Carl Icahn speculated wrong in RINs attacks administration
Carl Icahn speculated wrong in RINs attacks administration

RIN price spikes – Titanic US battle /2016-08-18/ USA has a support system for biofuels called the Renewable Fuels Standard (RFS). It include the renewable fuels certificate, named RIN. Each produced gallon of renewable fuel creates new RINs,  those financial instruments are traded. Buyers are those that have no renewable fuels or financial traders. The quota is increased step by step ment to stimulate investments in new production capacity. One problem now is that the production of cellulosic ethanol is much lower than was planned. Therefore production generate less RIN than most believed.

RIN prices spike
RIN prices spike

The billionaire Carl Icahn with friends has speculated wrong. They believed in a market with excess RINs.  They have now to buy RIN at high price and is loosing an awful lot of money. According to Biofuels Digest, Icahn’s stock is down 45 percent this year.  He has made a disastrous series of investments in mid-size oil refiners such as CVR and Monroe. Disastrous because the refiners have gambled on a strategy to overturn the Renewable Fuel Standard and, for that reason, have not chosen to invest in renewable fuels production.

Taking short positions, Icahn’s portfolio companies did chose to be a buyer of credits instead of investing in low-carbon fuel production and distribution capacity.

Those who have renewable fuel-friendly strategies end up as sellers of RINs, and the others are net buyers. When RIN prices spike, the latter, like Icahn, get hit with costs.

How do Icahn and friends deal with this?

“Icahn’s strategy is to isolate the refiners that are being hit with costs, add up the costs as a group, neglect to mention that the problem is management and strategy, paint the refiners as a victim, and issue a series of quotes to friendly reporters blaming the Environmental Protection Agency for excessive regulatory zeal that is sending America down the drain”, says Biofuels Digest.

Icahn and friends do what all short sellers do when they are facing the consequences of a disastrous bet. They scream bloody murder.

Icahn’s attack

Icahn and friends have now launched an appeal to the EPA (Environmental Protection Agency) as “the Mother of all Short Squeezes” in its interpretation of the Renewable Fuel Standard. Icahn is part of a coalition that includes CVR, Valero, Alon USA, HollyFrontier, the Small Business Refiners Coalition, and the American Fuel and Petrochemical Manufacturers. They say it is a general shortage of RINs.

The big Abengoa Hugoton plant is not producing any cellulosic ethanol at all. One reason of the shortage of RINs.
The big Abengoa Hugoton plant is not producing any cellulosic ethanol at all. One reason of the claimed shortage of RINs.

Biofuels Digest note it is interestingly that the American Petroleum Institute (API) — no friend of the RFS — has failed to join the coalition.  Why are API not standing shoulder-to-shoulder with Icahn at the moment?

Probably because, says Biofuels Digest, the trade in RFS credits occurs solely between refiners and a couple of specialist traders, and in this case, the big winners are some very large integrated oil companies who can distribute far more low-carbon fuels than they are obligated to. So, they can buy fuels, detach the overstock in RINs, and sell them to smaller refiners.

The smaller refiners say they are paying as much as $1.8 billion in RFS compliance, which means that on the other side of the trade the counter-parties are making $1.8 billion. The trade in RINs nets zero to the US government or renewable fuel producers.

The E85 price conundrum

There’s clear evidence in the price data which the Iowa Renewable Fuels Association has been reporting for some time. Namely, there is huge disparity between the prices offered by various actors in the marketplace.

The lowest price offered is from The Anderson-Denison in Iowa for 83% ethanol content at a price of $ 0,55. The highest price is by Cenex at Des Moines Terminal who sells for 1,15% for 70% ethanol. Quad County Corn Processors who also make cellulosic ethanol, sells for $ 0,79.  Those prices can be compared to regular gasoline that sells for $1,69 with  0 % ethanol in Des Moines.

This article is based on a longer article published by Biofuels Digest, august 16. Ljungblom