Ethanol Blog

As the higher price of renewable identification numbers, or RINs, in the Renewable Fuel Standard have been a political football for opponents of the RFS policy, a new farmdoc analysis by economist Scott Irwin at the University of Illinois said RINs prices are set to fall back to pre-2013 levels even without RFS reform.

East Coast refiner Philadelphia Energy Solutions recently filed for Chapter 11 bankruptcy protection, claiming $832 million in RINs costs drove the company to financial ruin. The Washington Examiner reported on Friday that Sen. John Cornyn, R-Texas, has developed legislation to reform the RFS, with talk of a bill being introduced next week.

Irwin said in an analysis the price of conventional biofuel, or D6, RINs are expected to "fall back their pre-2013 level of just a few cents without making any changes to the RFS."

Irwin writes that D6 prices have spiked because of what he calls a gap between domestic ethanol consumption -- estimated at around 14.5 billion gallons in 2017 -- and the 15-billion-gallon RFS requirement for conventional biofuels.

As the blending of E10, E15 and E85 fuels have expanded, Irwin said that gap has continued to close and is expected to cause RINs prices to fall.

"What seems to have gotten lost in all the noise surrounding the political war over the RFS is how rapidly the conditions are changing that created the high ethanol RINs prices in the first place," Irwin said. "The key is the gap between the ethanol blend wall and the conventional ethanol mandate.

The 2019 ethanol use estimate from the U.S. Energy Information Administration said that gap will be just less than 300 million gallons.

"This gap is so small that an increase in projected ethanol use for 2019 of just 2% would erase the gap completely," Irwin said.

"It is not out of the realm of possibility for the price of D6 RINs to go back to their pre-2013 level of just a few cents. Of course, this assumes that the conditions that have been driving ethanol consumption upward do not change. Even if conditions do change, the size of the conventional gap is much more manageable than just a few years ago and opens the door for very modest increases in E15 and/or E85 to close the conventional gap.

"For example, a 300 million gallon conventional gap could be eliminated with an increase in E15 consumption of just 2 billion gallons, or about 1.3% of total gasoline consumption.

"This means it is not out of the realm of possibility for D6 RINs prices to fall back their pre-2013 level of just a few cents without making any changes to the RFS."

In a statement to DTN on Friday, Renewable Fuels Association President and Chief Executive Officer Bob Dinneen said all indications are the ethanol industry is exceeding expectations.

"The first supposed 'blend wall' was the 10% ethanol blend level," he said.

"Well, we crashed through that last year and are now blending above 10% nationally. But the next blend wall is the 15-billion-gallon allotment for conventional ethanol. With increased E15 and E85 blending, we are careening toward smashing that wall as well. It seems, however, that the closer we come to that wall, the more intent some refiners become in hitting the brakes, insisting upon RFS demand destruction as the only safe course."

Read the farmdoc analysis here: http://bit.ly/…

Todd Neeley can be reached at todd.neeley@dtn.com

Follow me on Twitter @toddneeleyDTN

(TN)

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