FocusUS fuel blenders prefer paper to biodiesel

12 July 2010 18:48  [Source: ICIS news]

By Ben Lefebvre

HOUSTON (ICIS news)--Despite new renewable fuel standards (RFS2) going into effect this month, biodiesel refiners are finding it easier to sell paper than bio-based fuel, sources said on Monday.

The US Environmental Protection Agency (EPA) regulation calling for 1.15bn gal of biodiesel to be blended into the nation’s fuel supply in 2010 officially started in July.

But so far, much of the market’s interest has been in the renewable fuel identification numbers (RINs), the 38-character number attached to each batch of biodiesel made, sources said. Blenders submit their RINs to the EPA as evidence they are meeting the mandate.

The EPA allowed blenders to use RINs from 2009 and 2010 to meet 2010 requirements. Now blenders who bought enough biodiesel in the past two years to exceed government requirements are selling their surplus RINs to other blenders, who can then use the RINs as credits without having to buy the physical fuel, refiners and brokers said.

“The bottom line, there isn’t a 1.15bn market waiting in 2010” for the physical fuel, said Ron Marr, marketer for the biodiesel-producing Minneosota Soybean Processors. “The wet barrel demand for 2010 is looking more like 200 [m]-600m gal.”

It all comes down to economics, sources said. With the credit in place, biodiesel fuel prices averaged $839/tonne for the first seven months of 2009. After the $1/gal blending subsidy for biodiesel expired in December 2009, the fuel price rose to an average $948/tonne (€749/tonne) between January and July 2010.

That was too expensive for many blenders, who suspended purchasing in expectation that Congress would reinstate the subsidy this year, something that has not yet happened. US biodiesel production fell to about 10% of total capacity as the only consistent buying came from a few states with renewable fuel usage mandates.

Now blenders short of the required gallons are more apt to purchase RINs from other blenders who may have built a surplus in 2009. Biodiesel RIN prices have grown to about 50 cents/RIN in July from about 23 cents/RIN in March.

“Even with RFS2, no one is transacting in wet gallons,” a renewable fuel trader working in the Gulf Coast region said. “RINs have to get to sixty cents or higher before people start producing biodiesel.”

John Urbanchuk, technical director of Entrix, a consulting firm in Pennsylvania, said the next test will be whether blenders look to domestic biodiesel or imports when the number of available RINs diminishes.

“The lapse of the tax credit last December has really put producers in a bind,” Urbanhuck said. “We’ve seen a drop in biodiesel production. Having said that, we still have the RFS2 requirements. If the production is not there, you’ll see increased interest in RINs to meet that.”

($1 = €0.79)

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By: Ben Lefebvre
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