Refining King Icahn Seeks Freedom From Pricey Biofuels – Seeking Alpha

By Jon Lesage

Valero Energy Corp. (NYSE:VLO), Americas largest oil refiner, has been conducting a behind-the-scenes campaign to rid refiners of the costly biofuel blends mandate by the U.S. government. Billionaire Carl Icahn, who also heads oil refiner CVR Energy (NYSE:CVI), has been a big part of these efforts.

Valero has been coordinating lobbying efforts to get the Trump administration to revise the Renewable Fuel Standards (RFS) governing gasoline and diesel. The refiners and its allies are asking Trump to transfer the point of obligation for blending biofuels, such as 10 percent corn ethanol into gasoline, away from refineries and over to gasoline retailers and shippers such as FedEx (NYSE:FDX). That comes from an investigative report from Reuters involving interviews with two former Valero executives who spoke to the media outlet.

The point of obligation requirement has been costing refiners a great deal under rules enforced by the U.S. Environmental Protection Agency (EPA). The federal rules, which go back to a bill signed in 2005 by then president George W. Bush, forced Valero to spend about $750 million last year buying RFS credits.

Icahn has been working with Valero since last August, with a letter submitted to the EPA asking for a policy change. The letter to the EPA said the rules create a rigged market unfair to oil refiners.

Icahn had taken a special advisor role to Trump soon after the election. He resigned from this position on Friday after taking a lot of criticism about having a conflict of interest.

"I never sought any special benefit for any company with which I have been involved, and have only expressed views that I believed would benefit the refining industry as a whole," he wrote in a letter to Trump on Friday.

It had a never been a problem for the president, according to the White House.

Reuters also reported that the Trump administration is considering making the point of obligation changes. The president has not yet made a formal decision on it.

Valero had sold off its own ethanol blending operations through cash-raising deals in 2006 and 2013. That put the company in a tough position and led to the $750 million spend last year on credits to meet compliance rules.

Ethanol producers and their lobbying groups have been arch enemies of oil companies and refiners in recent years. Biofuel blenders, corn famers, and producers of advanced biofuels blended with motor fuels had been lobbying hard to keep the gasoline and diesel mandates in place.

They also wanted to see gasoline go up to 15 percent ethanol blend. It did get the greenlight from the EPA, but so far has failed to find acceptance at gas stations. It also stoked more battles with the oil industry, with automakers concerned about the corrosive engine effects of using E15 in gasoline.

One of these biofuel trade groups, Renewable Fuels Association, has been supporting Valeros efforts lately, according the Reuters article. The group recently dropped its long-time opposition to RFS policy changes. The ad hoc coalitions efforts to move the burden down the supply chain is more palatable for the trade association.

Valero, Icahn, and other refiners, would like to see others play a more visible role in lobbying for the biofuel blend rule change. That coalition may include a gas station owners trade group and a former Obama administration environmental advisor. They would very much like to restore their cash flow lost to paying for RFS credits.

Valero is working hard to bring in others as the public face lobbying to revamp RFS, former company executives told Reuters.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Refining King Icahn Seeks Freedom From Pricey Biofuels - Seeking Alpha