A decision by Shell to refurbish a gasoline-producing unit at its Convent refinery rather than demolishing it and laying off workers could be tied to a growing export market for gasoline, industry experts said Thursday.
Regardless of the reason, Shell’s decision appears to be good news for St. James Parish, where the refinery remains a critical cog in the economy. In 2016, the refinery was the parish’s top property taxpayer, accounting for nearly 22 percent of the property tax roll, according to a School Board audit. With 500 employees, the refinery also was the parish’s second-largest employer.
St. James Parish President Timmy Roussel announced Shell’s change in plans to the Parish Council on Wednesday, which Shell spokesman Ray Fisher later confirmed.
Refinery managers told Roussel that Convent's catalytic cracker would undergo a “major turnaround” so it can run for another four to five years.
“Developing this capacity for export is almost 100 percent likely the rationale for doing this,” said David Dismukes, who heads the LSU Center for Energy Studies.
U.S. refiners have been concentrating on exports of diesel to Europe, as well as jet fuel, Dismukes said. Production growth has been moderate at best for several years stateside, but the major growth opportunities have come from exports.
Now “miserable" gasoline production by Mexico's and Venezuela's state-owned oil companies has allowed Gulf Coast refiners to export gasoline at "substantially better profits" than from domestic sales, said Tom Kloza, global head of energy analysis for the Oil Price Information Service.
U.S. gasoline exports are at record levels and jumped 17 percent during the first eight months of the year, according to the U.S. Energy Information Administration.
The export market’s growth may have played “a big role” in Shell’s decision to keep its catalytic cracker and do other upgrades, Kloza said. Shell already sends gasoline to Mexico from its refinery in Deer Park, Texas, he noted.
Fluidized catalytic crackers, like Shell's, use heat and a catalyst to create gasoline and other distillates.
The decision marks a complete turnabout for the Convent cat cracker.
Two years ago, Motiva Enterprises, a joint venture between Shell and Saudi Aramco, announced it planned to run the Convent and Norco refineries as a single operation. Motiva said it would spend $500 million to build three pipelines to connect the refineries and link an existing St. James oil terminal to Norco. Once the pipelines were built, Motiva planned to idle the Convent cat cracker, which can process 92,000 barrels of oil per day. Motiva planned to reconfigure the hydrocracker unit at Norco to process 30,000 barrels per day of additional gas oil into high-quality diesel.
In March, Shell and Saudi Aramco decided to split up Motiva, with Shell taking complete ownership of the Convent and Norco refineries.
Fisher, the Shell spokesman, said Thursday the pipeline connections between Convent and Norco offer a broad range of business opportunities, but Shell is not disclosing exactly what those activities involve.
Fisher also said Shell plans to refurbish the Convent refinery's gasoline hydrodesulphurization unit, known as HDS-1, in 2018.
"This decision leverages Shell’s end-to-end business integration on the U.S. Gulf Coast and reinforces the strategic value of the Convent refinery," Fisher said.
Kloza said Gulf Coast refiners previously viewed gasoline as “a surplus product” with razor-thin margins.
Analytics firm RBN Energy put it another way: Diesel was king and all the projections called for gasoline’s continued decline.
Now, the demand for gasoline has increased and the difference between the price of oil and price of the gasoline produced from it is solid; higher-octane fuels demand a high premium, according to RBN.
Kloza said refiners just completed one of the best third quarters in years, and the expected returns on motor fuel are much higher.
Meanwhile, diesel prices, which had fallen, have only recently recovered.
The Convent refinery’s heavy-oil hydrocracking unit has had several issues, including a couple of fires that caused extensive damage, RBN says. Keeping the cat cracker around a few more years gives Shell the option of using gas oil for gasoline or diesel production; allows the company to continue operating the associated alkylation unit, which produces a component in high-octane gas, at maximum; and provides more time to revamp or expand the hydrocracking unit and monitor the market to see if gasoline demand remains strong.