When HollyFrontier announced its Cheyenne refinery would be converting to renewable diesel back in June, the company joined a growing trend among refineries around the country. Just this spring, CVR Energy, Global Clean Energy, Orion Energy Partners, Greentech Materials, and St. Joseph Renewable Fuels announced multimillion dollar investments converting their refining operations to renewable diesel.
For HollyFrontier, the conversion of the Cheyenne refinery was part of a much larger investment. The company is also building a Pre-Treatment Unit at its Navajo refinery in Artesia, New Mexico, and converting that refinery to produce renewable diesel. The Pre-Treatment Unit will cost up to $225 million to build. That’s in addition to spending as much as $175 million to convert the Cheyenne refinery. All told, the company plans to spend up to $750 million on developing renewable diesel.
That’s a huge expense, but in a PowerPoint presentation to stockholders, the company said there would be “superior economic returns from renewable diesel.” HollyFrontier expects an internal rate of return of 20-30%.
Diesel fuel generally comes from three sources – crude oil, biodiesel, and renewable diesel. There are some significant differences among the three types. While both biodiesel and renewable diesel can be made from renewable resources, such as crops and waste products, the refining process and end product are different. Biodiesel can be mixed with petroleum based diesel for use in trucks and other vehicles. Renewable diesel is chemically similar to petroleum diesel and can be used with no modifications to the engine.
“Renewable diesel is generally a hydrocarbon and is indistinguishable from the petroleum it is replacing. So, it is basically diesel fuel from a renewable resource,” explained Michael Lokey, executive officer for Sunshine Biofuels, in an article for WorkTruckOnline.com.
Renewable diesel improves vehicle performance, cuts maintenance costs, burns cleaner, and has no odor, meaning there won’t be dangerous fumes for drivers and passersby to inhale. It also works better than biodiesel in cold weather.
“Renewable diesel is an advanced biofuel, meaning it provided greater than 50% lifecycle greenhouse gas (GHG) emissions-reduction relative to petroleum-derived diesel,” Robert McCormick, senior research fellow for the National Renewable Energy Laboratory (NREL), told WorkTruckOnline.com.
HollyFrontier expects to produce 200 million gallons a year of renewable diesel, once the conversion and construction projects are complete. There’s a guaranteed customer for their product – the state of California.
California created the Low Carbon Fuel Standard, or LCFS, in 2009, and imposed it in 2011. It’s designed to cut the amount of carbon and greenhouse gases coming from transportation. Many California cities quickly switched their vehicle fleets to use renewable diesel when it first came on the market.
And demand is growing. In 2010, overall refinery production of renewable diesel was 78 million gallons a year. By 2022, production is estimated to be 3,000 million gallons a year.
California currently uses 100% of all renewable diesel made in the United States. The Golden State consumes a total of 4 billion gallons of diesel a year, including all varieties. Renewable diesel is about 23% of that, but California would like to see its renewable diesel usage increase to 50%. That means it could buy every gallon of renewable diesel currently being made or planned, and still want more.
There is also a tax credit of $1 per gallon of renewable diesel which doesn’t expire until 2022.
A spokesperson for HollyFrontier declined comment, but the company’s decision to house its pre-treatment unit in New Mexico means it will probably get the crops and resources it needs from the surrounding area. Artesia, New Mexico is in the southeast corner of New Mexico, about 650 miles south of Cheyenne. The pre-treatment unit will use soybean oil, bleachable fancy tallow (made from inedible beef fat and bones) and distillers corn oil.
HollyFrontier said it expected to stop refining petroleum in Cheyenne at the end of July.