Refining the red-headed stepchild

In the Western world, refining is the red-headed stepchild of the oil, gas and petrochemical business. Companies are either selling, spinning off or shutting down refineries – spurred by near-term profitability issues as well as long-term strategic shifts in direction.

The desirability, or more aptly the lack thereof, of these assets is highlighted by LyondellBasell’s announcement that it will shut down its 105,000 bbl/day refinery in Berre L’Etang, France, after a months-long sales process in which not a single bidder emerged.

This was despite the Netherlands-based petrochemical company, its financial advisor and the Invest in France Agency reaching out to 85 potential buyers around the world.

While LyondellBasell emphasized its olefins and polyolefins operations at Berre would not be affected by the closure in the long term, the company started shutting down all production at the site because of a worker strike following its announcement.

The culling of older, less efficient refineries is finally at hand. US-based energy firm ConocoPhillips has started the process of idling its 185,000 bbl/day refinery in Trainer, Pennsylvania, US, and will permanently shut it down if no buyer is found in six months. It also plans to split off its refining business as a separate entity.

US-based industrial firm Sunoco is getting out of the refining business altogether, putting up for sale its 335,000 bbl/day refinery in Philadelphia and 178,000 bbl/day refinery in Marcus Hook – both in Pennsylvania. If no deals are reached by July 2012, Sunoco plans to idle the main processing units.

US east coast refining has been particularly challenging. “You lose money by refining on the east coast using Brent,” said an east coast spot market trader. “The east coast refining cracks are based on Brent crude prices which are $20 some over [West Texas Intermediate (WTI) crude], midcontinent crude, and sizable amount over [Louisiana Light crude], Gulf coast crude.”

If refineries are shut down rather than sold, it is ultimately a positive development for the refining industry, as capacity is taken out.

But less refining capacity also means less byproduct propylene. In a market that has already been tight in the US and Europe, this trend could be troublesome for buyers if more and more refineries are shut down before additional on-purpose propylene production comes on line from new plants.

Additional contribution by Sheena Martin in Houston

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