After failing to find a buyer for its refinery in Convent, Shell is shutting down the plant, which employs 700 company workers and 400 contract workers.
The shutdown process is expected to begin in mid-November and run through the end of the year as the company consolidates its international oil refinery portfolio from 14 sites to only six by 2025.
To free up some jobs for those displaced by the Convent shutdown, Shell is offering a voluntary severance program to some workers at its Norco refinery near New Orleans. Shell also operates a chemical plant in Geismar where some workers could land. Others without jobs will get help finding employment with other companies, Shell said.
Shell will continue trying to sell the idled refinery, which sits midway between Baton Rouge and New Orleans, straddling Ascension and St. James parishes, and can process 240,000 barrels of crude oil per day.
"Despite efforts to sell the asset, a viable buyer was never identified," said Curtis Smith, spokesperson for Shell. "After looking at all aspects of our business, including financial performance, we made the difficult decision to shut down the site."
Shell is consolidating its international assets into six energy and chemical parks. The Norco refinery in conjunction with Shell's chemical complex in Geismar in Ascension Parish are one of the six sites. The other sites are in Deer Park, Texas; The Netherlands; Singapore; Germany; and Canada.
Shell said the goal is for the refineries to be more integrated with the chemical complexes to produce more biofuels, hydrogen and synthetic fuels as Shell positions itself for a transition from fossil fuels to a low-carbon future because customers are asking for lower carbon products.
Other refineries under review for potential sale or closure include Puget Sound, Washington, and Mobile, Alabama, along with ones in Canada and Denmark. Decisions about those oil refineries have not been made yet, according to the company.
The processing equipment connected to the Convent plant is located in St. James Parish and occupies about 900 acres.
The company is still investing in other Louisiana sites. It plans to spend $1.2 billion for an expansion at its Geismar facility for a major monoethylene glycol plant, for example.
"After the shutdown process is complete, we will continue to market the Convent refinery for divestment," Smith said.
Parish officials are "hopeful and prayerful" that a buyer will step up and repurpose the site sooner rather than later.
"It's going to be detrimental to our community," said Pete Dufresne, president of St. James Parish. "Not just the employees but a lot of local businesses who assist in Shell's operations.
"It hasn't been profitable in the last several years is what I was told," Dufresne said.
The U.S. oil and gas industry has struggled in recent years with low oil prices pushing down profits. The refining business in particular was hit hard during the coronavirus pandemic, with airline travel coming to a near halt and people working remotely from home rather than commuting to their jobs or being furloughed or laid off from work.
"COVID has really pushed things into a deep dark hole," said David Dismukes, executive director of the LSU Center for Energy Studies.
Calcasieu Refining in the Lake Charles region idled its own 135,500 barrels per day oil refinery earlier this year citing economic reasons. By the end of the year, the independent refinery expects to lay off dozens of workers. Likewise, PBF Energy decided to shut most of its refining units in New Jersey at its 180,000 barrel per day facility and expects to lay off 250 workers.
Gasoline profit margins have been around roughly $8.46 per barrel compared to $13.17 per barrel last year, according to Refinitiv Eikon data shared by Reuters.
There's been significant concern about the long-term financial success of oil businesses and whether institutional investors are willing to lend more money for fossil fuel plant work or would rather invest in cleaner energy projects.
There is also a question as to whether the U.S. has hit "peak energy demand" and accelerated the market trend as many white-collar workers remain at home and have stopped commuting driving down fuel demand, Dismukes said. For years, companies have not built new oil refineries and instead have sought to retrofit existing plants, often decades old to meet new requirements such as is the case with coal plants in the power generation sector.
"It's not just about what customers want, it's also about (the company's) ability to raise capital for future growth," Dismukes said. "It's not just about where the market is going."
As many companies assess existing expenses, this decision doesn't appear to just be between which oil refinery was most efficient, rather it was about where the company wants to invest resources, he said.
There are companies that take old petrochemical facilities, dismantle them and stand them up in other developing nations, which was once the case in Asia but now is more likely in markets like South America. One potential future would be for the plant to be sold for parts or cut up and relocated to other existing sites Shell owns, Dismukes said.
Shell's Louisiana subsidiary, Equilon Enterprises LLC, has $1.18 billion in total taxable value in St. James Parish and paid $18.8 million for the refinery in 2019, tax records show. The company was the largest property taxpayer in the parish in 2019. The second largest was Mosaic Fertilizer with its $311 million site, records show.
"If Shell can't sell it, nobody is going to sell it, it was seriously underperforming (financially) but they don't make decisions in a vacuum," Dismukes said. "If there's no appetite in the market that tells you something. And there's going to be an incentive to sell off that equipment and once you start cannibalizing that asset it would lose even more value."