Financial Times: US ethanol credits surge 1,400% this year

March 7, 2013

Gregory Meyer, March 6- The niche market for US ethanol credits has started the year with a furious rally that underscores concerns about the practical impact of Washington’s renewable fuel mandate.

The credits, known as Renewable Identification Numbers, or RINs, have gained 1,400 per cent in 2013 as oil refiners and fuel wholesalers worry they will be unable to meet ethanol blending mandates with physical supply. The Oil Price Information Service recently described the market as “RIN-Sanity”.

Fuel suppliers and oil refiners can use excess RINs in lieu of selling physical barrels to satisfy biofuels mandates. The numbers are 38-digit codes generated when biofuels are produced.

The US Renewable Fuel Standard, updated in 2007, requires blending 13.8bn gallons of corn-derived ethanol with petrol this year. But most forecourts sell petrol blends containing only 10 per cent ethanol, and with US petrol consumption projected to be flat at 134bn gallons this year, this translates into demand for 13.4bn gallons of ethanol — less than the mandate.

“The thresholds that were set for ethanol blending in 2013 are anachronistic,” said Tom Kloza, an OPIS analyst.

High corn prices and weak petrol demand have meanwhile forced some ethanol refiners to shut down plants. US ethanol production last week was running at an annual rate of about 12.3bn gallons, meaning insufficient domestic supply to meet the mandate.

Market participants say oil companies have been buying excess RINs from blenders and others to ensure compliance with the rules as the difference between mandated levels and actual renewable fuel widens.