Ethanol Mergers at 5-Year High in 2021

March 03, 2022

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by Todd Neeley (DTN Progressive Farmer) Ethanol Mergers, Acquisitions Rebound in 2021; Renewable Diesel Construction Booms -- U.S. ethanol companies pursued more mergers and acquisitions than they have in five years, and the renewable diesel industry continued to grow and expand in 2021, according to a new report by the preeminent biofuels mergers and acquisition adviser California-based Ocean Park Advisors.

As the face of the biofuels industry continues to evolve, Ocean Park said there is an increasing number of companies looking to secure feedstock supplies. This is especially true for those companies moving away from biodiesel and expanding renewable diesel production.

When it comes to ethanol, the firm said, the number of mergers and acquisitions in 2021 was more than double the same activity in 2020. Poet LLC's acquisition of about 800 million gallons of production capacity from Flint Hills Resources was the single-largest ethanol transaction in history, according to Ocean Park.

A total of seven transactions involving 12 ethanol plants and about 1.2 billion gallons of capacity closed in 2021 -- the most since 2013. Those mergers and acquisitions, Ocean Park said, represented about 7% of total U.S. industry capacity.

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While ethanol industry ownership of current plants continued to evolve, Ocean Park said the biodiesel and renewable diesel markets experienced a boom in construction in 2021.

"Instead of acquiring operating plants, the larger companies spent significant capital to build and retrofit plants, amplifying a frenzy of investment amid a battle for limited feedstock supplies," Ocean Park said.

In particular, petroleum refiners and biodiesel producers "led a construction boom in renewable diesel, as 12 plants are either under construction, expanding or have been completed, accounting for 3.9 billion gallons and $7 billion-plus in investment through 2024."

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Ocean Park said most new renewable diesel plants start out using soybean oil and later add on pre-treatment equipment to process waste feedstocks.

"The integrated oil companies' and the independent refiners' newly found interest in biofuels stems from their decision to generate compliance credits internally, repurpose older refineries, turn a profit, respond to shareholder pressure, invest in a high-growth market, and hedge with investments in promising carbon markets such as California and Oregon," Ocean Park said in its report.

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Despite an ongoing construction boom in renewable diesel, mergers and acquisitions in biodiesel and renewable diesel remained "sluggish" in 2021.

One exception was HollyFrontier's acquisition of Sinclair's 153-million-gallon renewable diesel plant in Wyoming last year.

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"Whereas RD capacity in the U.S. more than tripled to 1.3 billion gallons per year in 2021, BD production declined by 8% to 1.7B gallons," Ocean Park said.

"Instead of buying biodiesel plants, companies deployed capital to renewable diesel projects and to secure feedstock for their plants.

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Diamond Green launched construction on a 400-million-gallon-per-year plant in Port Arthur, Texas, that is expected to be operational by 2023.

Renewable Energy Group started construction of a 250-million-gallon expansion at its Geismar, Louisiana, renewable diesel plant. Seaboard began construction to convert a cellulosic ethanol plant in Hugoton, Kansas, into an 85-million-gallon renewable diesel plant.

In addition, Calumet, CVR, Cargill, PBF and a number of other companies announced renewable diesel construction plans in 2021.

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Biodiesel plants lost money in 2021 as an increasing number of renewable diesel plants came online.

"If these headwinds persist in the near term, more plants could idle or shut down," Ocean Park said. "Liquidations or distressed sales could be common in 2022. Independent BD plants without secured feedstock supplies will face heightened competition for feedstock from RD plants." READ MORE

HollyFrontier completes acquisition of Sinclair (HF Sinclair/Biobased Diesel Daily)

Excerpt from HF Sinclair/Biobased Diesel Daily: HF Sinclair will be the parent company of a leading integrated downstream petroleum and renewable fuels company with enhanced scale and a strong marketing presence featuring:

An expanded refining business that includes seven complex refineries across the Mid-continent Southwest, Rocky Mountain and Pacific Northwest that convert discounted, heavy and sour crudes into a high percentage of gasoline, diesel and other high value refined products

A growing renewables business with three production facilities that are expected to produce approximately 380 million gallons of renewable diesel annually

A multinational lubricants business that produces specialty products and base oils, marketed under the Petro-Canada Lubricants, Sonneborn, Red Giant Oil and HollyFrontier Specialty Products brands

A leading marketing business, featuring the Sinclair brand and comprising 300-plus distributors and more than 1,300 independent wholesale branded sites located across 30 states

An expansive logistics business under Holly Energy Partners with an integrated logistics network connecting key crude and product regions and interests in strategic joint ventures that provide access to finished product pipelines and storage

Across its businesses, HF Sinclair will build on its legacy companies’ ongoing ESG efforts with increased renewables scale, a shared commitment to health and safety practices that best serve employees and communities, and a focus on risk management.

With the addition of Sinclair’s integrated crude and refined products midstream business, HEP significantly extends the reach of its network of pipelines and storage facilities, enhancing its earning power to capture new organic growth opportunities and expects to increase cash returns to unitholders.

“The completion of our transactions and the launch of HF Sinclair marks the start of the next phase of our company’s history,” said Mike Jennings, CEO of HF Sinclair and Holly Energy Partners. “We are moving forward as a more diverse, downward integrated business with scale that is positioned to drive growth and capital returns to our shareholders. We are also optimistic about the significantly expanded scale of Holly Energy Partners, which will benefit from long-term commitments from HF Sinclair. I am honored to welcome the talented Sinclair team to our organizations, and I look forward to working closely with them to capture the significant growth and value-creation opportunities ahead at both HF Sinclair and HEP.”

HollyFrontier’s senior management team will continue to operate HF Sinclair, which is headquartered in Dallas, Texas, with combined business offices in Salt Lake City, Utah. Holly Energy Partners’ senior management team will continue to operate Holly Energy Partners under the name Holly Energy Partners LP. READ MORE