By Ben DuBose
SAN ANTONIO -- When industry experts think of key US
refiners, HollyFrontier may not be the first name at the top of
the list. But over the past few years, theyve been among
the most profitable.
For them, its all about the location. HollyFrontier
operates five complex refineries with a combined 443,000 bpd of
crude processing capacity, with inland operations in the
mid-continent, southwestern and Rocky Mountain regions.
As its CEO Mike Jennings
explained at Tuesday mornings industry leadership
breakfast, HollyFrontier has leveraged its geographic positions
to access cheap-but-landlocked crude oil in the middle of the
That gives the company a decided edge over global
competitors, Mr. Jennings explained. However, he does believe
that advantage can be shared with other fuel makers in the US
and Canada as long as appropriate policy measures are taken.
HollyFrontier benefits from historically-wide
differentials based on our proximity to land-locked oil
sources, he said. Our entire country, or even
continent, has a similar opportunity to realize this
differential effect due to great increases that will come from
tight oil reservoirs in the US and Canada.
Proposed infrastructure networks such as the Keystone XL
pipeline system could be instrumental in spreading the oil to
coastal and other refineries.
Through an ongoing process of logistics expansion, US refining and chemical plants will
provide a viable market for the gas and oil resources,
Mr. Jennings said. Its a market that is reliable,
easy to access and competitive relative to others around the
This will take the uncertainty out of downstream
economics, thereby creating value for everyone involved,
he added. I believe this is going to be really exciting
to take part in.
The growth in crude production is already expanding to all
three coasts, Mr. Jennings said, with new US production along
with barrels from Canadian oil sands providing enormous energy
security and giving refineries a great feedstock advantage.
We can run at high rates, maintain great employment
and plan for the future, he said.
Over time, even if US natural gas rates increase slightly
from current levels, Mr. Jennings expects US prices of roughly
$5/MMBtu, compared with $11/MMBtu in Asia. That translates to
about a $1.75/bbl price advantage on a per barrel basis, he
said. Likewise, on the crude side, Mr. Jennings expects an
average price advantage of $4/bbl relative to global crude
Combined, that adds to nearly $6/bbl, he said, which nearly
doubles the historical US Gulf cracking margin.
If our countrys coastal refineries have a very
significant cost advantage against whom were competing
with for export sales, it will have a profound effect in
transforming our industry and our country, Mr. Jennings
The catch, if there is one, is that it depends heavily
on government policy that encourages investment on
exported products, he explained.
The advantages to the consumer of
domestically-produced fuels and chemicals coupled with
widespread benefits of growing our infrastructure are vital
considerations, as is the domestic energy security that comes
with it, Mr. Jennings said.
The benefits of advantaged feedstocks are intuitive. It leads
to higher utilization rates, stable employment rates and high
economic returns. Whether exports help with these advantages is
subjective, but it deserves consideration.
From a policy standpoint, the biggest
challenge could arise from the transportation fuels
marketplace, Mr. Jennings said. Current policies are seeking to
raise production of corn-based ethanol for use as fuel, as well as
boost the electrification of vehicles via batteries.
Natural gas-based vehicles could also gain traction, but the
lack of refueling infrastructure is a big problem,
Mr. Jennings said.
Many say it will be big in the next 5 years, but they
said the same thing 5 years ago. It will require collaboration
between industry and different levels of government to achieve,
and that will be difficult.
Should those efficient transportation fuel
options expand, it could lead to future rationalization and
consolidation within the US refining industry, Mr. Jennings
But refiners must remember that they have a compelling case
On the other hand is rising domestic consumption,
availability and security, he said. I think that
will win out. The prospect of an export-driven resurgence in
American refining and petrochemical manufacturing is
surprising and exciting.
Going forward, the best way for refiners to make that case
is to stay positive, Mr. Jennings said. Instead of using the
word no, use the word can. Make the
connection between upstream technology and downstream growth,
thereby enabling new developments in areas such as hydraulic
fracturing. Note that resources toward domestic consumption can
help the 12 million Americans looking for jobs. Promote recent
advances in safety.
Typically, this industry has been defined by others in
ways that are inaccurate and wrong, Mr. Jennings
concluded. It wont happen overnight, but I believe
we can do this in a way that reflects the value we bring to our
customers and to the nation as a whole.
I hope to see you all at the renaissance.
(Editor's note: This article appeared in Day 3 of the
official AFPM conference newspaper, published by Hydrocarbon Processing. To read the full
edition, please click here.)