(Bloomberg) – In times of changing times, an American oil refinery company converts one of its plants into a cleaner fuel manufacturer.
HollyFrontier Corp.’s Cheyenne Refinery will discontinue the use of crude oil and be used to pump renewable diesel, which is usually made from soybean oil, recycled cooking oil and animal fats. This is the case after processing margins have dropped due to the slump in fuel demand due to locks related to Covid-19. In addition, the maintenance costs of the old facility were “not competitive” and the government is promoting cleaner fuel production.
This is the latest example of how the traditional fossil fuel industry is changing in the face of increasing demands for environmental protection and increasing demand for environmentally friendly energy sources. Cheaper renewable energy projects have already reduced coal production in the United States, and now, after the historic oil crash, some fuel producers are struggling with lower returns from converting crude oil to fuel.
“Demand for renewable diesel and other low-carbon fuels is growing and taking market share based on consumer preferences and support from extensive federal and state incentive programs,” said HollyFrontier CEO Mike Jennings in a statement Monday .
The company expects to spend $ 125-175 million on Cheyenne’s reuse to produce approximately 90 million gallons of renewable diesel per year by the first quarter of 2022. The facility will cease crude oil consumption at the end of July this year and 200 workers will be laid off, according to HollyFrontier.
The switchover plan calls for dozens of small refineries across the country to face high cost increases to meet the renewable fuel standard, which requires mixing biofuel with gasoline or buying tradable credits to meet the requirements. Many small refineries have received exemptions from the mandate for years, but according to a ruling by the federal appeals court in January, only refineries that have been granted derogations continuously can expect to receive them in the future.
HollyFrontier effectively resolves the Cheyenne refinery’s commitment to blending biofuels under the RFS and converts it into a facility that can benefit from the program.
With the converted facility, HollyFrontier can produce not only renewable diesel, which is funded by the RFS, but also compliance credits, which are available separately.
However, the transition is associated with other costs because fewer workers are required to operate the converted facility. The RFS is effectively forcing a plant that generates tax revenue and jobs for Wyoming to close, and is demanding its replacement as a smaller plant that employs far fewer people to sell fuel to California, a refinery industry representative said, asking not to be named and to discuss industry strategy.
Republican John Barrasso, a Wyoming republican, described the job cuts at the Cheyenne refinery as “devastating.” Although the Covid-19 pandemic damaged oil refineries, Barrasso also blamed the environmental protection agency for dealing with the renewable fuel standard.
“The EPA has failed to protect small refineries from inadequate compliance costs under the renewable fuel standard,” said Barrasso in an emailed statement. “Congress has mandated the agency to protect refineries under the Clean Air Act,” and “facilitating the RFS is critical for small refineries.”
For more items like this, please visit us at bloomberg.com
Subscribe now to stay up to date with the most trusted business news source.
© 2020 Bloomberg L.P.