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HF Sinclair Sees Renewable Diesel Market in Canada

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Independent refiner and renewable fuels player HF Sinclair sees export opportunities for renewable diesel manufactured in the US, the company said Monday.

Speaking to investors and analysts during a call to discuss the company's first-quarter earnings, HF Sinclair personnel said that a renewable diesel unit in Cheyenne, Wyoming and a pre-treatment unit (PTU) in Artesia, New Mexico have been completed and are currently functioning, with Cheyenne already producing finished gallons.

Executives for HF Sinclair — formerly HollyFrontier, before its merger with Sinclair Oil — also described ideal end-markets for the low-carbon fuel.

“California, as you could well imagine, it is the biggest market,” said Renewables President Tom Creery. The state has a massive economy, stringent environmental regulations and a low-carbon fuel standard that incentivizes renewable diesel.

The Pacific Northwest states of Washington and Oregon are also key areas for renewable diesel, experts say.

“But that's not to say that we're not looking at other markets,” Creery continued. “Canada is looking more and more attractive. In fact, at some point in time it is offering a better netback than those in California. And that's even without understanding completely or getting all the information as what the Canadian [renewable fuel standard] equivalent program is going to look like."

Renewable diesel is identical at a molecular level to petroleum diesel, which means it can serve as a replacement fuel in existing vehicle tanks. However, it is produced from waste oils, agricultural oils and tallow, and has a lower emissions profile. Given the accelerating energy transition, that makes it attractive to some refiners.

HF Sinclair is one of a slew of downstream players that announced it was converting some existing refineries to produce renewable diesel and sustainable aviation fuel from 2019-22.

Some experts have warned that the rush to produce renewable diesel could tighten markets for feedstock, but Creery said this issue has yet to manifest for the company.

“We've had zero problems in buying feedstock in the market. We just haven't run into any problems," he said. "We've got a fair amount of volume secured through the year 2023, which puts us in a pretty good position right now."

Corporate personnel added that as renewable diesel production ramps higher, headwinds to income from complying with blending mandates under the US Renewable Fuel Standard should abate.

This is particularly true when it comes to renewable identification numbers (RINs), which are credits generated when biofuel is blended into transportation fuel that can be traded as offsets when physical blending is impossible.

“As we sit here today, we're still a little short [RINs], but we've got line of sight to be in balance here within the year," said CFO Richard Voliva.

Several refiners have identified compliance costs and especially RINs as a key factor that pressures earnings.

HF Sinclair reported adjusted net income of $175.6 million in the first quarter of 2022, up from an adjusted net loss of $85.3 million in the same period last year.

Topics:
Earnings, Biofuels (incl. SAF), Refining, Independent Refiners
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