A bipartisan group of two dozen U.S. Senators sent a letter to President Trump, urging him to reject the demands of the oil refining industry, which has called for exemptions to biofuel blending requirements. It’s the latest chapter in a perennial war between ethanol producers, corn growers, and politicians from the Midwest on the one hand, and oil refiners and their allies from the Gulf Coast and Pennsylvania on the other.
The global pandemic and the collapse of oil prices has devastated both sides. Demand for ethanol tracks gasoline consumption, so the steep drop in fuel consumption has hit ethanol producers very hard. But refiners are also curtailing processing and shutting down some facilities temporarily as demand has fallen off of a cliff.
In mid-April, a group of five governors from oil-producing states sent a letter to the EPA, asking for waivers from the Renewable Fuel Standard (RFS), which requires oil refiners to buy a certain amount of ethanol each year and blend it into the nation’s fuel mix.
“The macroeconomic impacts of COVID-19 have resulted in suppressed international demand for refined products, like motor fuels and diesel,” wrote Texas Gov. Greg Abbott (R), Oklahoma Gov. Kevin Stitt (R), Utah Gov. Gary Herbert (R), Wyoming Gov. Mark Gordon (R) and Louisiana Gov. John Bel Edwards (D). Requirements to purchase ethanol “present[s] a clear threat to the industry under such circumstances,” they wrote.
Refining runs declined from 15.8 million barrels per day (mb/d) for the week ending on March 20 to 12.45 mb/d in mid-April. “[W]e are at a point now where costs must be minimized to keep these vital national security assets operating,” Geoff Moody, vice president of government relations at the American Fuel and Petrochemical Manufacturers, a lobby group for refiners, wrote on the group’s website in April. He said there is a “need for a waiver” from the RFS.
Related: Does Nuclear Power Have A Future? In this zero-sum war between ethanol and refiners, Corn States are pushing back. Support for ethanol has bipartisan support in the Midwest, and writing to President Trump, a group of 24 Senators warned against a waiver. “Waiving the RFS would cause further harm to the U.S. economy, especially our most vulnerable rural communities,” the letter said. More than 70 corn ethanol facilities, representing 6.1 billion gallons of ethanol, have been idled. Another 70 have curtailed processing rates, according to the Senators.
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Roughly half of U.S. ethanol production has been idled, taking output down to a record low since the EIA began tracking data back in 2010.
Both sides are only months removed from the last fight over waivers, an open wound that was instantly reopened at the onset of the pandemic. “The resiliency of America’s renewable fuel industry has already suffered as a result of the EPA’s drastic expansion of the small refinery waiver program in recent years,” the letter said.
In the first few years of the Trump administration, the EPA increased waivers to small refineries, allowing them to get out of blending requirements. The moves are widely seen as causing havoc in ethanol markets, crashing prices for ethanol credits. The waivers incensed farmers and ethanol producers.
The Trump administration has seesawed back and forth between corn and oil, trying to minimize the outrage from each camp. He threw some bones to Big Corn, such as allowing year-round sales of E15.
But he has been unable to find a middle ground, and it’s not entirely clear if there is a way to please both sides. The issue doesn’t receive much mainstream press but could be vitally important to his reelection. Many corn states just so happen to be important Midwest swing states – Michigan, Wisconsin, Minnesota, and Iowa, for example.
At the same time, the global pandemic and a sudden economic recession (or worse) has scrambled the electoral map. The energy industry is in crisis, and even Texas no longer appears to be a shoo-in for Trump.
By Nick Cunningham, Oilprice.com
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