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Shell closing Convent, Louisiana, refinery as pandemic takes toll

(Reuters) - Royal Dutch Shell RDSa.L said on Thursday it was closing its refinery in Convent, Louisiana, the largest such U.S. facility and first on the U.S. Gulf Coast to shut down since the coronavirus pandemic devastated worldwide demand.

FILE PHOTO: Filled oil drums are seen at Royal Dutch Shell Plc's lubricants blending plant in the town of Torzhok, north-west of Tver, November 7, 2014. REUTERS/Sergei Karpukhin

The shutdown will occur this month after Shell failed to find a buyer.

The refinery is the ninth in North America targeted for a shutdown or to be idled since the pandemic, which has dealt a heavy blow to fuel demand globally. The United States is the world’s largest fuel consumer.

Shell said it failed to find a buyer for the 211,000-barrel-per-day refinery after announcing plans to sell it in July.

“After looking at all aspects of our business, including financial performance, we made the difficult decision to shut down the site,” Shell spokesman Curtis Smith said in an emailed statement.

Refining margins have been down substantially since the pandemic started. The gasoline refining margin is currently at $8.79 per barrel, below the threshold where most refiners can profit.

Once the shutdown is complete, Shell will continue to try to divest the refinery, the company said. It expects to sell all but six refineries and chemical plants globally and is considering closing facilities it cannot sell, the company told investors on its quarterly earnings call this week.

“We recognize the market is not great at the moment in terms of divesting assets ... if it’s not possible, we’ll consider closing and shutting down. That’s ultimately, the last option we’d like to pull,” said Chief Financial Officer Jessica Uhl.

The company said in 2019 it would structure its operations to match the future market for downstream products with a focus on its chemicals business.

In February, Shell sold its 156,400 bpd Martinez, California, refinery and logistics assets to PBF Energy for $960 million (£731 million) plus the price for oil and refined products on hand.

Shell said it will open a selective voluntary severance program to potentially create other roles for workers.

Convent’s closure adds to the almost 2 million bpd of refinery capacity globally that has been permanently shuttered globally due to the coronavirus pandemic.

Another 1.4 million bpd is temporarily out of commission or being converted in terminal and other facilities, U.S. refiner Phillips 66 said on its third quarter earnings call earlier this week.

Late last month PBF Energy PBF.N said it will shut most refining units at its Paulsboro, New Jersey, refinery.

Elsewhere, Canada’s Come-by-Chance plant in Newfoundland and Labrador has been idled since May. HollyFrontier HFC.N shut down its Cheyenne, Wyoming, refinery, Marathon Petroleum MPC.N began closing refineries in Martinez, California, and Gallup, New Mexico, while Calcasieu Refining CRC.UL idled its Lake Charles refinery in southwest Louisiana.

Phillips 66 announced plans to shut its plant in Arroyo Grande, California, in 2023 and plans to reconfigure its San Francisco Refinery to produce renewable fuels.

SELLING AN IDLED REFINERY

It is unusual for an oil company to sell a refinery that it has already idled, in part because the value of the asset is deemed to be lower if it is not operating.

North Atlantic Refinery Limited is actively trying to sell its Come-by-Chance refinery, after a deal with Irving Oil fell through last month for undisclosed reasons.

“Refineries aren’t light switches, they’re extremely expensive to shut and restart,” said Zachary Rogers, senior oil analyst at Rapidan Energy Group.

“The fact it’s shutting down (for however long) underscores the weakness of refining economics as COVID persists,” he added.

Reporting by Laura Sanicola; Additional reporting by Devika Krishna Kumar; Editing by Dan Grebler and Tom Brown

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