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Energy

UPDATE 2-HollyFrontier to convert oil refinery into renewable diesel plant

(Adds details on charges, background)

June 1 (Reuters) - HollyFrontier Corp said on Monday it will convert its 52,000 barrels per day oil refinery in Cheyenne, Wyoming into a renewable diesel plant to try to tap into growing demand for the alternative fuel.

The company will cease refinery operations at Cheyenne in July - the first U.S. refinery to close in 2020 - and will cut around 200 jobs. The decision was made due to rising costs and expectations that cash flow will continue to suffer due to the coronavirus pandemic.

HollyFrontier said the loss of a federal exemption from pricey U.S. biofuel blending laws also factored in its decision.

“Demand for renewable diesel, as well as other lower carbon fuels, is growing and taking market share based on both consumer preferences and support from substantial federal and state government incentive programs,” said Chief Executive Mike Jennings.

HollyFrontier expects to spend between $125 million and $175 million to repurpose the Cheyenne refinery. When completed in early 2022, the new facility will produce an estimated 90 million gallons of renewable diesel per year.

In January, a federal court ruled that refiners would not be exempted from biofuels laws that requires them to blend ethanol or other similar fuels into their gasoline pool. The decision, if applied broadly by the Environmental Protection Agency, will reduce how many companies get such exemptions.

Refiners have chafed at blending costs. Some have looked to change their operations, such as CVR Energy Inc, which said in May that it was looking to convert some refining units to renewable diesel production. Delek U.S. Holdings sold its Alon Bakersfield refinery to Global Clean Energy, which will convert it to produce renewable diesel.

HollyFrontier expects to produce over 200 million gallons of renewable diesel annually, and expects impairment and depreciation charges of up to $275 million in the second and third quarters. (Reporting by Shanti S Nair in Bengaluru and Stephanie Kelly and Laura Sanicola in New York; Editing by Shinjini Ganguli and Marguerita Choy)

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