By Peter Galuszka

On the busy Southern Branch of the Elizabeth River in Chesapeake, some 33 squat petroleum tanks sit just across the water from the giant cranes of the Norfolk Naval Shipyard in Portsmouth.

The tanks, along with 31 other ones just south of downtown Richmond, play a role in an intriguing and mysterious saga about using financial credits for ethanol for fuel in a federally mandated program.

The tanks are owned by TransMontaigne, a Denver-based firm that is a subsidiary of banking titan MorganStanley. Its various terminals, including the ones in Virginia, generate so-called “RINs” Renewable Identification Numbers, which are the basis of a program that forces oil firms to mix ethanol in their fuel or buy credits from companies that do, such as TransMontaigne.

The federal program, begun by the Bush Administration in 2006 and backed by both parties, was intended as a way to make gasoline and other petroleum products more earth-friendly by blending them with ethanol, a byproduct of renewable corn.

Sounds great, until you read today’s New York Times.

It turns out  that the program was set up so as to open the ethanol credits up on the trading side, with few if any restrictions or even catalogue as to who owns the credits while restricted it for refiners and importers who must use ethanol or buy credits or face fines of $32,500 a day.

Somehow, some way (and no one seems to know why), the price of ethanol credits has skyrocketed 20 times in just six months, the Times reports. This, naturally, ends up as being a kind of unsought tax on customers. A major buyer of credits is JPMorgan Chase, sources tell the Times, but the banking giant says it is not responsible.

Someone seems to be. There appears to be massive speculation on the ethanol RINs whose ownership can’t be traced. Trading is not conducted on an open, transparent market, but over the phone.

And part of it seems to start in some big oil tanks on the banks of the James and Elizabeth Rivers.

Hmmm.