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Refiners in the U.S. are contemplating a claim that the addition of butane to gasoline qualifies for a US$0.50 per-gallon tax credit. The liquefied petroleum gas was defined as an alternative fuel under a now-expired 2008 law aimed at promoting cleaner fuels and, according to two attorneys as quoted by Bloomberg, refiners are still entitled to their tax credit under that law.
Butane is used as additive to gasoline during the winter months to comply with government regulation about pollution-causing emissions. The Internal Revenue System considers butane a liquid petroleum gas, along with ethane and propane, but according to the authority, it does not fall in the alternative-fuel category that is eligible for tax credits.
The IRS is currently reviewing this question—one on a long list of questions related to taxes that the IRS plans to settle over the next 12 months. Meanwhile, refiners could really benefit from the tax credit as they mix some 142 million barrels of butane in gasoline every year. That’s 6 billion gallons or tax credits to the tune of US$3 billion.
The chances of successfully claiming butane as tax credit-bearing additive seem to be slim. Bloomberg relates the case of Sunoco, which last year tried to claim US$300 million in tax credits for the addition of ethanol to the gasoline it sells. The Court of Federal Claims, however, sided with the government in its ruling, saying that Sunoco’s claim would “result in a windfall that Congress did not intend.”
On the other hand, according to Energy Information Administration analyst mason Hamilton, “There’s no way refiners and blenders would leave money like that on the table.” Margins have tightened, and costs have risen in the last couple of years, with refiners’ profits down 60 percent in 2016 alone. Meanwhile, butane prices have gone up by as much as 49 percent since June, Bloomberg notes, making the tax credit claim worth considering.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.