26 July 2013 23:11 [Source: ICIS news]
HOUSTON (ICIS)--LyondellBasell is hopeful that the US will reform its system of ethanol-blending credits, which the company described as distorting the country's fuel market, the CEO said on Friday.
The complicated system of blending mandates and ethanol credits have led to refiners exporting gasoline during the peak demand season for the fuel, said Jim Gallogly, LyondellBasell CEO. Gallogly made his comments during an earnings conference call.
"We'd like to see all this short-term market distortion be eliminated," Gallogly said.
Under the nation's renewable fuel standard (RFS), the US established a system of tradable renewable identification numbers (RINs) that refiners and fuel blenders must obtain as proof that they are using certain volumes of ethanol in their fuel.
To comply with the mandate, refiners can either buy ethanol or purchase RINs.
For refiners, the mandate is becoming increasingly unworkable because it requires increasing volumes of ethanol to be blended into gasoline.
Refiners, however, blend ethanol based on rates, not on volumes. That rate is typically 10%.
They are reluctant to exceed that 10% rate because of worries that higher ethanol concentrations could damage the engines of automobiles.
Over the years, US gasoline consumption has fallen, while regulators require increasing volumes of ethanol to be blended into gasoline.
If refiners were to meet the current blending mandate, they would exceed the 10% ethanol rate. As a result, refiners have been purchasing RINs to meet the US ethanol mandate.
Rising demand for RINs among refiners have caused the price to increase.
In the first quarter of 2012, RINs cost 15 cents, Gallogly said. A year later, the price reached 78 cents.
Until recently, they were trading at $1.40-1.50 before falling on Friday to about $1.00, he said.
Still, refiners have started exporting gasoline so they could avoid purchasing the RINs altogether, Gallogly said.
"There's too much exporting going on. That's being driven by misguided regulation," he said.
"The ability to blend that extra ethanol into the system doesn't exist, and it is hurting consumers at the pump," Gallogly said. "There's a good reason to fix it now and save everybody a bit of money and stop this market distortion."
Gallogly said he was hopeful that lawmakers will recognise the problems with the current system and correct it.
LyondellBasell owns a refinery in Houston.
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