Headlines

July 3, 2008
Canada Enacts RFS into Law

The Canadian government now joins its southern neighbor in enacting a renewable fuels standard (RFS).
  
On June 26, the Canadian Senate passed Bill C-33, which requires 5% ethanol in gasoline by 2010 and 2% biodiesel blends by 2012. Shortly thereafter, the government signed the provision into law. The House of Commons passed the bill on May 28.
  
According to a press release issued by the Canadian government, the biofuel requirements "will reduce greenhouse gas emissions by approximately 4 megatons per year. This is the equivalent of taking about one million cars off the road, or a solid line of cars stretching from Montreal to Vancouver."
  
"With passage of this law, Canada today embarked upon a new era that will see us grow beyond oil as our only transportation fuel," said Canadian Renewable Fuels Association (CRFA) President Gordon Quaiattini. "This new law will help diversify Canada's fuel supply, reduce harmful greenhouse gas emissions and provide Canadian farmers with new market opportunities," he added.
  
Canadian officials previously estimated that nearly 793 million gal of biofuels would be required nationwide to meet full implementation of the measure's renewable blending requirements. According to CRFA, there are 10 ethanol plants online, currently producing a collective 835 million liters/yr (220 million gal/yr), with another five plants under construction, which will add 625 million liters/yr (165.1 million gal/yr) of capacity. Additionally, there are
three Canadian biodiesel plants online, producing a collective 97 million liters/yr (25.6 million gal/yr), and one plant under construction that will add 225 million liters/yr (59.4 million gal/yr)
of capacity.
  
The Canadian government previously enacted a program called ecoEnergy for Biofuels, which provides producer incentives of up to 10cts/liter for ethanol and 20cts/liter for biodiesel.
 
Both the Canadian RFS, coupled with the financial incentive, will help boost a homegrown biofuels industry in Canada, CRFA touted. "Twenty new world-class facilities are expected to deliver new investment and create new jobs in rural communities across Canada," the organization noted.
  
However, further details about the RFS--such as whether it includes a credit trading program, similar to the U.S. version of the mandate--weren't provided and attempts to reach CRFA by presstime were not successful.
  
While a national RFS is new for Canada, its various provinces have had biofuel-related policies in place for several years. Ontario already requires 5% ethanol in gasoline sold in the province, while Saskatchewan requires 7.5% blending and Manitoba will require an 8.5% level. Other provinces also have operating incentives and tax exemptions for renewable fuels.

July 1, 2008
USDA Says Flood-Trimmed Corn Acres Still Second Highest
Since WWII

The eagerly awaited crop report released by the U.S. Department of Agriculture this morning appears to have many analysts saying it does not look as bad for corn as it could have. The bottom line: corn acres will drop substantially from last year, but at first glance flood damage may be more limited than feared, though it will take more time to get a better fix on its ftermath.
  
Total area for corn planting was estimated at 87.3 million acres, according to USDA's National Agricultural Statistical Service report released this morning. That is a substantial 6.7% drop from the 93.6 million acres planted last year. However, USDA also points out that if the forecast is realized, it will represent the second highest planted corn acreage since 1946. The new crop number is also an increase in the forecast made last March, in which USDA indicated farmers planned 86 million acres of corn.
  
The planting picture presented a similar picture for the upcoming harvest. The USDA also said that out of the area anticipated for corn, growers expect to harvest 78.9 million acres, down 8.7% versus the year-ago harvest -- but still second only to last year since 1944.
  
Corn market sources said the report was not the disaster some had feared and both the number of acres planted and the harvested acres were significantly more than many expected. "The worst scenario was averted, at least so far," commented one corn market watcher "But the full extent of what the flooding did is not yet known and USDA will have to take more time to get a better idea of it."
  
The ethanol industry was quick to trumpet what it called the "silver lining" from USDA. "Based on analysis by the Renewable Fuels Association, it is likely that American farmers will produce in the range of 11.5 billion bu of corn, meeting all projected demands and leaving pproximately 800 million bushels of corn left over," said the association in a press release.
  
The National Corn Growers Association also saw some good news in the report. "[T]aking into account the earlier estimated yield of 148.9 bu/acre harvested, total 2008 corn supply production and carry-in) would be 13.2 billion bu, meeting all currently estimated uses and providing a carry-out that is more than 5% of supply." USDA will not issue its first estimate of
production and yield based on actual crop estimates until Aug. 12.
  
USDA "collected most of the data for the annual acreage report before the majority of the flooding occurred," according to a note in the report, so the agency made a special effort to re-survey farmers in flood areas. Based on readjusted surveys, acreage harvested for grain was projected to drop to 90.4%, down from 92.4% measured in the first two weeks of June.

June 26, 2008
EPA Inundated with Comments on RFS Waiver Request

U.S. EPA received at least 15,000 comments from the public in response to Texas' request to temporarily waive the nationwide renewable fuels standard (RFS), according to an unofficial tally from the agency.

In his late-April request, Texas Gov. Rick Perry (R) asked for a one-year waiver of half of the corn-based requirement. For 2008, the RFS requires at least 9 billion gallons of corn-based ethanol and in 2009, the requirement increases to 10.5 billion gallons.

The 2005 energy bill includes language enabling EPA "to grant a full or partial waiver if implementation of the RFS would severely harm the economy or environment of a state,
region or the entire country, or if EPA determines that there is inadequate domestic supply
of renewable fuel."

The 30-day comment period on the waiver request ended June 23. "As of June 22, approximately 15,000 comments had been received," according to an EPA statement
provided to OPIS.

The waiver request fanned the flames of the already heated "food versus fuel" debate over how much of a role biofuels have played in the run-up of food costs. Supporters on both sides of the issue increased their PR efforts to convince lawmakers and the public of their positions.

Food and livestock producers believe that while there are numerous factors driving up U.S. food prices, the one component that is having more of an impact than supporters say and can be easily addressed by Congress is ethanol.

Meanwhile, biofuel supporters believe there are many factors contributing to rising commodity and food prices, including record oil prices, soaring global demand for commodities, poor weather conditions, a weak U.S. dollar and restrictive agricultural policies around the world. A waiver of the RFS would not cause an immediate or near-term reduction in corn prices, and would in fact raise gasoline prices 20-35cts/gal, biofuel supporters say.

EPA has until July 23 to issue a decision on the waiver request.

June 24, 2008
EPA Warns RIN Market Participants about Trading Violations

The Environmental Protection Agency has become aware of improper trading going on in the market for renewable identification numbers (RINs) and warned market participants Tuesday about the consequences of such actions.
  
The federal agency, which monitors compliance by petroleum and biofuel stakeholders and others with the Renewable Fuel Standard, described in a notice just posted on its website three situations involving illegal actions and the steps that can be taken to correct the problem.

The EPA will consider the remedial acts as mitigating in any penalty imposed as a result of the violation, the notice said. It didn't name any parties or say penalties had been levied.
  
The first scenario involves a recall of assigned RINs by the seller (due to a billing or volume error) and a subsequent corrected invoice serving as Product Transfer Document (PTD) that references different RINs. In this way, a single transfer of renewable fuel can wind up with two sets of RINs.
  
In the second scenario, assigned RINs are transferred to a buyer but without renewable fuel.
  
The third scenario describes gaps between the time PTDs are sent -- in one case after the transfer of custody of the fuel and in another case when assigned RINs are transferred after the PTDs are sent.
  
After each scenario, the EPA lays out how the action has violated specific regulations and how the action is supposed to be carried out.
  
The remedial actions listed in the notice are highly specific.

In the case of the second scenario, "under no circumstances should any party attempt to transfer assigned RINs without associated renewable fuel or transfer assigned RINs that were acquired without renewable fuel." If the violation is discovered, the seller in the transaction should "immediately inform" the buyer that they don't own the RINs," the action section said. All documentation of the transaction, its correction and nullification with the EPA should be retained, the agency said.
 
RINs have been trading since September 2007. In March, EPA official John Weihrauch told attendees of the OPIS Ethanol & Biodiesel Supply Summit that a review of third-quarter and fourth-quarter 2007 reports had revealed some recordkeeping issues such as delays in moving RIN information from sellers to buyers and a number of incomplete product transfer documents (PTDs).
  
Weihrauch described the EPA's initial task as identifying and resolving the reporting issues, with the longer-term goal of reducing the instances. Parties were being contacted to correct submitted information, he said at the time.

June 19, 2008
EIA Shows Ethanol Imports Roaring Back in Spring

The second government report in less than a week revealed a big return of foreign ethanol into U.S. markets, confirming anecdotal reports that have floated around the industry for several weeks or more.

The volume of ethanol imported to the U.S. nearly quadrupled on a month-to- month basis in April, jumping to 59.262 million gal, according to preliminary numbers compiled by the Energy Information Administration. That was not only about 81.6% more ethanol imports than the same month last year, but it confirmed earlier Commerce Department reports of Brazil's big re-entrance to the market.

The largest importer of ethanol to the U.S. over April was the U.S. trading arm of Anglo-Dutch oil giant Shell, which brought in a total 12.516 million gal in six shipments. Shell imported four loads from the Virgin Islands, two of 1.89 million gal each, one of 2.1 million gal and another of 2.268 million gal, all going to New Haven, Conn. Shell also imported two loads to Port Everglades, Fla., one 2.268 million gal shipment from Jamaica and a 2.1 million gal delivery originating from El Salvador.

Morgan Stanley's commodities division, the Morgan Stanley Capital Group, was the top ethanol importer in March and not far off the Shell's pace in April. The company brought 11.718 million gal of ethanol to the U.S. over the month, all in four shipments directly from Brazil. Two Florida deliveries took 3.192 million gal to Port Everglades and 1.176 million gal into Tampa. Morgan Stanley also brought a shipment of 3.906 million gal into Newark, N.J., that went into the Kinder Morgan Carteret terminal and a 3.444 million gal shipment into Philadelphia that went to Sunoco Refining and Marketing.

ConocoPhillips imported 9.576 million gal of ethanol in April, taking a 4.2 million gal delivery from Trinidad and Tobago into Paulsboro, N.J., to its Bayway facility, and 5.376 million gal from Costa Rica to Houston. Trading company Northville Industries took two shipments totaling 6.72 million gal, a 4.2 million gal delivery from Brazil and 2.52 million gal load from Jamaica, all of which went to Perth Amboy, N.J., landing in NuStar Energy's Paulsboro terminal.

Refiner Flint Hills made its 2008 debut on EIA's ethanol import roster, with a single 4.236-million gal shipment that entered in Corpus Christi, Texas, but sent to an unknown processor in Florida. Refiner Valero also brought in a single ethanol shipment in April, taking 4.032 million gal from Trinidad to Carquinez Strait in California near San Francisco where it has a pier located in Benicia, though EIA indicated the material eventually landed in New Jersey, at Valero's Paulsboro facility.

The more diverse roster of locations receiving overseas ethanol lately included Maryland, with BP importing 3.948 million gal in one shipment from Jamaica to Baltimore. Global trading company Vitol imported two El Salvador- origin ethanol shipments, one of 1.344 million gal to Houston and a larger, 2.562-million gal load to New Jersey into Kinder Morgan's Carteret terminal. Chevron also shipped volume to the Houston area, with 2.058 million gal going from Brazil to its Galena Park terminal. 

Several small-volume shipments also moved south from Canada in April. Pharmco Products -- a subsidiary of Canadian ethanol producer GreenField Ethanol -- imported a total of 378,000 gal from Canada, with 252,000 gal arriving in Port Huron, Mich., and a second 125,000-gal delivery to Buffalo- Niagara Falls, New York. Midwest refiner CHS Inc. imported a small amount of Canadian ethanol in April, taking about 84,000 gal to Portal, N.D., for blending at its Laurel, Mont., facility.

Overall, 23 ethanol import deliveries came to the U.S. in April, up from the eight that arrived in March, according to EIA. Direct shipments from Brazil became the largest single source of imported ethanol for the U.S., accounting for about 17.976 million gal over the month.

Total imports from all Caribbean and Central American producers, which can avoid the stiff U.S. tariff under Caribbean Basin Initiative trade rules, amounted to 40.824 million gal in April, led by 13.062 million gal coming from Jamaica.

Trinidad sent 8.232 million gal to U.S. shores over the month, followed closely by the Virgin Islands, where a new plant in St. Croix provided four shipments that totaled 8.148 million gal. El Salvador was the origin point for 6.006 million gal, with Costa Rica providing 5.376 million gal via one shipment.

There continued to be a rather wide discrepancy between import calculations provided
by the U.S. Department of Commerce and those from the Department of Energy's EIA,
with EIA reporting about 9.88 million more gallons of imported ethanol for April than its
federal counterpart. The difference could be explained by timing issues, according to Commerce officials.

In addition, the EIA data is an early count that could be subject to revision. EIA will not release its final tally of April ethanol imports until the last week of June.

Still, both departments revealed two distinct trends: growing ethanol imports to more locations in the U.S. and Brazil's return to the market as a direct source of supply. Industry insiders expect those trends to continue at least through the end of June and into July, with Brazil expected to be particularly active in latter June.

June 17, 2008
Senator Introduces Bill Creating Energy Trust Fund, Ethanol Pipeline Funding

U.S. Sen. Norm Coleman (R-Minn.) introduced legislation earlier this week that aims to diversify the U.S.' energy portfolio, and among its provisions, creates an Energy Independence Trust Fund that would finance the renewable energy-related programs from the 2005 and
2007 energy bills.

The bulk of Coleman's bill, S. 3126, focuses on authorizing deep water exploration of oil and gas, increasing oil and gas production, expanding nuclear energy capacity and accelerating the production of coal-to-liquid technology.

However, the bill would also launch the Energy Independence Trust Fund, which would be financed with the federal share of additional royalties that would be collected when more of the outer continental shelf is opened for development, Coleman explained.   

"This trust fund, which could receive tens of billions of dollars from new royalties, would go
to fully fund all renewable energy, energy efficiency, R&D and technology deployment programs from the Energy Policy Act of 2005 and the Energy Independence Security Act of 2007," the senator said.

Additionally, the trust fund would also finance a new, $4 million ethanol pipeline loan guarantee program. The program would be for use on common carrier pipelines, and according to the bill text, in selecting those who would receive the loans, the government should consider the volume of renewable fuel to be moved by the pipeline, the size of the markets served by the pipeline, the existence of sufficient storage and the proximity of the renewable fuel pipeline to ethanol plants, among other issues. Unless otherwise provided by law, the loan guarantee should not exceed an amount equal to 90% of the eligible project cost of the renewable fuel pipeline, the bill noted.

The prospect of shipping ethanol through pipelines has long been on the purview of congressional sources, fuel producers and transportation officials, as the U.S. seeks to expand biofuels use and access. Ethanol currently cannot be shipped through common
carrier pipelines due to its affinity to soak up water and impurities that can accumulate in pipelines, as well as its corrosive nature. Ethanol's corrosive properties lead to stress corrosion cracking, the formation of brittle cracks in the pipeline. However, the Association of Oil Pipelines has launched a three-prong research project designed to study whether low ethanol blends can be transported in existing pipelines.

Meanwhile, a provision included in the 2007 energy bill requires the study on the feasibility
of a dedicated ethanol pipeline.

S. 3126 was referred to the Senate Finance Committee.

© 2008 OPIS