Ethanol credits distort the market for gasoline

Fuel Fix:

Apparently, it’s not just the nation’s refineries that are getting hit by a recent spike in the price of government credits for biofuels.

Now gas station owners say they, too, are losing out after the price of RINs – the credits which refineries must have to prove there is ethanol and other biofuels in the fuel supply — shot up close to 40 percent since the beginning of the year.

A paper commissioned by the Small Retailer Coalition, and written by Bud Weinstein, an economist at Southern Methodist University’s Maguire Energy Institute, says smaller, independent gas stations are being undercut by larger chains like Circle K and Sheetz that blend their own ethanol and can sell the resulting credits at a profit.

The smaller retailers likely operate under the brand Exxon Mobil or Shell, but are financially independent of those corporate giants. They are left to watch as their competition across the street take those RIN profits and uses them to slash prices on gasoline.

“The large volume retailers going in up the street has been going on a long time, but the RINs market has been accelerating the demise of the small mom and pop retailer,” Weinstein said in an interview. “The trouble with the whole [biofuels program] is it’s created some unintended consequences.”

In his paper, Weinstein cites an earnings report last year from Marathon Petroleum, which owns the Speedway gas station chain, stating it made $74 million selling excess RINs in 2014.

The situation within the retail gasoline industry mirrors that within the refining sector, where independent refiners like CVR Energy in Sugar Land and Valero in San Antonio, are spending more and more on RINs at a time refining margins are shrinking.

The losses have accelerated a debate within the energy sector about who should be responsible for meeting the government’s biofuel mandate, the refineries that produce the gasoline and diesel or the wholesalers that blend biofuels into the fuel stream before trucking it to gasoline stations.

At the same time Wall Street traders push RIN prices up and down, infuriating executives like CVR’s Jack Lipinski, who said in an interview earlier this month, “if the EPA would allow everyone to see how much [RINs] everyone owned, it would be like cockroaches when the lights turn on.”
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The biofuels mandate is the product of a perceived scarcity of domestic oil.  It has no reason for being continued other than for boondoggles like this and an incentive for turning food into fuel.  Ethanol requirements should be discontinued.  They are useless at this point.

There is no value to them what so ever.  It is an example of government regulation adding additional cost to a product that is of no value.  It only stays because of the rent seekers who make money off of requiring others to buy something they do not want or need.