HollyFrontier Doubles Capital Spending in 2021, Accelerates Renewable Diesel Efforts
HollyFrontier Corporation (NYSE:HFC) (Dallas, Texas) is betting big on a post-COVID-19 recovery. The refiner is defying other energy companies' pandemic actions with plans to nearly double its capital expenditures in 2021, including an investment of between $500 million and $530 million in its renewables business. With demand for traditional fuels in tatters, HollyFrontier is moving to a greener diet as it aims to improve its image as a top polluter. Industrial Info is tracking more than $1.3 billion in active projects involving HollyFrontier, more than 60% of which is expected to begin construction in 2021.
HollyFrontier recently announced it will spend between $1.05 billion and $1.15 billion on capital projects next year, roughly twice the $475 million to $550 million total expected for 2020. The company has high hopes for a post-coronavirus recovery: U.S. gasoline demand for Thanksgiving week fell more than 25% from the same period in 2019; Christmastime isn't looking much better, and U.S. refiners' total utilization rate is down more than 10 percentage points from the same time last year, according to data from the U.S. Energy Information Administration (EIA).
One of the company's most ambitious projects is the multi-phase addition of a renewable diesel unit (RDU) at its Navajo Refinery in Artesia, New Mexico, which will convert pretreated soybean oil, vegetable oil and tallow into renewable hydrogenated diesel. This investment will provide HollyFrontier the opportunity to meet the growing demand for low-carbon fuels, while covering the cost of its annual purchase obligation for renewable fuels, as set by the U.S. Environmental Protection Agency (EPA). Among the related projects set to kick off in first-quarter 2021:
- a $280 million renewable diesel hydrotreating unit; see project report
- a $200 million renewable diesel pretreatment unit; see project report
- a $45 million addition of six storage tanks; see project report
- a $25 million addition of a loading/unloading railcar rack; see project report
HollyFrontier is under pressure to overhaul the Navajo Refinery. In February, a study conducted by the Environmental Integrity Project using data from 100 refineries across the country, provided by the EPA showed the Navajo Refinery had the second-highest levels of cancer-causing pollutant benzene emissions in the nation, according to New Mexico's Carlsbad Current-Argus. The company responded that it had ended service at "a single tank that we later determined as the biggest source" of the pollutant, although the facility continues to be one of the largest emitters of benzene. A month later, it contracted KP Engineering Limited (Tyler, Texas) to construct the RDU, which it had first publicly announced in November 2019.
HollyFrontier already has made aggressive moves at its refinery in Cheyenne, Wyoming, which it is converting entirely into a renewable diesel plant. The former 52,000-barrel-per-day refinery in Cheyenne ran its last barrel of crude oil in August and is preparing for a $150 million conversion of a hydrotreater, which is scheduled to begin in the summer of 2021. The company is retrofitting the 16,000-BBL/d diesel hydrofiner to a 6,000-BBL/d renewable diesel hydrotreater, with feedstock similar to the new Navajo unit. For more information, see Industrial Info's project report.
Tim Go, the chief operating officer of HollyFrontier, said in a recent quarterly earnings-related conference call that the Cheyenne conversion "significantly will reduce our [operating expenses] load, as well as [capital-spending] and turnaround burdens, especially looking into 2021."
When the Navajo and Cheyenne refineries complete these projects, HollyFrontier is expected to have a combined capacity of more than 200 million gallons per year of renewable diesel. The new Navajo unit will pre-treat more than 80% of the feedstock for both of its renewable diesel plants, according to the company.
On the fossil fuel side, HollyFrontier is building a $90 million crude oil pump station in Cushing, Oklahoma, which will support a 160,000-BBL/d pipeline from the Plains All American Pipeline LP's (NYSE:PAA) (Houston, Texas) oil hub in Cushing to HollyFrontier's refinery in Tulsa, Oklahoma. Construction began on the facility, which includes four pump packages, in September, and it is expected to wrap up in the summer of 2021. For more information, see Industrial Info's project report.