Evaluation-U.S. oil refiners guess the farm Biden will again them on biofuels By Reuters

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© Reuters. FILE PHOTO: Des Moines, Iowa, U.S.A. on Jan. 29, 2020, will show elections at the dispenser including ethanol or no ethanol gas. REUTERS / Brian Snyder / File Photo / File Photo

By Jarrett Renshaw and Stephanie Kelly

(Reuters) – U.S. oil refineries like Monroe Energy and PBF Energy (NYSE 🙂 Inc are playing with the White House and taking action on the biofuel credit market that could force them to close plants and lay off union workers unless the Biden government saves the bail. by changing the rules for blending biofuels in gasoline.

Commercial refiners have long sought to repeal US law requiring them to add biofuels such as ethanol to their fuel or to purchase loans from competitors who do.

But until recently, they continued to participate in the multibillion dollar credit market for the most part by buying credit to offset their production, a Reuters analysis of earnings releases shows. But now some of these refiners are taking record short positions in credit.

Behind the postponement is a bet that US President Joe Biden will ultimately side with the refiners and their powerful union supporters. But a major pull back of the law at will would upset the country’s farm belt, experts interviewed by Reuters said.

Refineries currently have additional leverage as the White House struggles with soaring fuel prices that hurt Biden’s polls.

“This is nothing more than a political shock,” Brooke Coleman, executive director of the Advanced Biofuels Business Council, told Reuters. “These refineries are challenging the Biden White House to dump them in the bed they made by deliberately building massive short positions,” via biofuel loans.

LIABILITIES SKYROCKET

Refineries, which had low biofuel borrowings a year ago, pushed their latest financial records to record highs in the third quarter, according to a review.

* Monroe Energy, a subsidiary of Delta Airlines (NYSE :), increased its potential biofuel debt to a corporate record of $ 547 million by the end of the third quarter, up from just $ 68 million last year, the latest filing shows

* PBF Energy Inc has amassed $ 1.3 billion in debt for the third quarter from stopping or slowing purchases, compared to $ 236 million last year, according to its filing for the third quarter.

* CVR Energy (NYSE :), majority owner of billionaire Carl Ichan, has a loan liability of $ 442 million.

None of the companies responded to requests for comment.

In 2017, Carlyle Group-backed Philadelphia Energy Solutions (PES) stopped buying compliance credits and eventually raked up an outstanding commitment of $ 350 million before ultimately filing for bankruptcy. The U.S. Environmental Protection Agency (EPA) waived about half of those costs in bankruptcy hearings.

The PES refinery finally closed in 2019 after a massive explosion.

“PES taught the market that you can play chicken and win with the EPA. It’s a form of civil disobedience to the law, ”said Ed Hirs, an energy economist at the University of Houston.

Hirs said short-selling the market is clearly a strategic game, but the move carries great risk.

“If the administration doesn’t give in, these companies will have to pay billions of dollars to comply. That could force PBF into bankruptcy and we’ll see if Delta reaches into its pockets to save the refinery, ”said Hirs.

HISTORIC YEAR FOR LOANS

Refineries are required to file compliance credits with the EPA by March for the previous year, which gives them a lot of flexibility in paying those costs. In the past, refineries bought biofuel credits daily to cover their production, although they could postpone the purchase if they felt prices were too high or to manage cash flow.

The prices for the compliance credits known as RINs have been erratic for the market in a historic year. After hitting an all-time record of $ 2.00 each in June, renewable fuel loans (D6) traded at $ 1.08 on Wednesday. This level is still above the beginning of the year of around 80 cents.

In September, Reuters reported that the Biden government was considering major cuts in blending requirements. Such a move would anger voters in the farm states, so a decision has been delayed as Democratic lawmakers attempt to pass other major bills.

DISRUPTIVE SHUTDOWN looms

Refiners have argued to the White House that higher RIN costs drove gasoline prices soaring to over $ 3.40 a gallon. They found that the plants, including those in Biden’s home state of Delaware, offer high-paying union jobs.

Now at least one manufacturer is threatening to shut down a refinery due to the company’s outstanding biofuel liabilities.

Over the past few weeks, Monroe Energy has given a presentation to various stakeholders, including local politicians and union leaders, in which, according to two sources who saw the documents, it outlined a stark outlook for its refinery outside of Philadelphia.

The company’s presentation made it clear that either the Biden government will step in and roll back U.S. biofuel laws or, at around 200,000 barrels a day, its refinery will be forced to close its doors and lay off hundreds of union workers, the sources said.

If the Biden government does not step in and prices stay at current levels, the Delta refinery would have to go into the market and settle a significant portion of its $ 547 million debt in the coming months.

The refinery reported a loss of $ 186 million for the first three quarters of 2021, the records indicate.

“They made it clear that this is the hill they will die on,” said a source who saw the presentation.

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