Stephanie Kelly, Jarrett Renshaw

(Reuters) – U.S. merchant oils refiners, Monroe Energy and PBF Energy (NYSE 🙂 Inc, are playing chicken against the White House by making moves in the biofuels market credit market that could lead to them closing plants or firing union workers unless they get bail out of the Biden administration changing the rules for blending biofuels into gasoline.

Merchant refiners are trying to get rid of a U.S. law that requires them to mix biofuels such as ethanol in their fuels or to buy credit from those who do.

Reuters’ analysis of earnings data shows that until recently they had largely continued to take part in the credit market worth multibillions. They bought credits to offset their production. These same refiners have now accumulated record credit positions.

The shift is an attempt to bet that U.S. Vice President Joe Biden would ultimately support refiners and powerful union supporters. Experts speaking to Reuters say that significantly restoring the law the way they want would be a rebuke to the nation’s Farm Belt.

The White House’s rising fuel prices are putting pressure on the White House, giving refiners more leverage. These factors have a negative impact on Biden’s poll ratings.

Brooke Coleman, the executive director for Advanced Biofuels Business Council said that this was nothing but a political shakedown. The Biden White House is daring these refineries to lie down in their bed of biofuel credit short positions.

LIABILITIES IN SKYROCKET

Refiners who had little outstanding biofuel credit liabilities a year ago have let them climb to record highs https://graphics.reuters.com/USA-BIOFUELS/WHITE-HOUSE/znpnekxowvl/chart.png in the third quarter, according to a review of their latest financial filings.

* Monroe Energy, a subsidiary of Delta Airlines (NYSE:), , has increased its potential biofuel liabilities to a company record of $547 million by the end of the third quarter, up from just $68 million a year prior, the latest filing shows

* PBF Energy Inc has amassed a $1.3 billion credit liability from halting or slowing purchases, according to its third quarter filing, up from $236 million a year earlier.

* CVR Energy (NYSE:), whose majority owner is billionaire Carl Ichan, has a $442 million credit liability, according to the company’s third quarter filing, up from $83 million a year earlier.

All of these companies did not respond to our requests for comment.

Philadelphia Energy Solutions (PES), a Carlyle Group-backed company, ended its purchase of compliance credits in 2017, eventually making a $350million outstanding obligation. It then filed for bankruptcy. As part of bankruptcy hearings the U.S. Environmental Protection Agency, (EPA) waived approximately half of these costs.

After a huge explosion in 2019, the PES refinery was forced to close.

“PES taught the market that you can play chicken with the EPA and win. It’s a form of civil disobedience of the law,” said Ed Hirs, an energy economist at the University of Houston.

Hirs stated that shorting market prices is an obvious strategic move, however it comes with great risk.

“If the administration doesn’t buckle, then these companies will have to pay billions of dollars to comply. That could force PBF into bankruptcy and we will see if Delta reaches into its pockets to bail out the refinery,” Hirs said.

CREDITS HISTORIC YEAR

The EPA requires that refiners submit compliance credits by March of the prior year. This gives them flexibility in when and how they pay these costs. Refiners used to purchase biofuel credits every day to meet their production. However, they were allowed to defer purchasing if the price is too high or they needed to manage cash flow.

In a record year, the RINs (regularity credits) have been traded in an unpredictable manner. On Wednesday, renewable fuel (D6) credit prices traded at $1.08 each after reaching an all-time high of $2.00 in June. This level remains above the 80c mark at which they began the year.

Reuters published a September report that indicated the Biden administration had been considering drastic cuts in the blending requirements. This would upset farm-state voters so the decision was delayed while Democratic legislators tried to pass more big-ticket bills.

A DISRUPTIVE SHUTDOWN IS WARNED

The White House has been contacted by refiners who claim that higher gasoline prices have led to higher fuel costs, at $3.40 per gallon. The Refiners have pointed out that many of the plants in Biden’s state, Delaware, provide union-paying jobs.

At least one refinery is being threatened by closing due to outstanding biofuel liabilities.

Two sources have confirmed that Monroe Energy made presentations to several stakeholders in recent weeks. They included local labor leaders and politicians.

Sources said that the company’s presentation clearly stated that the Biden administration could either intervene and reverse U.S. Biofuel Laws or it would have to close its around 200k barrel-per-day refinery and fire hundreds of union employees.

The Delta refinery will have to enter the market to settle its significant $547 million debt if the Biden administration does not intervene.

Filings reveal that the refinery suffered a loss of $186 million in its first three quarters for 2021.

A source familiar with the presentation stated that they made it very clear that this hill was their final resting place.