March 19, 2012 / 7:33 PM / 7 years ago

Valero's Aruba closure deepens Atlantic refinery woes

NEW YORK (Reuters) - Valero Energy Corp (VLO.N) said on Monday it will halt operations at its 235,000 barrel-per-day Aruba refinery by the end of March, the second time since 2009 that the plant has been forced to shut due to low margins that have battered Atlantic Basin refiners.

A safety flare is seen at the Valero St. Charles oil refinery during a tour of the refinery in Norco, Louisiana August 15, 2008. REUTERS/Shannon Stapleton

The move will further tighten fuel markets in the region, which has seen a string of shutdowns that have already threatened 1.9 million bpd of refining capacity in Europe, the United States and the Caribbean due to the high cost of crude oil that have hit profits.

Valero, which had already cut processing rates at the refinery, may continue to operate the site as a terminal and storage operation, the company said in a press statement on Monday.

The refinery, which was restarted in early 2011 after a 17-month shutdown due to poor margins, processed heavy sour crude oil into gasoline, heating oil and feedstock components to make finished fuel to the U.S. Gulf Coast, the New York Harbor, the Caribbean, South America and Europe.

Valero CEO Bill Klesse said last week that the refinery — which uses fuel oil to fire boilers, make steam and power other operations — was at a disadvantage to refineries in the United States that have access to the cheap, plentiful supplies of natural gas for operations. The difference can add up to $2 a barrel to operating costs, he added.

The company will maintain the plant in a state which would allow it to restart should the refining environment improve, after announcing in November that it was looking at options for the Aruba plant including finding a strategic partner.

Valero said that discussions with interested parties, including those facilitated by the government, will continue.

“We appreciate the diligent and incredible efforts of Prime Minister Eman and his government in helping Valero find an economic alternative that would allow continued operation of the refinery,” said Klesse in the press statement.

“Our discussions with interested parties, including those facilitated by the Government of Aruba, will continue.”

In mid-February, Hovensa LLC shut down its 350,000 bpd St. Croix, U.S. Virgin Islands refinery — one of the large refineries supporting fuel demand in the U.S. East Coast, after losing money on it for three consecutive years. The refinery faced similar problems with running fuel oil for power, making it less competitive compared to plants on the U.S. mainland, according to analysts.

Hess Corporation (HES.N), which partnered with Venezuelan state oil company PDVSA in Hovensa, said on Monday it was exploring the sale of its crude oil and refined products storage and transshipment terminal at St. Lucia, retaining Goldman Sachs as financial advisor.

Late last year, two refineries on the U.S. East Coast were closed, and the market is now closely watching whether Sunoco (SUN.N) finds a buyer for its 335,000 bpd Philadelphia plant ahead of a mid-summer deadline.

Reporting by Jeffrey Kerr, Matthew Robinson, and Kristen Hays; Editing by Alden Bentley and Marguerita Choy

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