CALGARY:
Royal Dutch Shell said it will transform its Montreal East refinery into a fuel terminal, making the 130,000 barrel per day (bpd) plant the latest in North America to be closed because of weak returns.

Shell, which has operated a refinery at the site for 76 years, said the plant did not fit into its long-term strategy. It opted to close the facility – likely by year’s end – after a seven-month search for a buyer came up dry. It will import fuel for its customers when production ends.

“Despite significant efforts we took to market the facility to a number of parties, we didn’t find a buyer,” Shell spokesman Larry Lalonde said.

The planned closure of the Montreal East plant is just the latest for North America’s refining industry, which has seen its profits on the sale of gasoline and other fuels squeezed by weak demand during the recession.

“There’s surplus refining capacity and that’s not likely to turn around in the near future,” said Michael Ervin, vice-president at Kent Marketing Services, a refining consultancy. “Refining margins just haven’t justified maintaining production at a marginal refinery.”

In November, Sunoco began mothballing its 145,000 Eagle Point refinery in New Jersey, while Valero Energy Corp closed its 210,000 bpd Delaware City plant.

In North America, refiners with operations on the East Coast are seen as more vulnerable to closures due to the age and location of the facilities as well as easy access to products from European refineries.

Including Shell’s planned closure, 543,000 bpd of refining capacity has been – or will be – idled in the US and Canada, close to 3 per cent of the two countries’ total capacity.

While Shell’s decision further shrinks global refining capacity amid weakened demand, more needs to be eliminated particularly in the US, said Cory Garcia, a refining analyst with Raymond James in Houston.

“There needs to be additional capacity taken out of the market. That’s what utilisation levels are telling you right now,” he said.
 

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