February 2, 2012
Over the past few months, there have been two high-profile investigations of alleged renewable identification number (RIN) fraud, and as reported by OPIS earlier this week, EPA has sent proposed settlement offers to 28 companies who used fraudulent blending credits to meet their obligation under the renewable fuels standard (RFS2). So how do companies using or trading RINs prevent becoming another victim of fraudulent RINs? Three RINs-related experts provided guidance during a webinar hosted by OPIS on Wednesday.
"The word that comes to mind when describing the current state of the RIN market is fragile," Jim Damask, ethanol broker at Biofuels Connect, explained during the webinar.
Under RFS2, companies are required to have a RIN for every gallon of gasoline or diesel they sell -- in effect, they must either create an E10 or buy RINs to cover their fuel production from others in the marketplace that have more RINs than they need. In the past few months, the founder and CEO of Maryland-based Clean Green Fuel was charged in federal court with a scheme in which he allegedly sold $9 million in biodiesel-related RIN credits purportedly produced by his company, while the owner of Texas-based Absolute Fuels allegedly sold RINs from biodiesel that was never produced by his 50-million gal/yr plant.
"Traders and obligated parties now have the daunting task of policing the RIN market and filtering through RIN offers in the open market and deciding which RINs will most likely give them the most limited risk in the future," Damask explained. "With market rumors of future and pending EPA investigations of RIN fraud, the market is on edge and hesitant. Market participants are now forced to vet each RIN seller on an individual basis," he added.
Meanwhile, Jeff Hove, vice president of RINAlliance, said there are rumors of more EPA investigations into alleged fraudulent RIN transactions. "We heard there will be more ... in the next 30-60 days," he told listeners on the webinar. "In my mind, the sooner, the better," he said, since market participants can then move forward with business as usual.
What Hove, Damask and Sandra Dunphy, director of Energy Compliance for Weaver, all explained during the webinar is that everyone participating in the RINs program has the potential to be at risk for fraudulent trading. "No party can guarantee that all RINs purchased are valid," Dunphy explained.
Additionally, "[t]here is no published definition or complete list of what items can/will invalidate a RIN, which makes it hard to do due diligence," she said.
For its part, EPA has taken a "buyer beware" stance, Dunphy explained, with obligated parties having the responsibility for acquiring and using valid RINs. EPA expects "boots on the grounds" by obligated parties, she said, with site visits to potential RINs trading partners and doing due diligence on biodiesel- related companies. "There is obviously a lot of biodiesel information that is available in the market" on a particular company, she explained.
As part of his recommendations, Hove suggested that parties contact EPA to discuss specific examples. "If you can't get an answer [from EPA], I would put that business model on hold," he said. "It's better to be safe than sorry in this environment."
During the question and answer portion of the webinar, one caller relayed his experience with EPA in which he had trouble reaching someone at the agency. "They are not taking any calls. ... You don't get any response," the caller said. He described a scenario in which his company thoroughly vets a RINs trading partner, in which that company's RINs "looks good, tastes good and smells good," but then nine months later EPA could say those RINs were invalid.
Who would be liable in that case, the caller asked.
"Ultimately, it's the immediate seller of the RINs," who is liable, Hove responded. "You can do quality assurance [on the RINs trading partner], but you never know 100%," he added.
To prevent fraudulent RINs, Hove suggested that a standard by EPA would be ideal, but it would take approximately two years to be finalized, he said. "From where I am sitting, we don't have the time. We have RINs that need to be sold today. ... We don't have time for a rulemaking for EPA to help us,"
he added.
In the interim, Hove recommended companies keep the following two questions in mind: "Do you have the backing to withstand a lawsuit if there are invalid RINs. ... [a]nd how quickly can you replace them?"
Damask outlined four ways to prevent being a victim of fraudulent RINs:
--"Know who you are buying from. You can request the seller's name and facility IDs before you transact if you are buying in the broker market.
Buying from a quality blender that blended the fuel is one of the safest paths;
--Request a detailed review of the RINs history. Ask for the details on how the fuel was produced, acquired and blended (or used for) downstream in creating the K2 separated RIN;
--Protect yourself in writing. Developing your own contract and/or clauses for protection is good practice. These contracts or clauses can be included in confirmations through the broker market. Also listing out the agreed upon facility IDs on your confirmation is key; and
--Know your EPA (RFS2). It is important to embrace and study the RFS2.
Ensure clear guidelines are defined. Be sure that the RINs you purchase hold up to these rules and regulations. One of the recommended focuses in RFS2 is knowing the allowable steps for RIN separation and blending," he added.
Plans for the 4th Annual OPIS RFS2, RINs & Biodiesel Forum are currently underway. Learn everything you need to know for staying in compliance with both the U.S. and Canadian RFS in just 2 days! Please visit www.opisnet.com/rfs2rins to request information be sent to you as soon as it becomes available.
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February 2, 2012
Net increases in annual jet fuel consumption show an uptick in U.S. airline activity in 2011. Yet, rising fuel prices have cut sharply into the profit advances. In fact, while most U.S. airlines showed an annual profit in 2011, for a majority of carriers, those were smaller than for 2010.
Profit declines ranged from a 75% drop in net income at U.S. Airways to an 11% decline at JetBlue.
The two exceptions were AMR's American Airlines, which declared bankruptcy, and Alaska Airlines, which posted a 9% gain in net income in 2011 compared to 2010. OPIS reviewed the earnings from Alaska Airlines, Delta, JetBlue, Southwest, United and US Airways.
In a look at the annual earnings results from U.S. carriers, OPIS found that airlines reported fuel cost increases of 27% to 39%, depending on how they made their fuel purchases. As most airlines hedged their fuel purchases (U.S. Airways does not hedge), carriers on average saw a 33% increase in prices. In the spot market, 2011 U.S. jet fuel prices rose 39% from 2010. OPIS' national average of jet fuel prices stood at $3.035/gal in 2011 and $2.18/gal in 2010.
American did not release annual earnings data, as it declared bankruptcy in November 2011.
On average fuel consumption among the six airlines reporting earnings was up 7%. United saw a negligible consumption decline of 0.9%, Southwest saw a 23% increase in fuel use. The Department of Energy reported a marginal increase in the average of weekly product supplied, a measure of demand.
For some airlines, profits from their fuel hedges added substantially to the bottom line. Delta Airlines, for instance, posted a hedge profit of $164 million. The carrier continues to hedge fuel heading into 2012 and is predicting it will have a hedged fuel cost of $3.16/gal in the first quarter of 2012.
While some airlines have trimmed routes, the way a number of airlines are trying to cope with the fuel conundrum is with the purchase of new, more fuel- efficient planes. Delta, American and Southwest all announced substantial orders of new planes.
And around the world, other airlines are investing in more fuel-efficient aircraft in an effort to cut their bills. The two main commercial aircraft makers reported record orders for 2011. Airbus touted that it got 1,419 net new orders for the year, and Boeing got 805 net new orders. Just this year, both aircraft makers rolled out new, more fuel-efficient single-aisle planes. The advertised fuel savings is 20%.
It could take half a decade or more, however, for the airlines to feel the effect of adding more fuel-efficient planes to their fleets. That's because the deliveries will be spread out over five or more years. That's even as Boeing ramps up production of its 737s to 35/month at the start of the year and looks to boost that to 37/month.
Aviation joins Europe's cap and trade market on January 1, 2012. Airlines flying into and out of the European Union must now manage their fuel emissions under the new European Emissions Trading System (ETS). Find out how experts at Europe's leading airlines intend to manage their jet fuel and carbon purchasing and hear their advice for smaller operators by visiting OPIS' clean jet website at: http://cleanjet.opisnet.com. |
January 30, 2012
In an effort to head off potential fraudulent renewable identification number (RIN) transactions, U.K. gasoline and diesel supplier Greenergy announced today the development of a traceability standard to verify each RINs transaction. The standard will be applied to biofuel and RINs purchased and supplied by Greenergy in the U.S.
"There have been concerns over the trading of fraudulent and invalid RINs in the U.S. market," explained Greenergy Chief Operating Officer Paul Bateson. "Our new Integrity Standard for RIN verification and traceability is intended to address such concerns and establish a unique level of transparency in the marketplace. To my understanding, it is the first of its kind in the U.S.," he added.
Specifically, the Greenergy RIN Integrity Standard (GRIS) requires third- party auditors to verify that biofuel has been produced in the stated quantities and according to EPA requirements. As the company explained, "[i] ndependent auditors will be required to visit selected production sites for initial certification, and then on an annual basis to confirm production processes, output, feedstocks and supply chain traceability, according to audit procedures that encompass and exceed the existing EPA RFS2 attestation requirements."
Greenergy explained that it will undergo quarterly audits by third parties to ensure it is adhering to RIN verification and handling procedures.
The announcement comes as at least two cases of alleged fraudulent RINs have been filed in federal court.
Under RFS2, companies are required to have a RIN for every gallon of gasoline or diesel they sell -- in effect, they must either create an E10 or buy RINs to cover their fuel production from others in the marketplace that have more RINs than they need. In the past few months, the founder and CEO of Maryland-based Clean Green Fuel was charged in federal court with a scheme in which he allegedly sold $9 million in biodiesel-related RIN credits purportedly produced by his company, while the owner of Texas-based Absolute Fuels allegedly sold RINs from biodiesel that was never produced by his 50-million gal/yr plant.
Plans for the 4th Annual OPIS RFS2, RINs & Biodiesel Forum are currently underway. Learn everything you need to know for staying in compliance with both the U.S. and Canadian RFS in just 2 days! Please visit www.opisnet.com/rfs2rins to request information be sent to you as soon as it becomes available.
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January 26, 2012
Card lock pioneer David Harris has been named as the new chief executive officer of Seattle-based PetroCard, replacing Stephen Tolton who retired after four years with the company.
Harris was formerly the president of Harris Oil Company, Metrofueling Inc., Harris Transportation, Truax Harris Energy, Alliance Fleet Serves and Cascade Energy. He most recently served as president of Pacific Pride, the card lock franchisor that is spread across 34 states and 2,200 locations.
Harris is well known in fleet fueling circles and built some of the most successful and aggressive card lock efforts in the Northwest through the last few decades. He has served on the board of the Petroleum Marketers Association of America and as chairman of the Pacific Oil Conference and Management Institute.
PetroCard offers fuel services via card locks, as well as via mobile refueling and traditional delivery to bulk fuel tanks. The company is the largest ExxonMobil distributor in Washington state. In addition to operations in Washington and Oregon, the company has a presence in Camden, N.J., and Santa Ana, Calif.
Plans for the 18th Annual OPIS Fleet Fueling Conference & Exhibition are currently underway. Learn best practices and strategies used by industry experts during this 2 ½ day event. Please visit www.opisnet.com/fleetfueling to request information be sent to you as soon as it becomes available. |
January 25, 2012
Looking to improve its fleet fuel economy, Norwegian announced today an
$11.4 billion order for 100 Boeing 737 MAX airplanes and 22 Next-Generation Boeing 737-800s.
Norwegian's interest was driven by the 10% fuel savings promised by Boeing with the 737 MAX. Over the past few years, fuel costs have become the largest operating expense airlines face. And the high cost of fuel has been a major factor behind the declining profitability two U.S. carriers reported this week.
Other U.S. carriers are expected to post financial results this week and they are called to see lower profits. For 2011, U.S. carriers barely eked out full year increases in revenue passenger miles, as a sluggish economy has hurt air travel. The difficulties faced by U.S. carriers are similar to those faced by other carriers around the world.
"The 737 MAX will deliver fuel savings better than any competing single- aisle airplane on the market," said Aldo Basile, Boeing Commercial Airplanes vice president Sales, Europe. "Improved financial performance and improved environmental performance go hand-in-hand as fuel burn is lowered."
The 737 MAX will be powered by CFM International LEAP-1B engines which will reduce fuel burn and CO2 emissions by an additional 10%-12% compared to today's most fuel-efficient single-aisle airplane, Boeing said. The 737 MAX is expected to have the lowest operating costs in the single-aisle segment with a 7% advantage per seat over tomorrow's competition.
Norwegian currently operates a fleet of 62 airplanes: 48 Next-Generation 737- 800s and 14 737-300s. Including today's announcement, Norwegian has 184 unfilled orders for Boeing airplanes including: 100 737 MAX airplanes, 78 Next- Generation 737-800s and six 787 Dreamliners from Boeing and leasing company partners. Oslo-based Norwegian is the first European carrier to finalize an order for the 737 MAX, a statement said.
Carrying nearly 16 million passengers in 2011, Norwegian is the third- largest low-cost airline in Europe. Started in 2002, Norwegian currently operates more than 300 routes across Europe into North Africa and the Middle East.
Aviation joins Europe's cap and trade market on January 1, 2012. Airlines flying into and out of the European Union must now manage their fuel emissions under the new European Emissions Trading System (ETS). Find out how experts at Europe's leading airlines intend to manage their jet fuel and carbon purchasing and hear their advice for smaller operators by visiting OPIS' clean jet website at: http://cleanjet.opisnet.com. |
