HollyFrontier readies renewable diesel project as Q3 refining margins jump

HollyFrontier on Nov. 3 reported strong third-quarter results from its refining segment due to high demand and margins as it prepares to bring online its Cheyenne, Wyoming, renewable diesel project.

The company has made significant acquisitions in both the renewables and refining space, closing Nov. 1 on the purchase of Shell's Washington-based Puget Sound refinery while waiting for regulatory clearance to complete its purchase of Sinclair Energy, which comes with a sizeable renewable diesel component as well as traditional refining and logistics assets.

"We actually do believe in petroleum fuels. And those are the fuels of today. And most consumers still use gasoline and diesel," said CEO Mike Jennings on the Nov. 3 Q3 results call.

"At the same time, we are not ignorant to energy transition, and we're doing things around renewable fuels, the supply chain around feedstocks and potential opportunities around carbon capture," he added.

During Q3, HollyFrontier processed 416,430 b/d of crude at its four refineries located in New Mexico, Oklahoma, Arkansas, and Utah.

Its Mid-Continent, refinery crack spreads averaged $20.66/b in Q3 2021, versus $8.27/b in Q3 2020, while crack spreads at its Western refining assets averaged $30.52/b compared with $17.86/b during the same period.

In Q4, HollyFrontier expects crude throughput between 450,000 b/d and 470,000 b/d, which includes expected volumes from the Puget Sound refinery in November and December. It also factors in reduced volumes resulting from the major turnaround at its Artesia, New Mexico, which began in early October and is expected to be completed mid-November.

Cheyenne, Artesia renewables projects ahead of schedule

HollyFrontier in August 2020 ceased processing crude at its Cheyenne refinery and began repurposing the plant into a facility to make renewable diesel and sustainability aviation fuel.

On the Q3 call, Jennings noted the project completion was ahead of Q1 2022 target, adding the "6,000 b/d renewable diesel unit is expected to be mechanically complete later this week, and we expect to run our first batch of feed by the end of the year. "

"Given the current economics between refined soybean oil and other feedstocks we prioritized completion of the pre-treatment unit at the Artesia, New Mexico, facility and we now expect to complete the PTU in the first quarter of 2022, a full quarter ahead of schedule, allowing us to run a more favorable mix of feedstocks," Jennings added.

Giving priority to the PTU pushed back completion of the 9,000 b/d renewable diesel unit at the Artesia refinery to Q2 2022.

Moving up renewables feedstock chain

The rising price and availability of feedstock like soybean oil, corn oil and beef tallow has shifted economics for some renewable diesel projects, causing some delays. However, according to HollyFrontier, the Cheyenne RD plant has already sourced feedstock needed for its start-up.

"We haven't had any problems buying feedstocks," said Tom Creery, president of HollyFrontier Renewables, on the Nov. 3 call.

"And as the PTU comes up, we will look to buying additional feedstocks, both degummed and low CI material," he added.

A pre-treatment unit reduces contaminants in the feedstock, allowing for more feedstock flexibility and improving economics. Without a PTU, renewables refiners are forced to buy crude degummed soybean oil at about a $5/gal premium to unrefined soybean oil.

They are also limited running feedstocks like used cooking oil with low CI or carbon intensity which raises the value of credits under programs like Low Carbon Fuel Standard in California, the final destination for most RD today.

Currently, HollyFrontier is buying feedstock on the "spot market...maybe a term of three to six months on some contracts," Creery said.

However, as time goes on, HollyFrontier is looking for ways to ensure secure supply of renewable fuel feedstocks, like soybean oil and beef tallow.

"For example, we are looking at participating in crush plant economics to get a little further back in the value chain," he said.

Creery said HollyFrontier is also talking to producers as to what kind of role they could play on a ongoing basis.

"Early phases at this point in time, we're still evaluating the markets, but it's definitely one of the things we are looking at as we move forward and become a regular offtaker," he added.