Calumet Specialty announces Great Falls, Montana, renewable diesel project – S&P Global

Highlights

Plans include conversion of hydrocracker for co-processing

No timeline given for completion

New York — Calumet Specialty Products has plans to produce renewable diesel by reconfiguring a hydrocracker at its 37,000 b/d Great Falls, Montana, refinery, the company said in a statement.

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Plans include converting a 24,000 b/d gas oil hydrocracker to process between 10,000-12,000 b/d of renewable feedstock while retaining the ability to run between 10,000-12,000 b/d of Western Canada Select crude, the Feb. 16 statement said.

“We believe Great Falls, which connects western agriculture with West Coast and Canadian clean product markets, presents one of the most compelling opportunities for Renewable Diesel production in North America,” the statement said.

The company estimates “future dual train operations” will generate between $220 million-$260 million of EBIDTA based on mid-cycle market prices and “existing environmental market structure,” which includes incentives such as the $1/gal federal Blenders Tax Credit (BTC), creation of RINs and California’s Low Carbon Fuel Standard (LCFS) credits.

No timeline was given for when the project would be complete, but the company in its statement noted that hydrocracker conversions are “typically faster to market, cheaper, and less technically challenging” than other methods of producing renewable diesel.

“My guess is that this [project] has high probability because the equipment is already there,” said Gary Greenstein, Senior Consultant in Petroleum Refining at S&P Global Platts Analytics.

Feedstock supply concerns

Biofuels are expected to play a bigger role as global oil demand begins to recover in 2021 with coronavirus vaccine rollout, with year-on-year 2021 US biofuel demand 116,000 b/d higher at 2.6 million b/d, according to Platts Analytics, which pegs renewable diesel and sustainable aviation fuel production growing to 5 billion gallons by the end of 2030.

Growing RD production raises the question of will there be enough feedstock to support them. Calumet did not provide information on feedstock sourcing, but Montana and its surrounding states grow grains and raise livestock, giving it easy access to vegetable oils and tallow used to make renewable diesel.

New RD projects has increased demand and prices for feedstock, including soybean oil which serves as a benchmark for biomass-based diesel costs. Platts Analytics notes the price of soybean oil is rising, averaging 45.8 cents/pound so far in February, despite reporting the second largest crush on record in January.

Rising RINs costs, fewer biofuel waivers

Calumet is the latest oil refiner to announce plans to adapt an existing plant to run renewable feedstocks in an effort to curb the rising cost of complying with the federal Renewable Fuel Standard (RFS) and increase earnings.

So far, there are about 12 refinery conversions and/or partial repurposings of hydrocarbon plants to renewables in the US, according to data gathered by Platts.

Calumet has yet to announce the date it will release its fourth-quarter and 2020 earnings. But third-quarter 2020 results included a hefty $64.5 million for the purchase of RINs, or Renewable Identification Numbers. The cost of RINs has risen from the third-quarter of 2020 when ethanol and biodiesel RINs averaged 46 cents/RIN and 67 cents/RIN, respectively, according to Platts assessments, to 93 cents/RIN and $1.08/RIN, respectively, so far in the first quarter of 2021.

Obligated parties like refiners must buy RINs credits needed to meet their Renewable Volume Obligation under the RFS if they can’t blend enough renewable fuels into gasoline and diesel.

So as the cost of RINs continue to rise, small refiners like Calumet will pay more for RFS compliance unless they can make RINs by producing renewable fuels.

While small refiners like Calumet can get some relief under the Small Refinery Exemption, the SRE waivers are increasingly hard to get.

Calumet is still waiting to hear from the EPA on its Great Falls biofuel waiver request for 2019 and 2020, filed in 2019 and 2020, respectively. Because they had not heard from the EPA within the 90 days of filing the petitions, on Jan. 20, they filed in local district court asking for an enforcement ruling since without one the EPA could force Calumet to be in violation of the law for failure to comply with the RFS Program.

In January, the EPA granted only two biofuel waivers for 2019, well below the 31 initially granted in 2018 and the 35 granted in 2017, as the new Biden administration took over. The names of the recipients of these SRE waivers were not released.

“This sets a precedent for incoming EPA under the Biden administration. We expect minimum if any SRE …will be given on a go-forward basis, which is bullish for all biofuels producers,” wrote Manav Gupta, an analyst with Credit-Suisse.

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Capacity million g/y

Capacity b/d

Planned Additional Capacity

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