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Tales of woe on North America’s refinery row
Gary Park For Petroleum News
The trail of wreckage on North America’s Refinery Row gained another victim Jan. 7 with Royal Dutch Shell’s decision to turn its Montreal facility into a fuel terminal after failing to find a buyer for the 130,000 barrel-per-day plant.
Shell weighed a full set of options for the 76-year-old refinery as part of its global review of underperforming assets, which could also see buyers surface for one British and two German refineries.
Despite investing C$150 million in 2002 into the Montreal East Refinery to make it capable of producing low-sulfur gasoline, Shell has now decided the plant no longer has a place in its long-term strategy.
The refinery will now be converted into a terminal for gasoline, diesel and aviation fuels, likely before the end of 2010.
But there will be no significant impact on the Canadian crude producing sector, which delivered only about two cargoes of about 300,000 barrels each per year to the refinery, which was drawing most of its feedstock from the North Sea and West Africa.
More than half a million barrels Shell’s planned closure will mean about 543,000 bpd of North American capacity has been targeted for idling in the last four months, including Valero Energy’s 210,000 bpd facility in Delaware which had been losing about US$1 million a day and Sunoco’s 145,000 bpd refinery in New Jersey, along with Western Refining’s small refinery in New Mexico.
In addition, Petro-Canada closed its 80,000 bpd Ontario refinery in 2005.
But analysts, including Ann Kohler with investment bank Caris & Co., estimated at least 1 million bpd must be permanently closed because of forecasts that U.S. motorists will burn 8 percent less gasoline between 2006 and 2018.
Kohler said companies will close refineries that are not closely linked to their own production or are inefficient.
No turnaround seen Michael Irvin, vice president at Kent Marketing Services, a refining consultant, said the surplus capacity is “not likely to turn around any time in the near future” because refining margins do not justify continued production at marginal operations.
Although the current round of shutdowns will stem some of the flow of red ink, it’s not yet clear how much more capacity will have to be mothballed or closed.
Montreal East accounted for about 7 percent of Canada’s 1.8 million bpd of refining capacity, primarily supplying the Quebec and Maritime markets.
Suncor Energy and Valero have given no indication that they are under any pressure to close their Quebec refineries, which could have an important role in processing heavier crudes from the Alberta oil sands.
But there is no sign that BP and Irving Oil have any intention of reviving plans for their proposed C$8 billion, 300,000 bpd refinery in Saint John, New Brunswick, or that Korea National Oil Corp. (now that it has taken over Harvest Energy Trust) is ready to dust off plans to spend C$2 billion adding 75,000 bpd to the refinery it inherited at Come By Chance, Newfoundland.
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