OPIS National Supply Summit
October 22, 2015
Jess Hewitt, Speaker
Houston, Texas
RIN Direction and
Blending Options
We will discuss the many reasons why the title
of this presentation will have very little to do
with predicting the direction of RIN values
(Read the anticompetition clause)
Have you
read the
Renewable
Fuel
Standard?
I will try to help
you make
sense of the
complex
regulations to
help you
WORK
SMARTER
RINS What are they?
• Renewable Information Number
• An alpha numeric code that tells us
•
•
•
•
Who Produced it
When it was Produced and batch numbers
What kind of Product
If it is still attached to the fuel
RINS: How they are made
• A RIN is created by the producer or importer of a
renewable fuel that has been registered with the
EPA Renewable Fuel Standard
• Each fuel has an assigned number of RINS that
can be produced with each unit of measurement,
liquid or gas
• One RIN is equal to 77,000 btu’s so ethanol has
one RIN per gallon, other fuels are assigned more
RINs per gallon due to higher heat content
RIN - Speak
• Attached/Assigned RIN: When produced, the
RIN is attached to a volume of renewable fuel
and the RIN is transferred to the next
counterparty receiving the renewable fuel.
• PTD: Product Transfer Document, required
format by EPA that notifies the next
counterparty of the RINs transferred with the
fuel. There is no set template but the format is
dictated by the EPA
More RIN - Speak
• Separation Event: There are defined ways a RIN can be
separated from the fuel. Can be as simple as
ownership, blending or a qualified sale.
• Separated RIN: Once a Separation Event has occurred
then the RIN can be separated and traded.
• K Code: The lead number of the RIN. Code of 1 is
attached to fuel and Code 2 is separated.
• D Code: Classification of Renewable Fuel: 3, 4, 5 and 6
from Highest to Lowest GHG emissions, plus D Code 7
for cellulosic diesel.
D Codes: Of course it must
make no sense that the
larger D Codes indicate
less emissions reduction,
and you need more D6’s
than D3’s; and just to
confuse everyone we’ll
throw in a D Code of 7
which is high emission
reduction but you don’t
need many of them, and
in fact they may not even
exist!
RVO, What is it?
• Renewable Volume Obligation: The amount of
renewable fuel (counted by RINs) that is required
of any person (Obligated Party) who:
– Makes Gasoline or Diesel (refiners and blenders)
– Imports gasoline or Diesel
– Exports a renewable fuel
• RVO are calculated first in National gallons and
then expressed in percentages of each renewable
fuel category applicable to each obligated party.
Please Pay Attention from this Slide until
the End of the Presentation
I will let you know when we reach the end of the
important part of this presentation
I was told many years ago that my presentation
length was to be just short of my audience’s
attention span so I know I will lose some of you at
this time. Please enjoy your coffee break.
Here’s where you get your
money’s worth
• We cannot predict RIN prices,
• We can construct limits on the
prices, downside and upside and
• If the market acts rationally then RIN
prices should remain within limits
• Of course, markets are not always
rational
RIN Price
• The Price of a RIN is made up of these
elements:
– Time Value: A RIN degrades in value over time, a
more recent Vintage RIN should be worth more
than a RIN from a previous year,
– Exceptions: Invalid RINs may cause obligated
parties to seek out the older Vintage RIN, or if a
deficit in annual RIN production cannot be
covered by new Vintage production.
More about Price
• Production Value (PV): This is the Minimum
Value that a Producer must obtain to Break Even
on Producing the Renewable Fuel.
• Example: Biodiesel production breakeven cost is
$4/gallon, biodiesel is selling for $2.50/gallon
leaving $1.50/gallon or if divided by 1.5
RIN/Gallon = $1.00/RIN (Assumes no tax credit is
available)
• If credit is available then = $0.50/1.5 = $0.33/RIN
• So the credit is worth $0.67/RIN
PV
• If the PV is more than the market
price of the RIN then Producers will
face opposition to the full value of
biodiesel and production should be
reduced or stopped
• Obligated Parties will just buy the
RIN and avoid the Renewable Fuel
More Price Factors
• Blend Value (BV): This is the Maximum value
that a blender can pay to physically blend the
renewable fuel into a refined product.
• Calculate this value as the refined product
sales value less blending costs.
• Gasoline sells for $2.00/gallon less base gas
cost $1.90/gallon less 2 cpg blending, So BV =
$0.08/gallon divided by 9% (RIN %) = 88
cents/RIN
BV
• When the Price of RINs approaches Blend Value
then demand for the RIN and/or the fuel will
diminish as there are some market participants
who are not obligated parties and actually act
rationally (these are called Renewable Fuel
Blenders)
Does Blend Value Vary?
• YES Blend Value varies by the category of RIN
(D Code) being used.
• Take the previous example of 8 cents per
gallon of RIN cost per gallon of Gasoline:
– Cellulosic Value: $0.08/.00059 = $135.00/RIN
– Biomass Value: $0.08/.0141 = $5.63/RIN
– Advanced Value: $0.08/.0161 = $4.97/RIN
• Does this matter to anyone? No
So How Much is the RIN Worth?
• If no RINs were produced, what is the first RIN
worth? Blend Value plus Time Value
• If no gasoline was produced, what is the RIN
worth? Production Value plus Time Value
• If the RVO were exactly equal to number of
RINs produced then RIN Price would be
• Between Production Value and Blend Value
So you can’t really predict RIN Price?
• Economist Exceptions
– If I knew how much gasoline and diesel was being
produced,
– And Imported
– And Exported
– And if I knew how much renewable fuel was being
produced,
– And imported,
– And exported,
• Then I could tell you the price,
– Within 2 standard deviations,
Price Shocks
• Many things can positively or negatively affect
the Price of RINs in the short term:
– Change of RVO or threat of change,
– Tax Credits, in or out
– Change of RFG Areas
– Regulatory Fuel Changes (E15)
– Export Markets (MEXICO)
Is there anything that I can control?
• Yes!
• You can control your cost of RINs by making your
own RINs.
– Next round of renewable products require refining or
fractionation, inside the refining/blending system as
– The end products cannot easily enter the blending or
pipeline system
– Refining the products makes a renewable gasoline,
diesel and/or jet and you generate the RINs
– Creates an Internal Supply of RINs
Can I do better?
• Yes!
• RIN values are always a function of
your Blend Value,
• Increase the Blend Value, while
keeping RIN costs in control and you
make more
Example of Blend Value Margin
• Isobutanol (IBA): An Alcohol that can replace
ethanol in RFG Areas,
• Blends at 12.5% into gasoline,
• IBA Costs $5.00/gallon,
• RFG 93 (12.5 IBA) sells for about $1.00 more
per gallon than E10 Gasoline; net blend cost is
65 cents ($5 x .125), Blend Value is 35 cpg
Isobutanol Blending
• Consider the case of blending isobutanol into
gasoline (CBOB/RBOB):
• Blend Value is extremely high at more than
$0.35/gallon, or $3.88/RIN
• You buy RINs at 50 Cents,
• You earn the difference
Putting it all together
• RIN Values will tend to operate between Production Value and Blend Value
• Refine or Fractionate the Cellulosic Feedstocks to make your own RF and RINS
• Renewable Fuel Blenders act rationally so you need to watch them for signals of
a change in direction for RIN prices
• If they are entering the market then expect RIN and/or commodity prices to
firm,
• It they exit the market then expect RIN prices and/or the commodity to fall
• Watch for Price Shocks
• Monitor Non-Typical Markets like Mexico as they can influence demand for the
blended commodity and they don’t care about the RIN
• Look for ways to sell high value blended fuels to “afford” RINs at levels higher
than your competitors
Now what do I do?
You can continue to Work Harder
Read the Regulations, or Call a
Consultant
THANKS FOR ATTENDING!
Lee Enterprises Consulting, Inc.
“The World’s Largest Alternative & Renewable Fuels Consulting Group”
9903 Brockington Rd. Ste. 106
Sherwood, AR 72120
www.lee-enterprises.com
(501) 833-8511
THANKS FOR ATTENDING!