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Why BP (NYSE: BP) Loves Renewable Fuel

Brian Hicks

Written By Brian Hicks

Posted June 24, 2013

Could BP (NYSE: BP) be turning a new leaf?

The oil giant, notorious for the Deepwater spill and ensuing damages, is now stridently opposing the repeal of certain government rules that mandate the usage of renewable fuels, even though most of the oil and gas sector is (somewhat predictably) lending its support to Congress.

ethanolOne big reason why BP has come out so strongly in favor of the renewables rule is that the company, in collaboration with DuPont Co., is set to unveil a new alternative fuel some time around this year’s close. Obviously, it won’t be a very friendly business climate if that launch coincides with the government deciding to shut down a mandatory-use law for alternative fuels.

The Renewable Fuels Standard was established back in 2007, and it was designed to coax industries into relying more and more on renewable, environmentally-friendly fuels (and thus to reduce American dependence on imported oil). In other words, this was a pre-shale era.

Thus, the law has seen companies like Exxon Mobil (NYSE: XOM) routinely blend renewable fuel into its gasoline products. According to the EPA and many renewables producers, the rule has certainly achieved its goal of helping industries at large transition over to a more environmentally-friendly infrastructure.

However, as Bloomberg reports, critics accuse the standard of having raised costs of food and fuel. The food complaint stems from the fact that corn is being used to make ethanol, thus driving up food costs (and, at the end stage, fuel costs). The food industry has gotten behind working to repeal the RFS.

The National Coalition of Chain Restaurants, a group representing chain restaurants including big names like Wendy’s and White Castle, has pledged its support for the repeal of RFS.

On the other end of the aisle, oil majors like Exxon allege the RFS is now obsolete due to the shale revolution, claiming the RFS may actually be holding growth back by hamstringing companies with the renewables clause.

One other important factor is the “blendwall”—the ten percent threshold approved by the government as safe for engines, beyond which percentage there should be no more ethanol content in the blended fuel. Given the continued decline of gasoline usage in the U.S., it means it’s getting harder to achieve that blend without going over the 10 percent limit. FuelFix reports, for example, that a higher blend, known as E15 (15 percent ethanol) can only be used in vehicles manufactured after 2001.

The Renewables Option

However, the renewables sector has its fair share of claims. To wit, ever since the RFS was passed into law, oil prices in general have risen more than twofold.

FuelFix quotes Tom Buis, CEO of Growth Energy:

“Only 14 percent of the price of food is attributable to the cost of the commodity, while the rest can be attributed to energy costs and marketing,” Buis said, noting the energy-intensive nature of processing, packaging, storing, refrigerating and other work needed to “bring food from the farm to the table.”

Moreover, Bob Dinneen, president of the Renewable Fuels Association, stated that about a third of every bushel of grain used for ethanol production is actually sent back to the market in the form of livestock feed supplies.


Meanwhile, the American Petroleum Institute has come out protesting the EPA’s approval of a 15-percent blend, claiming this has not been adequately tested and could, accordingly, prove unsafe on the road. For example, pump station owners could be at risk of litigation if they end up pumping 15-percent blended fuel into cars that cannot handle it.

The whole argument from the “Repeal RFS” camp can be summarized, in short, as the claim that RFS was designed to push innovation and development in the renewable fuels sector, and it has achieved that and now needs to be phased out. The blendwall problem may be seen as one pressing indicator of this threshold.

However, it also makes sense why BP would want to work against this repeal—Bloomberg points out that the company, along with DuPont, has already invested $13.8 billion in lobbying efforts to that end.

It’s difficult to predict the outcome of all this as far as fuel costs go, because it’s simply too early. Nonetheless, it’s worth paying close attention to future moves, as this will resonate throughout the renewable fuels industry as well as the conventional oil and gas sector.


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