Recession leads to more refinery closures

One of the outcomes of the ongoing recession has been very low refinery utilization rates and low operating margins. Marginal refineries have been particularly vulnerable, in particular those that are independent refineries producing no oil of their own.

The news that Valero Energy, the largest US refiner, are to close its refinery on the Caribbean island of Aruba indefinitely as poor economic conditions have made the refinery unprofitable to run, have only added to the woes of the refining arm of the US oil industry.

In July, Texas-based Valero temporarily shut down the 275,000 barrel-per-day Aruba refinery, its third largest, after operating it at a loss in the second quarter. Executives hoped a halt in production at the refinery would allow the company to cut expenses until the petroleum industry improved. The company had said it would decide in August whether to reopen the refinery. In a statement on Wednesday, the company said, "Unfortunately, the difference in light crude price and that of sour crude has not increased and the product margins remain low, making the operation of this refinery unprofitable."

Valero purchased the Aruba refinery from Texas-based natural gas company, El Paso Corporation, in 2004, and has been seeking buyers since last year.

The effect of the recession on California has sent ripples across the US, and the impact on national fuel demand comes as a result of this ripple effect from the problems in the nation's most profitable state. In California, a proposed refinery closure drew the wrath of a US Senator and threats of 'anti-trust' litigation. That refinery is now in bankruptcy proceedings.

Unfortunately, it doesn't take a great deal for a refinery to decide to halt production and convert their tank farms into import terminals. Foreign refineries, such as a new refinery in India, are more than willing to refine crude oil and ship the products to the US. What's more, with cap-and-trade legislation on the way and the emergence of ethanol-blended gasoline and bio-diesel, refinery utilization will continue to be eroded.

Like this article? Get the RSS feed: