可再生柴油：仔细考察项目的回报和风险.docx

Equity ResearchAmericas | United StatesCreditSuisseRenewable DieselCloser Look at Returns and Risks for ProjectsOil & Gas Refining & Marketing | Expert InsightsResearch AnalystsManav Gupta212 325 6617Research AnalystsManav Gupta212 325 6617In this report we take a closer look at the 8 renewable diesel projects announced by US independent refiners. We are calculating EBITDA (with and without BTC), IRR, cost of capacity additions ($/gal) and breakeven carbon price needed to keep projects above 10% IRR. We are also highlighting strengths and weaknesses of individual projects. The Debate： Depending upon how bullish or bearish an investor is on carbon pricing, we would classify them as: 1) Carbon price optimist - believes in widespread LCFS adoption that will support higher carbon prices; 2) Pragmatist - believes carbon prices will move up in the longer term but sees near-term volatility if all announced capacity additions (2.6Bn gal/ yr) come online; 3) BTC optimist - believes renewables is the future, but still bearish on carbon pricing, and sees BTC getting extended past 2022 as Congress wants to encourage use of lower carbon fuels; and 4) Pessimist - bearish on carbon prices and believes renewable trade is IMO 2020 version 2.0. Since we are in early stages, we expect the carbon price optimist to be the most engaging and drive the renewables trade. Our Preference： While multiple projects have been announced, we have a strong preference for projects that are using feedstock with lower carbon intensity (Cl). VLO's St. Charles and Port Arthur can deliver good returns even without BTC or in an environment where carbon prices drop to $120/ton. It does cost more to construct projects with lower Cl feedstock, but a project using feed with Cl of 25 have an almost $0.75/gal gross margin advantage over a project using Cl of 53.86. Put another way, a project with Cl of 25 has an almost $50-$60/ton carbon pricing advantage over a higher Cl project. A lower Cl project can withstand a much weaker carbon price environment vs. higher Cl feed project. On paper, both Martinez (IRR 42%) and Rodeo (IRR 24%) conversions look attractive, but given the proximity of the two refineries, we expect competition for feedstock as well as product placement. At this stage, Martinez full conversion (Phase 1 2022 startup) has a first-mover advantage over Rodeo full conversion (2024 startup). Upside and Risks： If LCFS becomes a national mandate, carbon prices will move up ($220-$250/ton) and LCFS credits will price higher, raising IRR of all projects. On the other hand if LCFS does not get wider adoption outside of California and all announced capacity expansions come online, carbon credit bank would build rapidly and carbon prices would drop, putting economics of many projects in single digits (IRR below 10%). California diesel demand is flat; refineries converting to renewable diesel facility (Martinez and San Fran) are going to produce diesel at the expense of gasoline. Eventually, California's diesel market will become oversupplied and gasoline undersupplied (bullish PBF). Conclusion： With this magnitude of capacity announcements, refiners are making an implicit assumption that the Democratic presidential candidate will take the White House in November. This will significantly increase the possibility of LCFS becoming a national mandate, or at least a more rapid adoption across multiple states, pushing up carbon prices, raising EBITDA and IRR projections. In the event President Trump gets re-elected, some of these projects could be delayed or cancelled.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that couldA Closer Look at Individual ProjectsHFC - Artesia and CheyenneIn November 2019 HFC announced plans to construct a new renewable diesel unit (RDU) at its Artesia refinery. The RDU will have a production capacity of 125 million gallons a year and allow HFC to process soybean oil and other renewable feedstocks into renewable diesel.In early June, HFC announced plans to convert the Cheyenne Refinery to renewable diesel production and to construct a pre-treatment unit ("PTU") located at the Artesia Refinery. Including the previously announced renewable diesel unit at the Artesia Refinery, HFC is expected to have a combined capacity to produce over 200 million gallons per year of renewable diesel and pre-treat over 80% of its feedstock.Why are we treating this as a single project vs. 2 different projects? The two projects are similar in terms of timeline of startup and the feedstock consumption. More importantly, the pretreatment unit is being constructed at Artesia but it will supplying to both plants. If we ascribe all of pre-treatment cost only to Artesia, then that makes Cheyenne look unfairly attractive and Artesia as a very low returns project.Key Project Details Capacity: 210 Million gal/ yr or 13.7mb/d Startup: IQ 2022 Capex: $710M Feed: Soybean oil (90%), Bleachable fancy tallow and Non edible Corn oil (10%) Avg. Cl of Feed: 51.6 (90%* 53.8+ 10%* 32 = 51.6) LCFS credit (Carbon $196/ton): $1.05/gal Normalized EBITDA (without BTC): $150M IRR (without BTC extension): 24% EBITDA (with BTC extension of 5 years at $0.50/gal ending 2027): $250M IRR (with BTC extension of 5 years at $0.50/gal ending 2027): 32% Carbon credits generated: 1.05 Million Metric TonSensitivity Analysis - EBITDAOur base case normalized EBITDA estimates are calculated on current carbon prices of $196/ton. However, as shown in Fig. 12 we have run sensitivities on EBITDA based on carbon prices range of $140-$240/ton. Our normalized EBITDA estimates excludes any benefit of BTC. Fig.13 shows scenario analysis on these two projects to calculate EBITDA assuming BTC does gets extended for 5 years post 2022, but a lower credit benefit of $0.50/gal vs. current $l/gal.Figure 12: EBITDA (excluding anv benefit of BTC extension) Figure 13: EBITDA (with BTC extension)1401601802002202400.55$70$91$111$132$152$1730.60$86$107$127$148$169$1890.65$102$123$144$164$185$2050.70$119$139$160$181$201$2220.75$135$156$176$197$217$2380.80$151$172$193$213$234$2541401601802002202400.55$70$91$111$132$152$1730.60$86$107$127$148$169$1890.65$102$123$144$164$185$2050.70$119$139$160$181$201$2220.75$135$156$176$197$217$2380.80$151$172$193$213$234$254Carbon Pricing ($/ton)=ecuo/s) N_H sSource: Company data, Credit Suisse estimates1401601802002202400.55$170$190$211$231$252$2730.60$186$207$227$248$268$2890.65$202$223$243$264$285$3050.70$219$239$260$280$301$3210.75$235$255$276$297$317$3380.80$251$272$292$313$333$354Carbon Pricing ($/ton)=&s) N氏sSource: Company data, Credit Suisse estimatesSensitivity Analysis - IRRProjects that's do come online before year end 2022, will be see an uplift in IRR as they are getting full benefit of BTC of $l/gal. Our base case IRR estimates are calculated on current carbon prices of $196/ton. However, as shown in Fig. 14 we have run sensitivities on IRR based on carbon prices range of $140-$240/ton. Fig.15 shows scenario analysis on these two projects to calculate IRR assuming BTC does gets extended for 5 years post 2022, but a lower credit benefit of $0.50/gal vs. current $l/gal.Figure 15: IRR (with BTC extension)Figure 14: IRR (excluding any benefit of BTC extension)1401601802002202400.5510%14%18%21%24%27%0.6013%17%20%23%27%29%0.6516%19%23%26%29%32%0.7019%22%25%28%31%34%0.7521%25%28%31%33%36%0.8024%27%30%33%36%38%1401601802002202400.5510%14%18%21%24%27%0.6013%17%20%23%27%29%0.6516%19%23%26%29%32%0.7019%22%25%28%31%34%0.7521%25%28%31%33%36%0.8024%27%30%33%36%38%Carbon Pricing ($/ton)Source: Company data, Credit Suisse estimatesCarbon Pricing ($/ton)140160180200220240 I0.5519%23%26%30%33%35%0.6022%26%29%32%35%38%0.6525%28%31%34%37%40%0.7028%31%34%37%39%42%0.7530%33%36%39%41%44%0.8032%35%38%41%44%46%Source: Company data, Credit Suisse estimatesKey Project Strengths1. Project starts early and will benefit for BTC of $l/gal in 2022. We estimate BTC adds $178M to 2022 EBITDA.2. Project delivers 24% IRR without BTC extension.3. If LCFS becomes a national mandate and Canada also puts in a similar mandate, carbon prices would soar, with carbon at $240/ton, the project IRR improves to 30% and EBITDA increases to $190M.4. HFC has struggled with the Cheyenne refinery, shutting it down would lower overall cost structure of the Rockies regions.5. Permitting should be relatively easy at both locations.Key Project Weaknesses:1. Given Cl of 51.6, and relatively higher capex (capacity addition at $3.38/gal), the project returns drop below 10%, if carbon prices drop below $175/ton, with everything else held constant. This puts it at risk vs. projects whose feedstock Cl is 25-30.Why do our returns differ from the returns HFC is projecting?Question: HFCs slide deck indicates IRR of 20-30%, while CS is in the middle, why is CS not close to the top end of range?Answer: We ran our model by HFC team and the key difference was HFC is using a 5 year average price for NYMEX ULSD in their calculations, while we are using spot prices (which are lower). As a corporation, HFC is correct to use an average price as project planning decisions should not be made based on spot prices (which tend to be volatile). We are justified in using spot as investors will focus on current pricing which are below the 5 year average given bloated inventory levels.Formula adjustmentWe would like to highlight that HFC method of calculating their gross margin indicator is slightly different from VLO's DGD indicator. We believe this is a function of difference in yield loss.Figure 16: Gross Margin Indicator - HFC vs. VLOHFC5s Gross Margin Indicator:NYMEX ULSD + (1.7* Biodiesel RIN) + (LCFS Credit in $/gal) -(7.5* CBOT Soybean Oil)VS.VLO's DGD Gross Margin Indicator:NYMEX ULSD + (1.7* Biodiesel RIN) + (LCFS Credit in $/gal) -(8.5 * CBOT Soybean Oil)Source: Company data, Credit Suisse estimatesFor our calculations, we are using HFC/s indicator for Navajo and Cheyenne and VLO's indicator formula for all other projects.The easiest way to calculate the LCFS Credit $/gal to plug in the formula above is to use the CARB calculator.1401601802002202400.55|$145$188$231$273$316$3590.60$166$208$251$293$336$3790.65$186$228$271$314$356$3990.70$206$249$291$334$377$4190.75$226$269$311$354$397$4390.80$246$289$332$374$417$460Carbon Pricing ($/ton)Source: Company data, Credit Suisse estimates s) N正寸Q1401601802002202400.55$257$300$342$385$427$4700.60$277$320$362$405$448$4900.65$297$340$383$425$468$5100.70$318$360$403$445$488$5310.75$338$380$423$466$508$5510.801 $358$401$443$486$528$571Carbon Pricing ($/ton)Source: Company data, Credit Suisse estimatesVLO - St. Charles ExpansionIn November 2018, VLO, announced today that its Board of Directors approved a project to expand the Diamond Green Diesel ("DGD") plant in Norco, LA, to 675 MM/ gal capacity. Valero expects its 50%, or $550M, to be funded from cash generated by DGD's operations and for the project to be completed in late 2021.Key Project Details: (Net to VLO)Capacity (NET): Renewable Diesel 200 Million gal/yr (13.04mb/d)+ Renewable Naphtha 30 Million gal/yr (2.0mb/d) Startup: IQ, 2022 (project completes late 2021, so it could be 4Q 2021) Capex: $550M (Net), / $l,100M (gross) Feed: Animal Fat (Cl 32), Used Cooking oil (Cl 20), Inedible Corn Oil (27) Avg. Cl of Feed: 25 LCFS credit (Carbon $196/ton): $1.76/gal Normalized EBITDA (without BTC): $293M (net to VLO) IRR (without BTC extension): 39% EBITDA (with BTC extension of 5 years at $0.50/gal ending 2027): $404M IRR (with BTC extension of 5 years at $0.50/gal ending 2027): 45%Carbon credits generated: 1.69 Million Metric Ton (Net), 3.39 Million Metric Ton (Gross).Sensitivity Analysis - EBITDAOur base case normalized EBITDA estimates are calculated on current carbon prices of$196/ton. However, as shown in Fig. 17 we have run sensitivities on EBITDA based on carbon prices range of $140-$240/ton. Our normalized EBITDA estimates excludes any benefit of BTC. Fig.18 shows scenario analysis on VLO's St. Charles project to calculate EBITDA assuming BTC does gets extended for 5 years post 2022, but a lower credit benefit of $0.50/gal vs. current $l/gal.Figure 18: EBITDA (with BTC extension)Figure 17: EBITDA (excluding any benefit of BTC extension)Sensitivity Analysis - IRRProjects that's do come online before year end 2022, will be see an uplift in IRR as they are getting full benefit of BTC of $l/gal. Our base case IRR estimates are calculated on current carbon prices of $196/ton. However, as shown in Fig. 19 we have run sensitivities on IRR based on carbon prices range of $140-$240/ton. Fig.20 shows scenario analysis on VLOs St.Charles expansion project to calculate IRR assuming BTC does gets extended for 5 years post 2022, but a lower credit benefit of $0.50/gal vs. current $l/gal.Figure 20: IRR (with BTC extension)Figure 19: IRR (excluding any benefit of BTC extension)Carbon Pricing ($/ton)140160180200220240 I0.5523%28%33%37%41%44%0.6025%30%35%39%43%46%0.6528%33%37%41%44%48%0.7030%35%39%42%46%49%0.7532%37%40%44%48%51%0.8034%38%42%46%49%52%Carbon Pricing ($/ton)140160180200220240 I0.5523%28%33%37%41%44%0.6025%30%35%39%43%46%0.65