By Sabina Zawadzki
July 30 (Reuters) - BP Plc said on Tuesday itdid "quite well" during a recent spike in the price of U.S.ethanol credits that is costing some U.S. refiners hundreds ofmillions of dollars.
U.S. refiners are obliged to blend a certain amount ofrenewable biofuel, mostly ethanol, into gasoline and diesel orpurchase a Renewable Identification Number (RIN) in the market.
Refinery operators have complained that the policy isforcing them to either blend more ethanol than they safely canor buy more RINs, leading to price spikes.
Valero Energy Corp, one of the largest refiners inthe United States, says it will spend up to $800 million on RINsin 2013. Smaller refiner HollyFrontier Corp said itscosts could reach as high as $150 million.
Refiners have put a lot of pressure on Washington to eitherremove or change the Renewable Fuels Standard, which isresponsible for the requirement, and warned that the consumerwill ultimately pay for RINs at the pump.
This contrasts sharply with BP's optimistic comments duringan earnings call.
"We're quite well positioned in the short term," said IainConn, chief executive of refining and marketing. "We're net longRINs. We've been able to trade into this spike recently and donequite well out of it. I'm very pleased about that.
"Over time we're going to see that position become morebalanced and (it) will be neutral ... in a couple of years'time."
BP operates the 413,000 barrel per day (bpd) Whiting,Indiana, and the 234,000 bpd Cherry Point, Washington,refineries, as well as the 160,000 bpd refinery in Toledo, Ohio, which it runs as a joint venture with Husky Energy Inc.
FEWER OBLIGATIONS, MORE BLENDING
RINs rose to almost $1.50 per credit two weeks ago, a newrecord, compared with just 5 cents in December 2012. The creditsrose sharply at the start of March to more than a dollar for thefirst time in the program's five-year existence.
Refiners have warned they will soon hit the "blend wall"when they will be forced by the RFS mandate to include over 10percent ethanol into their fuel or buy RINs to cover theirobligations.
The rising demand for RINs is what caused recent pricespikes.
Refiners say motor fuels with more than 10 percent ethanolmight damage vehicle engines and the blame will fall on them oron gas stations. But producers point out that fuel with 15percent ethanol has been approved for use in vehicles made since2001.
BP's strong position in the RINs market is the resultseveral factors. It sold two plants this year - Tesoro Corp took over the 240,000 barrel per day (bpd) Carson,California, refinery, while Marathon Petroleum Corp bought its 400,780 bpd Texas City refinery.
This means BP has reduced its RINs obligations and Conn saidhe was "rather relieved" for the company "because that wouldhave probably been quite costly in the first half" of this year.
BP also blends a fair amount of ethanol with gasoline at itsterminals on the U.S. East Coast and Gulf Coast, which generatesRINs, a BP spokesman in the United States said in an email.
Independent refineries, which do not blend their own fuels,have been hit hardest by the RFS because they need to purchaseRINs even if their gasoline or diesel is blended down the line.
RIN prices have steadied recently to around $1 per credit.They fell to around 93 cents last week from the mid-July peak onexpectations by some market players that the amount of ethanolrefineries will have to blend next year will be cut.
BP (BP.)
