HollyFrontier 2015 Annual Report Download - page 35

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Table of Content
27
The availability and cost of renewable identification numbers and other required credits could have an adverse effect on our
financial condition and results of operations.
Pursuant to the 2007 Energy Independence and Security Act, the EPA promulgated the RFS2 regulations reflecting the increased
volume of renewable fuels mandated to be blended into the nation's fuel supply. The regulations, in part, require refiners to add
annually increasing amounts of “renewable fuels” to their petroleum products or purchase credits, known as RINs, in lieu of such
blending. We currently purchase RINs for some fuel categories on the open market in order to comply with the quantity of renewable
fuels we are required to blend under the RFS2. Recently, due in part to the nation's fuel supply approaching the “blend wall” (the
10% ethanol limit prescribed by most automobile warranties), the price of RINs has been extremely volatile with the price
dramatically increasing in recognition of the decrease in RINs availability. While we cannot predict the future prices of RINs, the
costs to obtain the necessary number of RINs could be material. If we are unable to pass the costs of compliance with the RFS2
on to our customers, if sufficient RINs are unavailable for purchase, if we have to pay a significantly higher price for RINs or if
we are otherwise unable to meet the RFS2 mandates, our financial condition and results of operations could be adversely affected.
In addition, the RFS2 regulations are highly complex and evolving, requiring us to periodically update our compliance systems. The
RFS2 regulations require the EPA to determine and publish the applicable annual volume and percentage standards for each
compliance year by November 30 for the forthcoming year, and such blending percentages could be higher or lower than amounts
estimated and accrued for in our consolidated financial statements. The future cost of RINs is difficult to estimate until such time
as the EPA finalizes the applicable standards for the forthcoming compliance year. We cannot predict with certainty our exposure
to increased RINs costs in the future, nor can we predict the extent by which costs associated with RFS2 will impact our future
results of operations.
Competition in the refining and marketing industry is intense, and an increase in competition in the markets in which we sell
our products could adversely affect our earnings and profitability.
We compete with a broad range of refining and marketing companies, including certain multinational oil companies. Because of
their geographic diversity, larger and more complex refineries, integrated operations and greater resources, some of our competitors
may be better able to withstand volatile market conditions, to obtain crude oil in times of shortage and to bear the economic risks
inherent in all areas of the refining industry.
We are not engaged in petroleum exploration and production activities and do not produce any of the crude oil feedstocks used at
our refineries. We do not have a retail business and therefore are dependent upon others for outlets for our refined products. Certain
of our competitors, however, obtain a portion of their feedstocks from company-owned production and have retail outlets.
Competitors that have their own production or extensive retail outlets, with brand-name recognition, are at times able to offset
losses from refining operations with profits from producing or retailing operations, and may be better positioned to withstand
periods of depressed refining margins or feedstock shortages.
In recent years there have been several refining and marketing consolidations or acquisitions between entities competing in our
geographic market. These transactions could increase the future competitive pressures on us.
The markets in which we compete may be impacted by competitors' plans for expansion projects and refinery improvements that
could increase the production of refined products in our areas of operation and significantly affect our profitability.
Also, the potential operation of new or expanded refined product transportation pipelines, or the conversion of existing pipelines
into refined product transportation pipelines, could impact the supply of refined products to our existing markets and negatively
affect our profitability.
In addition, we compete with other industries that provide alternative means to satisfy the energy and fuel requirements of our
industrial, commercial and individual consumers. The more successful these alternatives become as a result of governmental
regulations, technological advances, consumer demand, improved pricing or otherwise, the greater the impact on pricing and
demand for our products and our profitability. There are presently significant governmental and consumer pressures to increase
the use of alternative fuels in the United States.