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LNG to the rescue at a revived Caribbean oil refinery?

Due to the lower-cost natural gas powering US refineries, Caribbean refineries have had problems reopening because they have long been faced with one option: expensive fuel oil. Atlantic Basin Refining, the new owners of the St. Croix refinery, may have the solution to the problem. The company is said to have a business plan that will bring in cheaper sources of energy, LNG, to power the refinery.

by Esa Ramasamy, Platts, October 30, 2014

As various Caribbean refineries closed, reopening them faced a problem. Even if you could get cheaper WTI-based crude to them, they would be competing against US refineries powered by lower-cost natural gas. A refinery in the Caribbean would have little alternative except to use expensive fuel oil.

But industry sources are reporting that Atlantic Basin Refining, which is expected to be the new owners of the US Virgin Islands’ St.Croix refinery, known as Hovensa, is believed to have a business plan that will bring in cheaper sources of energy — specifically, LNG — to power the refinery.

The St.Croix refinery, previously owned by Venezuela’s state-owned PDVSA and Hess, was shut in February 2012 after the joint-venture partners said the use of fuel oil to generate power led to losses. Earlier this week, Hess CEO John Hess said on the company’s third quarter earnings conference call that the company remained in negotiation for the sale of the refinery, which it owns in a joint venture with Venezuelan state oil company PDVSA.

On Tuesday, Virgin Islands Governor John de Jongh said the refinery was purchased for $1.6 billion by ABR.

When the refinery was shut, it had a capacity of 350,000 b/d, down from 650,000 b/d at its peak in 1974. The St.Croix refinery is expected to refine about 300,000 b/d of crude oil when — and if — it restarts in about two years.

Houston-based sources said ABR — who is behind this group appears to be an industry mystery — is expected to either bring in LNG-fired power plants on barges for the time being until it prepares itself to import LNG from the mainland to power the St.Croix refinery.

(St. Croix is already going through a conversion away from fuel oil, looking to move to propane as the energy source for its electric grid, as this story spells out.)

“The move to use LNG to power the refinery more than anything else is the key to restarting and operating the St.Croix refinery in a profitable manner,” said an industry source.

“There are LNG fired power plants on barges already in operation in the Caribbean and ABR would in the short term exercise this option and work on building a longer term solution. But one thing is clear: it will bring in LNG supplies from the mainland to power the St.Croix refinery,” said a hedge fund source.

The St.Croix refinery was never under the jurisdiction of the Jones Act or the US’ restrictions on the export of domestic crudes, even though it’s a US possession. This means ABR can bring US domestic crudes into the US Virgin Islands and ship products out to the mainland on foreign-flagged vessels.

However, there is a limit to how much light sweet crude the refinery can process. Its history, not surprising given its Venezuelan ownership, is that it previously refined 25% heavy sweet and 75% heavy sour crudes. So the growing supply of US light sweet crude on the surface is not a natural fit for the plant.

“The St.Croix refinery still has room to ship products to the US, namely Florida and the other US Atlantic Coast states but will have to increasingly look at export markets too,” said a Gulf Coast refinery source.

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