Gasoline and Diesel Blending Training Course

REFINERY AUTOMATION INSTITUTE, LLC
RIN-mania: A Farce in Three Acts
Ara Barsamian and Lee Curcio
Refinery Automation Institute, LLC
Tel: +1-973-644-2270 E-mail: [email protected]
There is a great hue and cry over RIN’s, otherwise known as US Government multi-billion dollar
tax on consumers to force the use of renewable fuels. In 2016, US refiners paid about $2.2
billions for RIN credits The consequences are not humorous: some merchant refiners are on the
verge of bankruptcy and laying off hundreds of workers because they can’t cope with razor-thin
margins and paying off extortionary RIN “fines” simultaneously. On the other hand, speculators
are driving up the price of RIN’s, the currency used for the government fines, by buying
everything in sight to create an artificial shortage and drive up the RIN price.
What Are RIN’s?
RIN’s, aka Renewable Identification Numbers are a mandatory fine on anybody making and
selling transportation fuels in the US that does not meet a quota of renewable fuels blended in
the fuel sold. This quota is called Renewable Volume Obligation (RVO), and it is percentage of
the fuel made and sold to the US public. The RVO is determined annually by the US EPA using
the Congressionally-mandated Renewable Fuels Standard (RFS) fixed-in-cement “quota” table.
This quota increases every year, and forces the use of different categories of renewable fuels in
increasing quantities, even if some types are “non-existent”, like cellulosic Ethanol.
The RVO is expressed in RIN’s, a fake currency attached to every gallon of renewable fuel
produced, e.g. 1 gallon of Corn Ethanol has 1 RIN “glued” to it. If the producer sells the Ethanol,
the RIN goes with it (see Fig. 1 for RIN Life Cycle):
Fig. 1 –RIN Lifcycle (Credit: EPA)
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The RINs are “separated” when you physically blend your Ethanol in “your” gasoline BOB
(blendstock for oxygenate blending, a sub-octane gasoline like RBOB and CBOB), and they
count towards meeting your RVO. If you don’t have enough RIN’s, you have to purchase RIN’s
available in the market until you meet your RVO quota; after that, the RIN’s are “retired” (not
available to buy/sell).
Simplified Economics of RIN’s
Let’s take a look at the RIN cash flow for a typical refiner to appreciate the situation. The basis
is:
 1 RIN = 1 gal corn ethanol
 1 RIN price ~= $0.78
Assuming a production of 130 kBPD of RBOB and CBOB
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2016 RVO at 10.10% = 13.13 kBPD of Ethanol X 42 gal/bbl, =551,460 RINs/day
RIN cost if purchased on the open market to meet 100% of RVO=551,460RINs/day X
$0.78/RIN=$430,138 day or $157 million/year
You can reduce RIN out-of-pocket cost by directly blending YOUR Ethanol in YOUR
gasoline. For example, if you blend 1000 bbls of your Ethanol in your 130,000 bbl BOB
gasoline production, you reduce your out of pocket RIN costs by deducting 1000BPD X
42gal/bbl X $0.78=~$32,760 per day, or about $12 million/year out of the $157
million/year RVO RIN cost…
News media reports refiners 2016 spending will exceed $15 billions to buy RINS to meet 2016
RVO of ~18 billion gallons (i.e. 18 billion gallons X ~$0.8/RIN=~ $15 billion). For example:
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PES, Philadelphia, ~$250 million
PBF Energy, ~$320 million
CVR Refining: ~$200 million
Tesoro: ~$1.2 Billion
What Can You Do About RIN’s?
Depending on what side-of-the-fence you are in, you can:
1. Blend physically Ethanol in YOUR BOB directly
2. Export as much of your gasoline to hungry markets outside USA, where the RFS does
not apply, hence no RVO
3. Use higher “RIN” fuels, such as renewable diesel and renewable naphtha, which have
an “equivalence” of 1.2 to 1.7 times that of Corn Ethanol, so you use fewer physical
gallons to meet you RVO quota:
4. Consider Bio-ETBE as a blend component, affordable and recognized renewable
5. Do nothing and continue paying exorbitant RIN prices to meet your RVO quota
6. Shift the RVO point of obligation from refiners to Ethanol blenders
©2017 by Refinery Automation Institute, LLC. All right reserved.
+1-973-644-2270
[email protected]
REFINERY AUTOMATION INSTITUTE, LLC
1. Blend physically Ethanol in YOUR BOB directly
Since Ethanol is corrosive and promotes crack corrosion and brittleness, it cannot be blended at
a refinery or transported via pipeline or barges/ships, and it is blended at the final distribution
point, e.g. marketing terminals/truck racks or truck compartment.
The costs could be prohibitive to include Ethanol tanks, piping, metering, and dosing equipment,
and rack modification, exceeding $1 to $2 million/terminal. To this, you must add another $0.5
million/year for maintenance. If you have 40 terminals, this adds up close to $100 million.
Compared with the hundreds of millions spent in buying RIN credits, it may be worthwhile for a
refiner to expand existing Ethanol handling capacity to help defray some of the renewable fuel
costs.
You cannot subcontract to a third party to do the Ethanol blending and still get RINs UNLESS
YOU OWN the Ethanol and the attached RINs.
Ahhh….then there is the infamous “Blend Wall”; just like the Berlin Wall. It limits you to blending
a maximum of 10 vol% Ethanol in gasoline because the auto industry fears the economic
burden of absorbing warranty repair costs for Ethanol caused corrosion failures. The RFS
legislation demands more than 10 vol% Ethanol, so there is a conflict between RFS and its EPA
“policemen” and the auto manufacturers, which is dragging out in courts.
2. Export as much of your gasoline to hungry markets outside USA, not subject to RVO
US exported gasoline is not subject to RFS, hence no RVO/RIN’s.
There is a huge gasoline demand in the export market, particularly in Latin and South America,
West Africa, and Asia. Most of the gasoline is of conventional type with less stringent specs,
where one can also use cheap high octane MTBE as a blend component. Ethanol is used in
Brazil at about 25% level, and the other countries are just experimenting with modest levels of
Ethanol, but there are no RVO’s/RINs to contend with.
3. Use higher “RIN” fuels, such as renewable diesel and renewable naphtha to meet RVO
There are a number of higher “RIN” fuels, such as FAME biodiesel, renewable diesel and
renewable naphtha, which have an “equivalence” of 1.2 to 1.7 times that of Corn Ethanol, so
you use fewer physical gallons to meet you RVO quota
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1 gal corn ethanol = 1 RIN
1 gal FAME-type biodiesel= 1.5 RIN
1 gal FAME-type biodiesel= 1.7 RIN
1 gal of isobutanol = 1.3 RIN
There are three problems with this approach:

Except for FAME biodiesel and the “renewable” diesel, renewable naphtha, or
alternatives such as isobutanol are quite expensive, and not yet commercially
available in megaton quantities.
©2017 by Refinery Automation Institute, LLC. All right reserved.
+1-973-644-2270
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REFINERY AUTOMATION INSTITUTE, LLC


You are limited to using a maximum of 5 vol% Bio-Diesel in commercial auto diesel
(ASTM D975), so there is a limit to RINs you can get via this back-door.
You can maximize RINs by using renewable diesel (aka hydrogenated vegetable oil)
which has no established legal limits yet, but is limited by the density specs, e.g.
Neste NexBTL can be used in up to 30 vol% in European EN590 auto diesel. In
USA, Colonial Pipeline has a spec allowing up to 5 vol% HVO.
4. Use of Bio-Ethers
The European Union is a massive user of Bio-ETBE, (Ethyl Tertiary Butyl Ether) made with bioEthanol. It contains about 47% of Ethanol and the rest is isobutylene, so it has a RIN
equivalence of 0.47 RIN’s.
Why would one use Bio-ETBE?
Because of significantly lower overall fuel production costs, volumetric fuel gain profitability,
transportation and infrastructure costs when compared with fuel-grade Ethanol. For example:
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It can be blended at the refinery, it can be transported economically via conventional
means, pipelines, barges, ships,
has highly desirable blending properties, like ~110+ octane and low 4psi RVP
it is recognized by EPA and qualifies as renewable fuel and RIN credit to meet RVO
it increases the volume of saleable gasoline by 22 vol% (equivalent to 10% Ethanol)
it is 99% less water-soluble than Ethanol, thus reduces risk of contamination from leaky
filling station tanks
ETBE is manufactured economically either by converting existing/mothballed MTBE
plants, or building new units. Typical cost is about $30 million for a new 20,000 BPD
capacity, and about $18 million for converting an existing MTBE unit.
In the US, the politically-correctness environment of the 1970’s pushed some state governments
such as California and New York to not consider heavy bio-alcohols as acceptable substitutes
for Ethanol. This requires re-examination of the facts, and pushing for waivers to allow use of
bio-ETBE.
5. Do nothing and continue paying exorbitant RIN prices to meet your RVO quota
Do nothing and continue business as usual paying exorbitant RIN prices to meet your RVO
quota
6. Shift RVO Obligation from Refiners to 3rd Party Ethanol Fuel Blenders
This requires a change in legislation, and US refiners have been pressing regulators to modify
the RFS program so more of the point of RVO obligation rests with third-party physical Ethanol
blending companies, like rack-sellers, which currently are not RVO-obligated entities (see Fig.
2).
©2017 by Refinery Automation Institute, LLC. All right reserved.
+1-973-644-2270
[email protected]
REFINERY AUTOMATION INSTITUTE, LLC
The shift, like the RFS program itself, is highly politicized. Whether the shift will occur, and it
would be successful, or just another avenue for fraud and “get rich quick” scheme remains to be
seen.
Fig. 2 The current RVO “Point Of Obligation” in RFS2 (Credit: Valero letter to EPA)
Conclusion
Clearly RFS and RVO’s have been a heavy burden for US refiners, and cost the industry over
$2 billions in 2016 alone, thousands of layoffs, and fuel cost increases passed on, or to be
passed on, to consumers.
There is no “one magic solution fit all”. Increasing exports is one potential solution. The other is
increasing/expanding the Ethanol blending facilities. Unfortunately one of the best economic
solutions is impractical at the moment because of state bans on using bio-ETBE.
Juggling the use of higher equivalency RIN biodiesel, renewable diesel, and other advanced
biofuels certainly can reduce the onerous RIN costs by 10 to 20%, not 100% but it’s better than
nothing. Before embarking on any alternative path to tackle the “RIN problem”, one requires a
thorough economic analysis of available RIN cost reduction paths to establish feasibility and
practicality,
©2017 by Refinery Automation Institute, LLC. All right reserved.
+1-973-644-2270
[email protected]