by Sony Kassam and Mario Parker
Investors are betting that U.S. President-elect Donald Trump’s surprise victory may herald changes to a contentious law that forces American refiners to use ethanol.
Shares of U.S. independent refiners surged, including CVR Refining LP, owned by billionaire Carl Icahn, a critic of the biofuel mandate, which climbed the most ever. Meanwhile, renewable fuel producers such as Green Plains Inc. and Renewable Energy Group Inc. tumbled. Credits that regulators and oil companies use to track compliance with the law also plunged.
The 2007 energy law that calls for escalating amounts of renewables in America’s fuel supply helped to stoke a battle between biofuel, agriculture and petroleum interests, among others. Refiners complained of burdensome compliance costs after an Environmental Protection Agency proposal to increase volumes earlier this year. In September, Trump’s campaign published a fact sheet calling for the elimination of the system of buying and selling the biofuel blending credits, before later re-issuing it with that language deleted. Trump has said that he supports ethanol.
“I don’t think it’s as crystal clear,” Aakash Doshi, an analyst at Citigroup Inc., said in a telephone interview Wednesday. “We see Trump as a bigger wild card” given his stated support of oil and natural gas, overall, he said.
Icahn, a backer of Trump, has called trading of Renewable Identification Numbers, or RINs, which requires refiners to buy credits to meet biofuel blending requirements, a "rigged" marketplace. The current system has added hundreds of millions of dollars in costs to refiners that don’t own retail arms. There’s also been allegations of malfeasance.
A group of refiners was said to have warned the Obama administration that plants may be forced to shut because of the burden placed on independent fuel makers.
"The government shouldn’t be going in and deciding what business should go out of business as the EPA does in the refineries," Icahn said by phone Wednesday, in an interview on Bloomberg TV. "They should not be doing that, but they should be going in and helping you in a lot of ways."
Shares of CVR Refining jumped 26 percent to $8.55 in New York. Green Plains sank 4.2% to $24.
Valero Energy Corp. said last month it expects to spend as much as $850 million this year on RINs. CVR Refining said its cost could be as much as $250 million.
RINs tracking ethanol use for 2016 have more than doubled to 91 cents in the past year, data compiled by Bloomberg show. Ethanol credits dropped as much as 16% Wednesday. RINs tracking biodiesel have increased about 59% in the past year to 95.5 cents, data show.
“RINs continue to be an egregious tax on our business,” Jack Lipinski, CEO of CVR Refining, said Oct. 27 on a conference call with analysts. “I would predict that small refiners, merchant refiners, will be pushed to the brink and maybe even into bankruptcy in the future.”
CVR Refining declined comment. PBF Energy Inc., Alon USA Energy Inc. and HollyFrontier Corp. were among refiners that saw gains Wednesday.
The Trump administration could use waivers to reduce costs for refiners to comply with the program, said Timothy Cheung, a vice president at ClearView Energy Partners in Washington.
Growth Energy and the Renewable Fuels Association, both Washington-based biofuel trade groups, cited Trump’s public support of the mandate and said they expect to work with his administration to boost domestic and export demand.
“Donald Trump’s victory increases the odds that the Renewable Fuel Standard will be reformed,” Rob Barnett, an analyst at Bloomberg Intelligence in Washington, said. “Trump spoke favorably of the RFS during his campaign, but many Republican lawmakers in Congress have been pushing both repeal and reform bills.”
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