Advanced biofuel RINs stall as discount to biodiesel RINs narrows

05.10.2016

Advanced biofuel Renewable Identification Numbers, also known as D5 RINs, have seen little liquidity in recent days as their discount to biodiesel RINs, or D4s, has narrowed.

"Might as well buy the D4 and use that," one RINs broker said.

D5 RINs for 2016 compliance were heard just 50 points below D4 RINs of the same vintage Tuesday.

Every gallon of biofuel that is produced generates a RIN. They are then turned into the Environmental Protection Agency at the end of each year to demonstrate compliance with blending requirements.

If a company does not blend enough biofuel, it can purchase separated RINs on the open market from another party that does not need them.

The EPA has proposed that obligated parties blend 2 billion gallons of advanced biofuels in 2017.

Advanced biofuels are those with a lifecycle greenhouse gas reduction of 50% or more, compared with 20% or more in conventional renewables. But the US produces very little advanced biofuels. Sugarcane-based ethanol from Brazil is the most readily available source, but 2016 has seen lower volumes brought in than previous years.

High sugar prices in Brazil have prompted producers to divert more of the sugarcane crush to sugar and away from ethanol, leaving less of the biofuel available for export.

The US imported only 564,000 barrels of ethanol from Brazil through July, according to Energy Information Administration data. Last year, the US had imported 314,000 barrels by July, but trade flows picked up later in the year.

In 2014 There were 1.018 million barrels imported by July and 2013 saw 4.274 million barrels.

Lower volumes of the physical biofuel available in the market have driven up the price of the corresponding D5 RIN.

But the EPA built in an alternative means of compliance by nesting the RINs within each other. D4 RINs, those generated from biodiesel, can also be used to satisfy D5 compliance. There was concern earlier in the year, highlighted in a report from Goldman Sachs in late June predicting a RINs shortage. Prices reacted quickly by climbing as market participants worried about falling short of compliance mandates.

But biodiesel production, and thus RIN generation, has increased to record levels.

Biodiesel producers generated an all-time high 398.338 million D4 RINs in August.

There were only 16.963 million D5 RINs generated in the same month.

If RIN generation follows the five-year trend, there would be over 3.718 billion D4 RINs and over 208.271 million D5 RINs available.

As there would be over 867.963 million more D4 RINs than needed for compliance, they could be used to meet the 321.728 million D5 RIN deficit.


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