# RIN Pricing and RIN Markets Washington, DC July 7, 2015

Susan Lafferty, Partner David McCullough, Counsel Sutherland Asbill & Brennan LLP

# Sutherland Forward Looking Views Are Based Only on Public Information and Subject to Change 2



# Sutherland’s views in this Presentation and any attendant discussions are based on publicly available information, and not 

# on any client, confidential or private information. Sutherland’s views are solely ours and not intended to represent the views of any company or person. Any of our predictions, forward looking 

# views and analyses are subject to change at any time and for any reason.

# RFS Mandates – 2014 Proposed

Total Renewable Fuel – 15.21 billion gallons (D6 + D3, D4, D5, D7 RINs) Advanced Biofuel – 2.2 billion gallons (D5 + D3, D4, D5, D7 RINs) Cellulosic Biofuel – 0.017 billion gallons (D3, D7 RINs) Biomass- Based Diesel – 1.28 billion gallons (D4 RINs) 3Total Renewable Fuel – 36.0 billion gallons Total Advanced Biofuel – 21.0 billion gallons Cellulosic Biofuel – 16.0 billion gallons Biomass- Based Diesel – At least 1.0 billion gallons 

# RFS Mandates – 2022 4

# Market Reaction to Proposal
 

# 2014 and 2015 Markets Reacted as Expected  

# 2014
• 

## Market was anticipating an ethanol number at the high end of EPA’s ranges.
• Actual oversupply of RINs due to additional biodiesel production. 

### • 

## Market was anticipating an advanced number at the high end of EPA’s range.
• Actual RIN generation – exports were much greater. This resulted in a higher Advanced number and unanticipated demand for RINs. 

##  

# 2015
• 

## Market for ethanol and biomass-based diesel RINs mirrors 2014 as demand is approximately at 2014 production.

• Some differentiation between 2014 and 2015 for Advanced RINs because market is somewhat uncertain where excess production is going to come from 

##  

# 2016
• 

## Some thought that EPA’s gasoline consumption figure may be low, resulting in additional ability to blend ethanol and more ethanol RINs available. Market is not yet anticipating this, but investment banks are anticipating gasoline consumption increases in 2016 (EPA anticipates a decrease). 5

# RFS Announcement and D6 RIN Prices 6

RBOB and Ethanol prices (left axis) compared to D6 RIN prices (right axis). Source: PFL Markets Daily

# RIN Prices: A Volatile Market Tied to Regulatory Action 7

# 2015 and 2016 Standards: Low Gasoline Prices = More Ethanol and Higher RFS Standards

 

# RFS standards will increase significantly if gasoline consumption 

# increases this year and next. 8

# 2014 RFS Proposed Volumes

Proposed Volumes for 2014 Initially Proposed 2014 Ranges in November 2013 Net RINs Generated

in 2014 (Excluding RINs Equivalent to Exported Volumes)* Projected

Available 2013 Carryover RINs RFS Category EPA Proposed Volume EPA Proposed

Percentage Standard Statutory Volume

Required with No EPA Adjustments Total Renewable Fuel 15.93 billion 9.02% 18.15 billion gal. 15.0- 15.52 billion 16.2 billion ~1.4 billion Cellulosic Biofuel (D3 & D7) 33 million .019% 1.75 billion gal. 8-30 million 33 million 0 Biomass- Based Diesel (D4) 1.63 billion

(RIN equivalency of ~2.5 billion) 1.42% ≥ 1.0 billion gal. 1.92 billion 2.6 billion ~400 million Total Advanced (D3, D4, D5, D7) 2.68 billion 1.52% 3.75 billion gal. 2.0-2.51 billion ≤2.8 billion ~400 billion Other RINs (D6) (Not a mandate) 13.25 billion N/A 14.4 billion 12.49–13.52 billion 13.5 billion 1 billion 9

*These numbers are approximate and based on Energy Information Administration (“ EIA”) data for 2014 export volumes. These numbers also assume that all ethanol exports were satisfied through the retirement of D6 RINs.

# 2015-2016 RFS Proposed Volumes 10

Proposed Volumes for 2015 RFS Category EPA Proposed Volume EPA Proposed

Percentage Standard Statutory Volume

Required with No EPA Adjustments Total Renewable Fuel 16.3 billion 9.04% 20.5 billion gal. Cellulosic Biofuel (D3 &

D7) 106 million .059% 3.0 billion gal. Biomass- Based Diesel (D4) 1.7 billion

(RIN Equivalency of

~2.6 billion) 1.41% ≥ 1.0 billion gal. Total Advanced (D3, D4, D5, D7) 2.9 billion 1.61% 5.5 billion gal.

Proposed Volumes for 2016 RFS Category EPA Proposed Volume EPA Proposed

Percentage Standard Statutory Volume

Required with No EPA Adjustments Total Renewable Fuel 17.4 billion 9.63% 22.25 billion gal. Cellulosic Biofuel (D3 &

D7) 206 million .114% 4.25 billion gal. Biomass- Based Diesel (D4) 1.8 billion 1.49% ≥ 1.0 billion gal. Total Advanced (D3, D4, D5, D7) 3.4 billion 1.88% 7.25 billion gal.

# Renewable Fuel Imports and Exports
 

# Very little pressure to import sugarcane ethanol in 2015 (although a slight increase since 2014).  

# Increase in pressure to import sugarcane ethanol, biodiesel and 

# renewable diesel in 2015.

 

## Most likely this will take the form of increases in renewable diesel imports. 

##  

# Ethanol exports will continue to take the excess ethanol production 

# that is above E10.  

# 2016 biodiesel exports likely to drop dramatically. 11

# Imports of Ethanol 12

# Imports of Biomass- Based Diesel 13

# Exports of Ethanol 14

# Exports of Biomass- Based Diesel 15

# YTD Diesel Imports 16

YTD Biodiesel imports compared to previous years Source: Goldman Sachs Global Investment Research 2015 Biodiesel import source countries Source: Goldman Sachs Global Investment Research

# Biogas: Cellulosic RIN Generation Will Increase if Registrations are Processed 17

# Biogas: Incentives for Biogas under the RFS Skyrocket: Decoupling of Natural Gas and Crude Prices 18

# State Actions: West Coast Creep



# = +

------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------ Washington State's Leadership on Climate Change:

2009 Executive Order 19

# Jones Act: Costs and Opportunities

 

# Opportunities : Blending at Terminals in the Virgin Islands and Caribbean; Investments in US Flag Vessels 20 

## Shipping Rates to U.S. Northeast Refineries ($/barrel)

Origin Rate US Gulf Coast $5.00 - $.600 Eastern Canada $1.20 Nigeria $1.45-$1.70 Saudi Arabia $1.90 Source: Platts Oilgram (Sept. 9, 2013) and McGraw Hill Financial, January – April 2014. 20

# Regulatory Pressure to Export Gasoline and Diesel Continues 21



## Jones Act



## EXPORTS FROM THE UNITED STATES22

# Sutherland Partner Susan Lafferty
Susan Lafferty advises refiners, commodity traders and renewable fuel producers on the ever-evolving landscape governing the trade and movement of refined products, crude oil and renewable fuel. Susan leads the Firm’s Fuel Group which focuses on the regulatory and commercial issues related to EPA's Renewable Fuel Standard (RFS) program, RIN trading, and state low carbon fuel standards. She is the go-to for EPA enforcement actions, having represented over a dozen entities in RIN enforcement actions. In addition, Susan works with clients to develop risk management and mitigation tools to address potential spills or releases that may occur when transporting and storing commodities like crude oil, distillates, liquefied natural gas and coal; this includes counsel on the developing requirements and best practices for crude and ethanol by rail. Susan had a key role in overseeing the Oil Pollution Act (OPA) claim process related to the Macondo incident. Susan is a sought after speaker on the RFS and renewable fuel programs, as well as risk mitigation and management. 23

Susan Lafferty, Partner Sutherland Asbill & Brennan LLP Washington , D.C. Susan.Lafferty@Sutherland.com

202.383.016824



# Sutherland Counsel David McCullough

David McCullough, Counsel Sutherland Asbill & Brennan LLP New York; Washington , D.C. David.McCullough@Sutherland.com

212.389.5064 David McCullough counsels producers, refiners, commodity traders and distributers on the physical movement and trade of crude oil, petroleum products, and renewable fuels, including on the U.S. Renewable Fuel Standard (“ RFS”), state low carbon fuel standards (“ LCFS”), the Jones Act, and shipping crude oil by rail. His extensive practice extends from policy analysis to commercial concerns and from regulation to enforcement proceedings. David has significant experience in the implementation and enforcement of the U.S . RFS and state LCFS policies. He is the author of many frequently used provisions in RIN and LCFS credit transactions and served as counsel in the drafting of LEAP’s Master Agreement for LCFS Credits. He represented a significant number of companies in RIN enforcement proceedings that led to the implementation of the EPA’s Interim Enforcement Policies and Quality Assurance Program. David co authored the Bipartisan Policy Center’s Whitepaper, “ Options for Reforming the Renewable Fuel Standard .” He is a frequent speaker and is quoted extensively in the press on RFS and LCFS issues. David has also been on the cutting edge of the other key issues of the day impacting the movement of crude oil, petroleum products and renewable fuel. David counsels clients on shipping by rail, including liability in the event of an accident. David has represented shippers in response to some of the largest accidents involving crude oil shipped by rail. David also frequently counsels clients on Jones Act issues and exemptions and successfully secured the last waiver of the Jones Act (Hurricane Sandy in 2012). David graduated cum laude from Vermont Law School, serving as the environmental editor of the Vermont Law Review.

# CIRCULAR 230 DISCLOSURE: Any advice provided in this

outline concerning a federal or state tax issue is not intended or written to be used, and cannot be used by the taxpayer, for 

# the purpose of avoiding penalties that may be imposed on a taxpayer. 25