FINDLAY, Ohio -- The top executive at Marathon Petroleum Corp. has downplayed plans to sell E15.
In October, sources told Bloomberg that Marathon Petroleum was weighing whether to sell higher ethanol blends, including E15, at its retail sites in Minnesota. It would do so to enhance its relationship with political leaders in the state, the sources said.
Asked during Marathon Petroleum’s third-quarter 2018 earnings call about the potential of selling E15, Chairman and CEO Gary Heminger said the company continues to analyze E15, but will not make any decisions until the U.S. Environmental Protection Agency (EPA) finishes rulemaking that would allow the 15% ethanol blend to be sold year-round.
“The biggest issue is a majority of the vehicles on the road today will not warrant anything greater than E10, unless you have a flex-fuel vehicle,” said Heminger. “So as we continue to study that, the procedures and implementation processes are not out yet from the EPA on how they would implement this.” (A recent analysis by the Renewable Fuels Association found that 93% of model-year 2019 light-duty vehicles were approved to use E15 by their manufacturers.)
Currently, retailers in most markets cannot sell E15 to any vehicles other than flex-fuel vehicles (FFV) from June 1 to Sept. 15, due to seasonal Reid vapor pressure (RVP) restrictions that target smog. In October, President Donald Trump directed the EPA to begin the rulemaking process to provide E15 with an RVP waiver for the summer months. The EPA planstoadopt the final rule providing the RVP waiver by May 2019, although it faces potential legal challenges.
Opponents, however, question whether the EPA has the authority to grant the waiver to E15, arguing that only Congress can provide it. This includes Marathon Petroleum.
“We question whether or not they really have the authority to grant this E15 waiver year-round,” said Heminger, who described allowing E15 sales during three additional months of the year as “de minimis.” “We need to see … what the procedures are that come out from the EPA before we make a final determination.”
The EPA is also taking steps to reform the Renewable Identification Number (RIN) market under the Renewable Fuel Standard (RFS). Obligated parties under the RFS, including refiners such as Marathon Petroleum, use RINs as credits to demonstrate compliance to annual biofuel blending targets. Many large retail chains earn RINs to sell as they blend biofuels. Some opponents of the RFS have argued that the RIN market lacks transparency and is open to abuse by speculators, which has driven up prices from time to time, cutting into refiners’ profits.
The EPA is considering a few different reforms to the RIN system, including allowing only obligated parties to purchase separated RINs, announcing when an individual entity has amassed RINs beyond certain limits, limiting how long non-obligated parties under the RFS can keep RINs, and retiring RINs in real time.
During the earnings call, Heminger said he was heading to Washington, D.C., to “chat about” RINs.
“Our big push has been to have a refresh, if you will, of the Renewable Fuel Standard,” Heminger said. “And while that has not happened yet, you really step back and … look at the numbers, RINs have gone from $1.25 back in 2016, 2017, down to 78 cents this week. So we have made a tremendous amount of progress.”
Heminger pointed to the small refinery exemptions granted by the EPA that waives refiners’ blending obligations under the RFS as part of the cause behind the falling RIN prices.
While some refiners have blamed high RIN costs for pressuring profits, Timothy Griffith, senior vice president and CFO of Marathon Petroleum, said the company’s profitability was not significantly affected by them.
“We are not believers that RIN costs … drive differential profitability within the refining system,” he said. “We have a pretty convicted view that as RIN prices arise, it gets reflected in the crack, and on a net basis, the system is no better or worse off than where things are at.”
Ethanol industry reps have attacked the EPA for being too generous in granting the small refinery waivers, arguing that they have undermined ethanol demand.
“We're not fully where we think the market needs to go and where the administration needs to go as far as fixing this RFS problem,” Heminger said, “but we're continuing to work on it diligently.”
Findlay, Ohio-based Marathon Petroleum operates 16 refineries and a marketing system that includes approximately 7,800 branded U.S. locations, including about 5,600 Marathon retail outlets. Enon, Ohio-based Speedway owns and operates approximately 4,000 c-stores nationwide. Marathon Petroleum also owns the general partner and majority limited partner interest in two midstream companies, MPLX LP and Andeavor Logistics LP.