Why RINs Could Be 2013's 4-Letter Word For Gas Prices
RIN is the mechanism for enforcing the Renewable Fuel Standards (RFS) - Suppliers can either blend their own to meet standards OR buy RINs from other blenders... due to weather issues last year 2012 RINs were in short supply - and with Feb as the last date to pay for them we saw prices surge. These RIN prices were passed on to customers at the pump. The problem is there is now not enough for 2013 (and even less for 2014) which means that instead of $0.03, RINs for 2013 could stay high in the $0.75 to $1.00 range (depending on ethanol production) and higher for 2014. This could mean the implementation of several possible alternatives - dependent on exogenous factors such as the supply of feedstock (corn, soybeans, sugar and palm oil) and spare biofuel production and blending capacity - supporting corn prices but the higher prices, we suspect, will lead Congress to revise (lower) its RFS mandates. At current levels, given the weighting of renewable fuels, RINs are adding around 7c to each gallon at the pump; should the RINs rise to $3, then that will mean a 10% rise in the price at the pump implying a 0.9% drag of GDP growth - something our Congress won't accept.
Via Goldman Sachs,
The key to the recent rally in RIN prices, the instrument used to enforce the US Renewable Fuel Standard, has been the looming inability to blend as much conventional (corn) ethanol as mandated in 2013 and 2014. In particular, while the 2013 requirements will still be met by drawing down carryover of 2012 RINs, there will not be enough 2013 carryover RINs to achieve this in 2014. As a result, our recent analysis showed that it would take several large adjustments to overcome the 2014 shortage in ethanol (D6) RINs.
Unfortunately, the 2014 shortage in D6 RINs likely just got bigger. The EPA RIN reporting system was updated to now include data for February, a key month by the end of which obligated parties need to comply with their 2012 obligations.
Detailed paper here - everything you need to know about RINs and were afraid to ask...