The owners of the closed Hovensa refinery on St. Croix have extended the interim agreement that outlines the company’s obligations to the U.S. Virgin Islands while it continues exploring the sale of the refinery and oil storage facility as part of a larger plan to focus on oil exploration.
The announcement was made Tuesday night by Gov. John deJongh Jr. after a meeting with members of the 30th Legislature, Lt. Gov. Gregory Francis and V.I. Delegate to Congress Donna Christensen to update them on the status of negotiations.
Hess Oil Corp. announced Jan. 28 that it plans to sell its terminal network in the United States and close its refinery in Port Reading, N.J., as part of an effort to get out of the oil refining business and concentrate on exploration and production. That announcement prompted deJongh to remind the company it still has obligations to the U.S. Virgin Islands.
The governor reported on Tuesday night that the government and the owners of Hovensa have been making progress in negotiations, but additional time is needed to complete them.
“I explained that the owners of Hovensa have come to the point where they have now agreed to a sales process," the governor said. "This is something we have pushed for from the beginning."
"As such, I have agreed to a further extension of the current interim agreement as requested by the refinery’s owners. The current interim agreement is set to expire at the end of this month. An extension is required in order to finalize the details of the sales process, its timing and what possible adjustments to Hovensa’s current obligations seem reasonable while this process is going forward,” de Jongh said.
DeJongh cautioned that the extent of the details of any sales process are yet to be finalized and urged everyone to remain realistic that the interim operation of an oil storage terminal facility is not a business on the scale of a refinery “which is what we hope will again be possible.”
Senate President Shawn-Michael Malone said he supports an extension of the concession agreement in order to facilitate the negotiation process.
"In order to protect the interests of the people of this territory it is critical that we maintain a unified front on this issue – I would like to thank every member of the 30th Legislature for participating and providing meaningful input," Malone said.
Hess announced the closure of the refinery in January 2012. Since August, the governor has called on the owners of Hovensa to either reopen the refinery or join with the government in establishing a sales process that will lead to a new owner resuming refinery operations thus providing much needed jobs on St. Croix.
DeJongh also said the company has assured him there will be no interruption of the fuel supply on St. Croix and that both sides will work to complete, without delay, negotiations towards an agreement for review and consideration by the 30th Legislature.
The meeting was held at Government House, St. Thomas. Lawmakers in attendance included Malone, Sens. Janette Millin Young, Donald Cole, Clifford Graham, Nereida Rivera O’Reilly, Judi Buckley, Terrence Nelson, Craig Barshinger, Clarence Payne, Myron Jackson, Diane Capehart, Tregenza Roach and Kenneth Gittens. Delegate Christensen, Senate Vice President Sammuel Sanes and Sen. Alicia “Chucky” Hansen participated via teleconference.
David Herr, managing director of Duff & Phelps, consultants to the government on Hovensa, also attended, along with Attorney General Vincent Frazer; Planning and Natural Resources Commissioner Alicia Barnes and members of Government House senior staff.
In Hess’ Jan. 28 announcement, the company said the terminal network it plans to sell "is located along the U.S. East Coast and has a total of 28 million barrels of storage capacity in 19 terminals, 12 of which have deep water access. The terminals previously served as the primary outlet for Hess’ share of production from its Hovensa joint venture refinery, most of which was used to supply Hess’ retail and energy marketing businesses."
It added that the company’s St. Lucia oil storage terminal, with 10 million barrels of capacity, will also be included in the package.
Interesting how only DeJong knows about this. Hess hasn’t released this info to the media like they have with all other events.
If Hovensa were to come back, it is doubtful the produced barrels would find a home in the US, more specifically the Atlantic Coast.
Hovensa accounted for 14% of all Atlantic Coast petroleum products imports in 2010 and 2011.
Canada is the largest exporter to the Atlantic Coast and accounted for 28% in those years.
But since Hovensa closed, Canada’s share of Atlantic Coast imports has grown only marginally, to 29%.
Instead, the Atlantic Coast is relying more heavily on products from the Gulf Coast and its own refineries. The Gulf Coast has supplied 62% of East Coast demand for petroleum products since Hovensa shut, up from 57% in 2010 and 2011, while Atlantic Coast refinery utilization has risen to 85% since Hovensa shut, from 73% in those two years.
Furthermore, demand is down. US finished motor gasoline demand averaged 8.320 million b/d during the week ended January 11, down 9% over the past five years.
A restarted Hovensa’s situation only becomes more challenging as more Atlantic Coast refineries shift to cheap Canadian and mid-continent crudes.
“Plus you have to factor in transport,” said a Houston trader. “Even with freight rates being relatively cheap, the crude imports and products exports have to compete against the US-based refiners.”
Hovensa is nearing 50 years old, and if operating at full capacity would rank fifth in the world’s largest refineries.
When asked if Hovensa would ever restart, one source said, “Nope.”
In the end, the USVI government’s least-desired future may be its only option.
… Excellent, EXCELLENT comments… They only way the Hovensa site could compete would be to turn it into a super efficient site… Tough luck when the newest section of the refinery is just over 20 years old… except for the LSG Unit which is only 4 years old…
A lot of people believe that re-starting a refinery is like lighting-up a BarBQ… Nope… It would take months to get it ready, and the purchase of millions of dollars in catalyst for the equipment that need it… And that is without refurbishing it to operate on natural gas!!!… One year out of service on a site like that is like ages…