Last week, we began a discussion of refining industry developments in the sunny (but sometimes very stormy) Caribbean. As we outlined in that blog, refineries located in the Caribbean islands have in past years been a very important source of refined product not only within the region but also for the Eastern Seaboard of the U.S. But just as frequent tropical storms interrupt the idyllic beach weather, market trends and “squalls” have also wreaked havoc with the refineries throughout the region. In fact, as we noted last week, all the facilities have been closed in recent years. While changing market conditions and the structural disadvantages of operating refineries in an island environment have played a major part in these closures, self-inflicted wounds, including poor management, lack of capital and corruption also played important roles in the failures. Although all these challenges still remain, attempts are being made to restart several of the major refineries in the region. We discussed the most impactful and advanced of these efforts last week, the ongoing attempt to start up the Limetree Bay Ventures (LBV) St. Croix refinery in the U.S. Virgin Islands. In today’s blog, we look at the other three major potential restarts – formerly large and important refineries located on the islands of Aruba, Curacao and Trinidad.
In 1915, shortly after oil was discovered in the Lake Maracaibo Basin of Venezuela, Royal Dutch Shell began construction on the Isla refinery in Curacao. Like the other refineries in the Caribbean, the Isla facility was also expanded greatly during World War II. In 1985, Shell sold the aging facility to the government of Curacao for one guilder, but also with a release of environmental liabilities. Unable to operate the refinery directly, the Curacao government contracted with PDVSA to be the facility operator. Processing rates in the refinery gradually declined however, as a result of a lack of maintenance and the growing crude production problems in Venezuela. In 2018 and 2019, crude rates at Isla fell to near zero. The operating agreement with PDVSA expired at the end of 2019, but the island government has recently sued PDVSA due to a breach of payments.
The Curacao government is currently negotiating with three entities for a potential restart of the plant. One of the entities is from China, one from India, and the third is a local island group. Final proposals are due by December 12. Because the refinery has been idle for two years, a restart would certainly be difficult and costly. The facility has a rated capacity of 335 MBPD, but actual maximum rates are generally estimated at 270-290 MBPD.
Around 1928, Standard Oil of Indiana constructed the first oil processing units on the island of Aruba, with the purpose of processing oil from the same Maracaibo Basin in Venezuela which led to the construction of the Curacao refinery. They soon sold the facility to Standard Oil of New Jersey, who expanded and operated the plant for the next five+ decades, turning it into one of the largest facilities in the world by World War II. The site was of such significance that it was attacked by a German U-boat in February 1942. Due to changing market circumstances, Exxon (the successor to Standard Oil of New Jersey) closed the refinery in 1985 and began to dismantle the units. The government of Aruba, in an effort to resuscitate an important part of the country’s economy, quickly took over the plant and sold it to Coastal Corporation. During its ownership, Coastal upgraded the refinery, which included the addition of a delayed coker. As Coastal Corporation ran into financial difficulties, it sold the facility to Valero Corporation in 2004. By 2012, after experiencing a number of years of poor economics, Valero made the decision to shut down the refinery. The island government continued to look for someone to restart the facility and ultimately convinced PDVSA owned CITGO to take over the facility in 2016. After a few years of studying potential restart options, CITGO ultimately decided not to proceed with those efforts and returned control of the 235 MBPD facility back to the island government of Aruba in late 2019.
In July 2020, the Aruban government began seeking a new operator for the refinery and terminal assets. Two bid packages were offered with the first being control and operation of the refinery along with the potential of additional petroleum related operations, such as LNG transshipment facilities. The second package was for a potential repurposing of the sites with new industries. The government of Aruba received 29 proposals in response to the first offering and 25 proposals in response to the second. The proposals are currently being evaluated. Considering the current headwinds in the industry, it is doubtful the refinery will reopen any time soon (if ever), but the use of the site as a terminal has a greater probability. The site has 13 million barrels of storage capacity and its berths can accommodate ULCCs.
The Point-a-Pierre refinery on the island of Trinidad in the southern part of the Caribbean, dates way back to 1917. The facility was constructed by a subsidiary of Central Mining Company of the UK to process local crude and had an original capacity of not much more than 1,000 BPD. It was expanded over the years so that by the end of World War II, the plant had become the largest in the British Commonwealth. In 1956, Texaco acquired the site and further expanded its output to reach a capacity of 360 MBPD in 1970. Trinidad state owned Trintoc bought the refinery in 1984 and was then reorganized in 1993 to form Petrotrin. During the ownership of Trintoc/Petrotin, the refinery was derated to 160 MBPD by shutting down some simple distillation capacity.
Even though the refinery has seen numerous upgrades, it became increasingly uncompetitive in the last two decades. It was able to survive partially due to the shutdown of the other Caribbean refineries we have discussed (St. Croix, Aruba and Curacao), along with the demise of the Venezuelan refining industry and difficulties experienced by other Latin American facilities. These allowed for periods of improved margins. The facility however, became the victim of poor management, waste and corruption and was closed in November 2018. Prime Minister Dr. Keith Rowley indicated that a cash infusion of $25 billion would have been necessary to provide necessary maintenance and upgrades and repay outstanding debts. The increasing control of the Oilfield Workers’ Trade Union over the company is often cited as a primary factor in the poor management and resulting closure.
In a desire to restart the refinery, the Trinidad government attempted to sell the site in 2020. The highest bid was for $700 million by the union-sponsored Patriotic Energies and Technologies (PET), beating out proposals by private equity firm Beowulf Energy and the German refiner, Klesch. The PET proposal was rejected however, as it did not address outstanding acquisition and restart financing issues and the existing lien on the assets. While the government still desires to see the refinery restart, the former trade minister Mariano Browne doubts the facility will ever reopen. He points out that the technical staff have all left the region and substantial capital would be required for a restart.
Turner, Mason & Company is continually monitoring developments in regional and global petroleum markets and assessing how they will impact the industry. Considering the dynamic events impacting the petroleum industry (IMO, COVID-19, trade wars, low carbon standards, EV incentives, sanctions, OPEC policy, etc.), the future landscape of the petroleum industry is as uncertain as ever. TM&C not only executes regular and comprehensive studies of the industry, such as our Crude and Refined Products Outlook (C&RPO) and World Refinery Construction Outlook (WRCO), but also one-off studies focusing on specific issues. We also use the findings of these studies and our expertise to assist clients in all segments of the petroleum supply chain in specific and focused consulting engagements. For more information on our subscription studies or our consulting capabilities, please call us at 214-754-0898 or visit our website at turnermason.com.