Derivative Commodity Instruments

12 Months Ended

Dec. 31, 2011

Derivative Commodity Instruments [Abstract]

Derivative Commodity Instruments

10. Derivative Commodity Instruments

The Company uses derivative instruments to reduce price volatility risk on commodities, primarily natural gas and ethane, from time to time. The Company does not use derivative instruments to engage in speculative activities.

For derivative instruments that are designated and qualify as fair value hedges, the gains or losses on the derivative instruments, as well as the offsetting losses or gains on the hedged items attributable to the hedged risk, were included in cost of sales in the consolidated statement of operations in 2011. There were no derivative instruments designated by the Company as fair value hedges in 2010 and 2009. As of December 31, 2011, the Company had 57,960,000 gallons of feedstock forward contracts designated as fair value hedges.

Gains and losses from changes in the fair value of derivative instruments that are not designated as hedging instruments were included in cost of sales in the consolidated statements of operations in 2011, 2010 and 2009.

The exposure on commodity derivatives used for price risk management includes the risk that the counterparty will not pay if the market declines below the established fixed price. In such case, the Company would lose the benefit of the derivative differential on the volume of the commodities covered. In any event, the Company would continue to receive the market price on the actual volume hedged. The Company also bears the risk that it could lose the benefit of market improvements over the fixed derivative price for the term and volume of the derivative instruments (as such improvements would accrue to the benefit of the counterparty).

The fair values of derivative instruments in the Company's consolidated balance sheets were as follows:

	Asset Derivatives
	Balance Sheet Location	Fair Value as of December 31,
		2011		2010
Not designated as hedging instruments
Commodity forward contracts	Accounts receivable, net	$	2,437	$	47
Total asset derivatives		$	2,437	$	47
	Liability Derivatives
	Balance Sheet Location	Fair Value as of December 31,
		2011		2010
Designated as hedging instruments
Commodity forward contracts	Accrued liabilities	$	3,262	$	—
Not designated as hedging instruments
Commodity forward contracts	Accrued liabilities		973		46
Total liability derivatives		$	4,235	$	46

The following tables reflect the impact of derivative instruments designated as fair value hedges and the related hedged item on the Company's consolidated statement of operations. There was no material ineffectiveness with regard to the Company's qualifying hedges in 2011.

Derivatives in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Derivative	Year Ended December 31,
		2011			2010		2009
Commodity forward contracts	Cost of sales	$	(4,895	)	$	—	$	—
Hedged Items in Fair Value Hedging Relationships	Location of Gain (Loss) Recognized in Income on Hedged Items	Year Ended December 31,
		2011			2010		2009
Firm commitment designated as the hedged item	Cost of sales	$	5,092		$	—	$	—

The impact of derivative instruments that have not been designated as hedges on the Company's consolidated statements of operations were as follows:

Derivatives Not Designated as Hedging Instruments	Location of Gain (Loss) Recognized in Income on Derivative	Year Ended December 31,
		2011		2010		2009
Commodity forward contracts	Cost of sales	$	2,043	$	69	$	5,347

See Note 11 for the fair value of the Company's derivative instruments.