Ethanol credit spike divides gas stations

(Photo by Joe Raedle/Getty Images)
(Photo by Joe Raedle/Getty Images)

Apparently, it’s not just the nation’s refineries that are getting hit by a recent spike in the price of government credits for biofuels.

Now gas station owners say they, too, are losing out after the price of RINs –  the credits which refineries must have to prove there is ethanol and other biofuels in the fuel supply  — shot up close to 40 percent since the beginning of the year.

A paper commissioned by the Small Retailer Coalition, and written by Bud Weinstein, an economist at Southern Methodist University’s Maguire Energy Institute, says smaller, independent gas stations are being undercut by larger chains like Circle K and Sheetz that blend their own ethanol and can sell the resulting credits at a profit.

The smaller retailers likely operate under the brand Exxon Mobil or Shell, but are financially independent of those corporate giants. They are left to watch as their competition across the street take those RIN profits and uses them to slash prices on gasoline.

“The large volume retailers going in up the street has been going on a long time, but the RINs market has been accelerating the demise of the small mom and pop retailer,” Weinstein said in an interview. “The trouble with the whole [biofuels program] is it’s created some unintended consequences.”

In his paper, Weinstein cites an earnings report last year from Marathon Petroleum, which owns the Speedway gas station chain, stating it made $74 million selling excess RINs in 2014.

The situation within the retail gasoline industry mirrors that within the refining sector, where independent refiners like CVR Energy in Sugar Land and Valero in San Antonio, are spending more and more on RINs at a time refining margins are shrinking.

The losses have accelerated a debate within the energy sector about who should be responsible for meeting the government’s biofuel madate, the refineries that produce the gasoline and diesel or the wholesalers that blend biofuels into the fuel stream before trucking it to gasoline stations.

At the same time Wall Street traders push RIN prices up and down, infuriating executives like CVR’s Jack Lipinski, who said in an interview earlier this month, “if the EPA would allow everyone to see how much [RINs] everyone owned, it would be like cockroaches when the lights turn on.”

For now, small gasoline stations seem to have but little choice to wait out the current spike in RIN prices and hope they can hold on.

In his paper, Weinstein estimates building the infrastructure to blend ethanol would require millions of dollars, something he says most small gas stations can not afford.

But the ultimate loser will be U.S. motorists, he says. Between 1994 and 2015 the number of filling stations fell from more than 200,000 to about 150,000.

“If profit margins for small, independent retailers continue to narrow in order to ‘meet the competition,’ even more of these businesses can be expected to fail in coming years,” the paper says. “Fewer small retailers, in turn, will mean higher fuel prices for consumers.”

RINS Analysis 8-16