What happens if the Biden Administration fails to fix the Renewable Fuel Standard (RFS)? More domestic, independent refineries could close, further disrupting the U.S. fuel supply chain.
For a glimpse into our possible future, look to the United Kingdom, Ireland, and Europe, which are facing an overwhelming disruption of their fuel supply chain that makes the looming shortage in the U.S. seem like a scheduled brownout in California we can just grin and bear.
There are myriad issues “across the pond.” For starters, the wind stopped blowing in the North Seas. Heavily-subsidized windmills stopped turning and stopped generating electricity. In addition, due to pressure from activists, many natural gas wells, storage facilities, and power plants had been shut down. Facing a dire shortage of electricity, these countries are powering up the remaining gas- and coal-fired plants to generate electricity this winter.
In addition, there is a shortage of fuel truck drivers across the region. UK Prime Minister Boris Johnson declared an emergency and deployed soldiers to deliver fuel to gas stations. The nationwide crisis has forced the U.K. to import foreign fuel in an attempt to meet consumer demand that has led to fueling lines that stretch miles long. However, they are getting outbid by other countries, primarily in Asia.
With gasoline prices surging higher than ever before, people are being shut out from their jobs, disconnected from families, and unable to move about in their home countries. Demand for fuel oil to power electric generating stations is also on the upswing worldwide.
The U.S. is becoming increasingly reliant on gasoline, diesel, and jet fuel imported from overseas refineries, particularly along the East Coast. In fact, one American company sold two East Coast refineries to purchase one in Wales, from which they ship gasoline directly to the U.S. East Coast.
What does this all mean for the average American, who just went through the chaos that followed the supply chain disruption when the Colonial Pipeline was shut down due to a cyberattack earlier this year, when the regional fuel supply was unable to meet immediate consumer demand? Or following Hurricane Ida, when many Louisianans had to wait in long lines for hours in a state with many refineries?
Today, approximately 45 percent of the fuel supply for the northeast U.S. is sourced from refineries in the Gulf Coast, leaving the most densely populated area in the country vulnerable to supply chain disruptions. In fact, nearly 5 percent of U.S. refining capacity has been shut down over the past two years, with the RFS bearing down on the remaining independent refiners, threatening them with bankruptcy, this broken federal compliance scheme stands between supply chain stability and economic calamity in the USA.
Although relatively unknown to most Americans, the RFS levies unsustainable compliance costs in the form of credits called Renewable Identification Numbers (RINs) on independent refiners.
RINs originally cost between a penny and a nickel per credit for the first five years of the program, then ballooned to $2.00 earlier this year. This price increase fueled by speculators and others, coupled with demand destruction for gasoline and jet fuel due to government lockdowns related to COVID-19, have left merchant refiners teetering between survival and bankruptcy.
This expensive, unsustainable, and dysfunctional RFS compliance scheme can also add as much as 30 cents per gallon to the cost of gasoline at the pump, at the same time when consumers are already reeling from surging inflation across the economy. According to a recent Department of Labor report, consumer gasoline prices in the U.S. increased 1.2 percent for September, driving up the annual increase to more than 42 percent.
Without any doubt, the Biden Administration needs to fix the RFS or more independent U.S. refineries will close — with the remaining Northeast refineries in Delaware, Pennsylvania, and New Jersey particularly vulnerable due to runaway RIN costs that are now their second highest operating cost, along with overseas gasoline imports flooding the region.
The crisis unfolding in the U.K. now could very well play out in the U.S. for consumers, businesses, and governments if other countries outbid us for overseas gasoline, as we are seeing with the shortage of LNG in Europe — but on an even larger scale, with overwhelmed and undersupplied gasoline stations, and consumer fuel costs skyrocketing even further.
Imagine a future where the U.S. Army Corps of Engineers must deliver fuel, one truck at a time, to barely satisfy the needs of millions of American consumers as they wait in endless lines to fill up at the pump. If more independent refineries close amid the already dwindling refining capacity in the Northeast, it’s not a stretch of the imagination to suggest that this scary scenario could play out across the country’s most populated region.
If more independent refiners are forced to close, then our nation’s weakened fuel supply chain will necessitate greater imports of foreign fuel to meet RFS compliance, an already alarming trend. Even the notion that we might have to hand over control of our nation’s energy supply to adversarial nations poses a direct threat to our national security. With a shortage of drive U.K. is already relying on Russia to meet its energy needs — what happens in the U.S. is forced to turn to Moscow or other foreign adversaries to fuel for our planes, trucks, and cars?
The cost and long-term implications of the U.K.’s economic calamity is unknown. Their fuel chain disruption has become a national emergency requiring the activation of the armed forces. We cannot allow this to happen here at home, particularly in light of the pain consumers are already feeling at the pump.
President Biden and his administration must take swift and immediate action to reform the RFS once and for all, for the sake of America’s economy, fuel supply chain and energy security.
