When we described the quirky workings of the US renewable fuels mandates back in July and August of 2012 the topic was merely brain food for commodity market theorists and sleep deprived gasoline analysts. This month the market for big brother sounding “Renewable Identification Numbers” (RINS) - credited to refiners when they add ethanol to gasoline blends - is suddenly the hottest thing since sliced bread. The price of 2013 RINS shot from a few cnts/gal in January 2013 to an astronomical $1/gal on March 8, 2013. Earlier this week they were trading in the stratosphere, at about $0.70/gal. Today we look at what lies behind the current RIN furor.
A couple of weeks back in “A Market of Contradictions: Ethanol Mandates, Motor Gasoline and the Blend Wall” we looked at how US refiners are on the hook to blend more and more ethanol into a diminishing pool of gasoline (the blend wall) under Renewable Fuel Standard (RFS) legislation. Ethanol producers are losing 35 cnts/gal after the hottest July ever fried the corn harvest. Sinking ethanol production may not cover refiner’s needs. In response, refiners are turning to an arcane workaround called Renewable Identification Numbers (RINS). Today we'll peel back the red tape to see what is really going on.
Ethanol from corn as a motor gasoline blend stock seems like a good idea. As an oxygenate it is supposed to clean up the air, and as a U.S grown renewable it reduces our dependence on fossil fuels and foreign oil. The catch is that ethanol is being mandated under a morass of mind-numbingly complex government regulations, some of which conflict with each other, or worse yet are out of step with the realities of the market. For example, the mandatory volumes of ethanol required may soon exceed the quantity that the market can use. At the same time, high corn prices have driven margins on ethanol manufacture into the red forcing many ethanol producers to shutter their operation, reducing ethanol supplies. And if that were not enough, a government program created something called the renewable identification number – RIN – a 38-digit serial number that ‘tags’ batches of renewable fuels and has resulted in all sorts of complications. Today we’ll begin an examination of the ethanol market to understand how we got in this predicament and where we go from here. In Part I we tackle one of the most intractable problems – the Blend Wall.