of the blend wall: – RINs needed for imports could mean further
decline in fuel imports – Stronger prices for US consumers – Non-transportation fuels mirror RINs
• Two solutions: – Change renewable fuel standards – Migrate to E15 gasoline blend
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Speedbumps for E15
• US Department of Energy: More than 90 laws across 30 states limiting E15 sales
• Auto industry acceptance remains a barrier – Questions about warranties, despite EPA approval – Older vehicles?
• Requires additional infrastructure, distribution investment
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• EPA proposes cut to 2014 renewable targets – 15.21 billion gallons in 2014; down 8% from 2013 – 36 billion gallons by 2022 – Renewable Fuels Association calls to follow 2007
mandate of 18 billion gallons
• Public comment period ended Tuesday – More than 16,000 comments received – EPA says 60-90 days to review
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EPA revising standards
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• Valero building new units at USGC refineries: – New hydrocrackers at 290,000 b/d Port Arthur, Texas and
205,000 b/d Lake Charles, Louisiana refineries – Expanding 125,000 b/d Meraux, Louisiana, refinery – System wide distillate yields expected at 43% by 2015
• Marathon expanding Texas City, Garyville refineries – Dock expansions; new gasoline export tank – Expecting exports up 30,000 b/d to 275,000 b/d
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Refiners eyeing export expansions
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• New York moved to 15 ppm heating oil July 2012 – “Exactly the same” as ULSD
• Other states adopting ULS Heating Oil by 2018 – New Jersey: 2016 – Maine, Vermont & Massachusetts: 2018
• Platts begins publishing ULSHO July 1, 2013, for USGC – Assessment reflects deliveries into Colonial Pipeline at origin – Specifications match Colonial 67 grade – Instrument trading on eWindow
• 2,000 ppm sulfur heating oil (88 grade) fading out
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Heating oil change boosts ULSD demand
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Strong ties between ULSHO & RINs
• ULS Heating oil effectively USLD without RIN obligation – Spread between ULSD and ULSHO closely tracking RIN value – Correlation of +0.95
16 Source: Platts
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Winter weather drives ULSD higher
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• USAC Production at lowest level since Nov. 2012 – Polar Vortex pushes refinery runs to 70%
• Two cargoes seen moving from Europe to NYH – Imports from Canada as well – Arriving early February
• New York officials considering sulfur waiver
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Cargoes routed to NYH
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EPA proposes new gasoline specifications
• US EPA introduced TIER 3 gasoline specifications to further reduce pollution – Major change to 10 ppm sulfur, 60% cut from
current spec • Significant refining investment required
– Questions about viability of imports – Another credit trading program?
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Questions? Matthew Cook, Sr. Managing Editor 713-658-3208 [email protected]