Refiners’ earnings are impacted consistently by RIN (Renewable Identification Number) expenses. Refiners have to blend renewable fuels at a rate that satisfies the EPA’s yearly quota. However, if refiners fail to do so, they have to buy RINs, which results in continuous compliance expenses.
However, refiners’ costs were lower in 2018 due to a decline in RIN prices. Valero Energy’s (VLO) RIN costs fell by $406 million to $536 million in 2018. PBF Energy’s (PBF) RIN costs fell by $150 million to $144 million in 2018. HollyFrontier’s (HFC) RIN costs were $184 million in 2018, which is net of $97 million in waivers due to small refinery exemption granted to the company.
RIN prices in the first quarter
RIN prices have fallen sharply in the past few quarters. According to data published by Valero Energy (VLO), the prices of ethanol RINs have fallen by 65% YoY (year-over-year) to 20.7 cents per gallon in the first quarter. The rates of biodiesel RINs have fallen 33% YoY to 52.7 cents per gallon during the same period, which could mean lower RIN expenses for refiners in the first quarter.
RIN prices continue to dent refiners’ earnings. However, the cost will likely be less in the first quarter. Refiners could save some of the earnings that were utilized towards RIN expenses in the first quarter of 2018.
Lower RIN expenses could offset the YoY fall in refining earnings caused by possibly weaker margins in the first quarter.