Employees at Delaware City Refinery are nervously eyeing their future after Philadelphia Energy Solutions, a major competitor, recently filed for bankruptcy, citing the heavy expense of buying federally mandated renewable fuel credits that are also causing financial distress at the Delaware plant.
The Delaware facility was already urging the U.S. Environmental Protection Agency to reform its system of so-called RINs (Renewable Identification Numbers) which merchant refiners like Delaware City are required to buy at prices which they say have been sharply inflated by financial speculators trading the credits on the open market.
That has cost Delaware City Refinery $75-$85 million a year since 2014, and has now become the plant’s second-biggest cost after crude oil, officials say.
After warning in November that jobs were at risk because of the credits, officials at Delaware City’s owner, PBF Energy, are using the bankruptcy at the Philadelphia facility - the largest on the East Coast - as a new warning of the threat posed by the credits.
“The PES bankruptcy filing highlights the incredibly debilitating financial burden that RINs place on merchant refiners,” said PBF spokesman Michael Karlovich. “Their 330,000 barrel-per-day refinery is the canary in the RINs coal mine, and as their bankruptcy filing indicates, extremely high and volatile RIN costs represent their highest expense other than raw materials, which is unsustainable.”
Karlovich called the PES bankruptcy an “unmistakable signal” that the system of credits under the federal Renewable Fuels Standard – a 2005 regulation designed to increase the use of biofuels like ethanol in gasoline -- needs to be reformed.
He said RINs previously forced layoffs at PES and may do the same at other merchant refiners unless the EPA reforms the system.
“The government must take action to address the crushing burden of RINs on merchant refiners so that other refiners are not forced into the circumstances PES is facing,” he said. “Job-creating projects are already on hold and, if RINs go unaddressed, thousands of engineering and construction jobs across the country could also be at risk, in addition to refinery jobs.”
The EPA, which did not respond to a request for comment for this story, previously proposed some measures that would have eased the financial burden on refiners like Delaware City, Karlovich said. But, under pressure from the biofuels industry, it has now finalized an “overly aggressive” RINs program for 2018 that fails to address the refiners’ concerns.
Still, PBF hopes the agency will relent in response to the PES bankruptcy and waiver requests from several governors and some small refiners, he said. In addition, Delaware Senators Carper and Coons, and Rep. Blunt-Rochester have asked the Federal Trade Commission to investigate the RINs marketplace which Karlovich called “non-transparent, unregulated, and fraught with fraud.”
Advocates for renewable fuels deny the RINs have caused the refineries financial distress. Instead, they say the problems have been mostly caused by switching to more expensive imported crude oil because domestic producers in North Dakota are now pumping their output to the Gulf Coast in new pipelines more cheaply than the oil trains that have supplied refineries like Delaware City in recent years.
The Renewable Fuels Association, a trade group, urged the EPA to reject a call by Pennsylvania Gov. Tom Wolf last November to waive the renewables obligation for Northeast refiners until the market price for RINs declines.
Market speculation about EPA policy on RINs has driven wide swings in their price in recent years, Karlovich said. In 2013, they surged to an all-time high of $1.45 from only 5 cents a year earlier, on expectations that the EPA was preparing to increase the ethanol requirement, thereby raising demand for the credits that refiners like Delaware City – which have little or no capacity for blending ethanol with gasoline – are required to buy.
The market price for current-year ethanol RINs has since fallen back to around 65 cents but is still sharply higher than in the first few years of trading, and remains a significant burden on refiners like PBF and PES. For PBF company-wide, the cost of credits now exceeds payroll, and is equal to some two-thirds of the capital budget, officials say.
RINs are issued for each gallon of ethanol sold to enable the federal government to track whether the amount of fuel being use meets the requirements of the Renewable Fuels Standard.
In November, Delaware City joined with PES and the Monroe Energy refinery in Marcus Hook, Pa. to urge the EPA to give them relief from RINs. Workers from the three refineries rallied outside the Delaware City plant to highlight the financial threat from the credits and urge the EPA to reform the system.
Gov. John Carney said at the event that the credits were designed to reduce the use of fossil fuels but had been distorted in a way that threatens the survival of refineries like Delaware City. His spokesman did not respond this week to a request for any update on the governor’s work on the issue.
Kevin Herbein, president of the United Steelworkers local 4-898 at Delaware City, said there appears to be no immediate threat to jobs at the refinery but that may change if the company continues to buy credits at the current level.
“They were pennies and they’ve been up as high as over a dollar, and we just can’t sustain that,” said Herbein, who represents about 375 of the refinery’s approximately 560 workers. “That’s money that we could use to reinvest into the refinery.”
The bankruptcy at the East Coast’s biggest refiner has raised new questions about the future of smaller operators like Delaware City, Herbein said. “Who’s going to be next?” he asked.
Separately, the refinery is pressing ahead with a plan to expand the amount of ethanol that it stores and ships on behalf of other East Coast refineries. But it received a setback in mid-January when a Superior Court judge said a state board must reconsider whether two environmental groups have standing to challenge the refinery’s plan.
Judge Diane Clarke Streett said the Coastal Zone Industrial Control Board was wrong to reject a challenge by Delaware Audubon Society and the League of Women Voters, who say the ethanol expansion plan violates the Coastal Zone Act, the recently updated landmark law that restricts industrial development along Delaware’s coastal strip. The judge ruled that the groups did have standing to bring their claim before the board, and sent the case back to the board.
Ken Kristl, a Widener University environmental law professor who represents the groups, said the Coastal Zone Industrial Control Board must now take another look at the standing issue before it gets to the merits of the case. He said it’s possible that the board will get to the merits of the case in the remanded case, but more likely that it will first decide the standing issue.
“Then and only then will we get to the merits about whether or not the ethanol trans-shipment is allowed under the Coastal Zone Act,” Kristl said.
