Big SAF in Big Sky Country: Montana Renewables begins SAF deliveries to Shell

The mention of Montana tends to conjure up visions of the episodes of Yellowstone, or roughnecks and cattle ranchers, chants of “drill, baby, drill” and an epic disdain for vegan cuisine. You wouldn’t likely have pegged Montana as home, just now, of the largest SAF producer in North America. Doesn’t sound like Houston when it comes to volume, and doesn’t sound like California when it comes to sustainability. Yet, that is the happy state of play as news arrives from Great Falls that Montana Renewables has commenced initial shipments of sustainable aviation fuel under a multi-year agreement with Shell Trading Company. The start of production makes Montana Renewables t. Onward deliveries have commenced to JetBlue, Alaska Airlines and Delta Airlines. Montana Governor Greg Gianforte was on hand for the celebration.

Montana Renewables is a subsidiary of Calumet located in Great Falls, and is permitted for 15,000 barrels per day of renewable feedstocks which are converted into SAF. The renewable fuels plant began operations in late 2022. As the world recognizes a sustainability responsibility, MRL is making immediate carbon reductions and stands ready to grow and innovate further. This business is a leader in North America’s energy transition, with our renewable products being delivered to Canada and the United States West Coast.

Shell and its affiliates are expanding and building supply chain capabilities to blend and distribute SAF throughout the US to enable more customers with access to the fuel, helping to accelerate the pace of decarbonizing the aviation sector.

The Montana Renewables backstory

In March, we reported that Montana Renewables subsidiary had been invited by the U.S. Department of Energy to submit a Part II Application for a $600 million loan guarantee through the Title XVII Innovative Clean Energy Loan Guarantee Program. DOE’s invitation to submit a Part II application is not an assurance that DOE will invite an applicant into the due diligence and term sheet negotiation process, that DOE will offer a term sheet to an applicant, that DOE will issue a loan guarantee, or that the terms and conditions of a loan guarantee will be consistent with terms proposed by an applicant. The foregoing matters are wholly dependent on the results of DOE review and evaluation of a Part II Application, and DOE’s determination whether to proceed.

We reported last November that Calumet Specialty Products Partners, L.P. announced a series of strategic transactions in connection with its Renewable Diesel business. The transactions establish Montana Renewables, LLC as an unrestricted pure-play renewables subsidiary of Calumet. MRL has closed on a $300 million convertible debt investment from funds managed by Oaktree Capital Management, L.P. MRL has also closed on a $145 million preferred equity investment by Calumet. Calumet owns 100% of the equity of MRL.

Calumet’s operations in Montana now include two fully independent business lines: Renewables through MRL, and conventional Canadian crude refining through Calumet Montana Refining LLC. 

CMR will continue to own and operate the conventional Great Falls Specialty Refinery with a reconfigured processing capacity of 12,000 barrels per day of Canadian crude. The refinery is focused on the production of high-quality Specialty Asphalt, as well as satisfying local demand for conventional fuels. CMR anticipates the refinery will generate 60% of historical (pre-conversion) Adjusted EBITDA after the hydrocracker is separated. Calumet owns 100% of the equity of CMR.

As a result of these transactions, Calumet received net cash proceeds of approximately $199 million and has begun to reduce outstanding debt by issuing a notice of redemption today for the $80 million outstanding principal amount of its 7.625% Senior Notes due 2022.

In August 2022 we reported that Warburg Pincus, a leading global growth investor, has agreed to invest $250 million in Montana Renewables LLC in the form of a participating preferred equity security, which values MRL at a pre-commissioning enterprise value of $2.25 billion. The preferred equity investment is not interest-bearing and carries certain minimum return thresholds. In connection with the investment, Warburg Pincus will have a representative on MRL’s four-member board of managers.

Calumet also announced that Stonebriar Commercial Finance had invested an additional $350 million through a pair of sale and leaseback contracts on top of its existing $50 million commitment to MRL. The sale and leaseback transactions carry an approximate 12.3% cost of capital and offer certain strategic early termination options. Concurrent with these transactions, the $300 million convertible investment from Oaktree Capital Management L.P. in MRL has been retired.

In January 2022 we reported that Montana Renewables LLC (“MRL”) had closed the previously announced $50 million of project financing from Stonebriar Commercial Finance LLC related to construction of the renewable hydrogen plant for Calumet’s renewable diesel business in Great Falls, Montana. Once complete, the renewable hydrogen plant will allow increased production of renewable diesel and further reduce the carbon intensity of products from MRL. The renewable hydrogen plant has an expected operational startup in the fourth quarter of 2022.

In August 2021 we reported that the revamp of Calumet’s existing hydrocracker in Great Falls, Montana refinery will utilize Haldor Topsoe’s HydroFlexTM solution to produce 12,000 barrels per day of renewable diesel. This is a fast-track project aimed at producing renewable diesel in the spring of 2022.

The Carbon backstory

•MRL has applied for International Sustainability & Carbon Certification (ISCC) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) certification. The ISCC CORSIA certification is an important standard in the international airline community.

The Avella backstory

In June 2022, Shell, Accenture and American Express Global Business Travel launched Avelia – one of the world’s first blockchain-powered digital SAF book-and-claim solutions for business travel. Avelia uses blockchain technology to ensure secured allocation of SAF’s environmental attributes to companies and airlines after the fuel has been delivered into the fuel network. Avelia will help trigger demand for SAF at scale, providing confidence to suppliers like us to further increase investment in production, and in turn making SAF more accessible for the future of aviation.

Montana Renewables’ SAF is produced from renewable feedstocks such as agricultural wastes and used cooking oils that has the potential to reduce lifecycle emissions by up to 80%, compared with conventional aviation fuel. SAF is also a drop-in fuel, which means it can be blended in a ratio of up to 50% with conventional jet fuel for use in aircrafts 

Reaction from the stakeholders

“We’re excited to be working with Montana Renewables to bring together the right mix of technical expertise and operational capabilities to help increase access to SAF production in the US for our customers, including Delta, Alaska and JetBlue, to power progress in aviation,” said Christine Bassitt, General Manager of Shell Aviation Americas.

“This is a great example of the kind of action and investment needed in states across our country that we need to meet our aggressive SAF goals as an industry,” said Pam Fletcher, Chief Sustainability Officer – Delta Air Lines. “There’s not enough SAF being produced today to power the world’s commercial airlines for a single day, so we’re grateful to everyone at the State of Montana, Montana Renewables and Shell for providing the incentives and taking meaningful steps toward scaling production of this largest known lever we have for decarbonizing aviation.”

“Montana Renewables is a great example of what’s possible when there aren’t sideboards placed on innovation,” Governor Gianforte said. “The result is a healthier environment, a stronger economy, and more jobs. We’ll continue to champion pro-jobs, pro-business policies to support cutting-edge, job-creating businesses like Calumet.”

“We’re proud to collaborate with Shell to improve aviation sustainability,” said Bruce Fleming, CEO Montana Renewables. “Strong support from the State of Montana, Cascade County, and the City of Great Falls made possible the unique speed of Montana Renewables, and Shell is the logical offtake partner for us to reach multiple airlines and airports from our geographically advantaged site. We are now producing more SAF than any other North American company on top of our renewable diesel and renewable hydrogen.”