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HollyFrontier runs last barrel of crude at Cheyenne refinery ahead of renewable reformation

Highlights

Cheyenne refinery shut in August for renovation

Two renewable projects underway at Artesia refinery in New Mexico

New York — HollyFrontier ran the last barrel of crude through its 48,000 b/d Cheyenne, Wyoming, refinery as it begins to repurpose the plant to produce renewable diesel, a company executive said Aug. 6.

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"We ran the last barrel of crude on August 3 and expect to run the off final intermediates and products inventory in August," said Tim Go, HollyFrontier's chief operating officer on the second-quarter results call.

"We will then begin the conversion of certain units for renewable diesel production and continue to anticipate the Cheyenne Refinery conversion to be completed in the first quarter of 2022," he added,

As a result of the Cheyenne closure, combined with lower demand related to the coronavirus pandemic shut downs, HollyFrontier expects in the third quarter to run between 340,000 b/d and 370,000 b/d of crude in its petroleum refining system, which will now consist of the 155,000 b/d Tulsa, Oklahoma, facility, its 110,000 b/d Navajo refinery in Artesia, New Mexico, the 162,000 b/d El Dorado, Kansas, plant, and the 39,300 b/d Woods Cross, Utah, refinery.

Crude runs averaged 350,000 b/d and refinery utilization averaged 70% in Q2, but utilization in June was approaching 80% as demand returned, Go said.

Push to renewables

HollyFrontier has been using existing refinery process units to create renewable diesel.

In June, in addition to announcing the Cheyenne conversion, HollyFrontier said it would build a pretreatment unit at its Artesia refinery to give feedstock flexibility to the renewable diesel unit being built at the plant.

A rationalization of refinery capacity is underway, accelerated by the coronavirus pandemic and the resulting falloff in demand for gasoline, diesel, and jet. For instance, Marathon Petroleum said Aug. 3 that it will shutter its 27,000 b/d Gallup, New Mexico, plant and its 161,000 b/d Martinez, California, plant.

Gallup is expected to stay idle, but Marathon has said it is looking to turn Martinez into a renewable diesel plant.

HollyFrontier's decision to build the pretreatment plant at Artesia will allow it flexibility of feedstock. The unit will come online in the first quarter of 2022 and will be able to pretreat 40% of all HollyFrontier's renewable feedstocks.

"We've seen a flurry of announcements coming out on renewable diesel of late. And as we go on the supply of feedstock for bean oil and veg, we see probably 2 pinch points: one is the cost capacity, and the second one is the refining capacity as we go forward," said Tom Creery, HollyFrontier's head of commercial operations.

"It's interesting to note, though, that we only crushed 44% of the soybeans in the United States, and the other 56% is exported. So there is capacity to increase that as more projects come on," he added.

HollyFrontier sees "fairly robust demand" for renewables, Creery said.

"California is there, but we also see Colorado, Washington, other states moving towards LCFS adoption," he said, referring to the low carbon fuel standard.

"And as that goes along with Canada, we think that there's going to be sufficient market. The other thing that we do see is that there's increasing demand in Europe. And even today, there is some renewable diesel leaving the United States and going to Europe. So that will always be an option going forward. And on the supply side in Europe, we don't see the expansion -- the announcements that we're seeing in the U.S. today currently."

LCFS, BTC, RINs

With the US presidential election looming in November, changes in renewable policy are anticipated if Democratic nominee Joe Biden wins the election, making the idea of LCFS becoming a national standard more of a possibility.

"Clearly, a Biden administration would be more progressive in terms of green initiatives, but they [the government] haven't yet rolled out LCFS. But I think BTC is probably directionally more likely in the future under both administrations, frankly. It's one of those things that we believe will gain support," said HollyFrontier CEO Mike Jennings.

The BTC, or biodiesel tax credit or blenders' credit, gives a $1/gal income tax credit to each refiner or blender for each gallon of pure biodiesel used or produced. It is set to expire in 2022.

The possibility of a BTC extension bodes well for HollyFrontier and other refiners that are increasing renewable production.

"We're talking about another $200 million per year of cash flow based upon a $1 BTC extension," said Jennings.

Once the three projects are completed, HollyFrontier will have the capacity to make over 200 million gallons/year of renewable diesel.

Besides cutting tax bills, the BTC also helps refiners meet their renewable volume obligations under the Renewable Fuels Act by making and blending fuels, rather than buying Renewable Identification Numbers.

HollyFrontier spent $33 million on RINs in Q2 compared with $31 million in Q2 2019.

"Despite current markets being more than double the levels at this time last year, total costs have remained relatively static due to lower volumes being blended due to lower utilization rates and the purchasing of RINs early in the calendar year when the flat price was lower," said Creery.