Limetree Bay Refinery to Shut After EPA Order

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Just months after a long-delayed restart, the Limetree Bay refinery in the US Virgin Islands is closing down indefinitely. “Limetree Bay will begin preparing the refinery for an extended shutdown, which includes safely purging gases from all of the units and removing any residual oil and products in the lines,” the company said in a statement. The nearby oil terminal will be unaffected, the company added. The 200,000 barrel per day plant in St. Croix -- formerly the Hovensa refinery -- resumed operations earlier this year after the Covid-19 pandemic and other issues delayed restart by roughly 12 months (OD Feb.1'21). But it has suffered several hiccups, and in May it suspended operations after an incident exposed nearby residents to chemicals and contaminated the area’s water (OD May14'21). Since then, according to a statement, the company “has been unable to secure the necessary funding and will be required to reduce the refinery’s workforce by approximately 271 employees” effective mid-September. Just days ago the US Environmental Protection Agency (EPA) ruled that Limetree Bay must install over a dozen air quality monitors to continue operating. Virgin Islands Gov. Albert Bryan Jr. said the company had assured him of its intent to comply, but the shutdown moots such discussion. Limetree Bay’s delayed restart, short life and abrupt shutdown all speak not only to issues particular to that refinery or to restarting such facilities, but to broader challenges facing the downstream industry. Covid-19’s destructive impacts, the ongoing energy transition and pre-pandemic outlooks for regional demand trends have all contributed to a large rationalization of North American downstream capacity (OD May27'21). Timing Is Everything Limetree Bay’s restart was originally targeted for early 2020. The thinking was that the facility was well placed to take advantage of new sulfur specifications on marine fuels from the International Maritime Organization (IMO). These were anticipated to drive up demand for low-sulfur fuel oil and diesel. But the Covid-19 pandemic quickly replaced the IMO as the main driver of oil markets last year, and its impacts were the diametric opposite from those envisioned for the organization. Rather than rising, demand for oil products plunged, and middle distillates such as diesel faced a particularly tough time given pressure on jet fuel amid travel restrictions. The pandemic also interfered with day-to-day operations, while coordinated production cuts by Opec and its allies tightened the market for heavier grades of crude, undercutting the anticipated access to cost-advantaged crude the plant’s complexity would provide. Meanwhile, the facility's age and damaged equipment interfered with restart attempts and drove the cost of the project well over budget. By November, Limetree Bay had replaced its chief executive, and earlier this year, one of the main backers -- ArcLight Capital -- exited the project. Musical Chairs Limetree Bay is one of several refineries in the Caribbean that were mulling or pursuing restarts. But experts say all of them face significant challenges, and did so before the Covid-19 pandemic (OD Mar.30'21). Market-watchers liken the situation to a game of musical chairs, with new players trying to join in even as seats are removed. North American fuel demand is set to flatten and then decline, and competition for export markets in Latin America is getting crowded and will grow more so. Frans Koster, New York

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