August 20, 2010 at 12:04 pm #2553
EDITORIAL: Exit refinery
Modified: Friday, August 20, 2010 (Vagazette.com)
It seems unfathomable that an oil refinery with a deepwater port can die, given insatiable demand. But the business strategy was fatally flawed on the supply side.
Western Refinery acquired Yorktown to refine heavier crude that it bought at a discount, but that particular supply has dwindled for whatever reason. So even at less than $80 a barrel, Yorktown cant make a profit. Instead, losses were running $5 million a month. Thats hemorrhaging.
Even after hundreds of millions in modernization over the years, including $175 million recently, the place was still inefficient. One answer lies in scale, for this was a mom-and-pop plant compared to big refineries in New Jersey.
I asked Joe Mann of Mann Industries about the size dynamic. He claims no expertise on refineries but said that large integrated manufacturers are better able to absorb higher costs. Other sources have said the high debt piled on this refinery did not help the situation.
The company remains fully capable of moving diesel and gasoline by barge up the Chesapeake Bay and Delaware Bay, and indeed it will continue to do so for third-party companies. Mann said, Western sees profit opportunity in distributing refined products, not only from their own operations, but over-production from large integrated refiners.
Sadly, 230 of 260 employees are thrown out of work. A token effort will be made to transfer them to other Western refineries, but those are already fully staffed. Readers commenting on vagazette.com fear a rise in local gasoline prices at the pump, but the greater worry is the newly unemployed.
A skeptic could view the shutdown as more of a strategic reset, in which Western regroups with new equipment and fewer workers. All plants go through this, but they try to keep functioning. This is different because its a major kill, requiring six weeks to draw down inventory and another 60 days to shut down equipment. Steel mills have closed faster.
Executives hinted they may reopen someday if the refining margins improve, but they were vague. They tried to sell the place last year to any enterprising company, but there were no takers.
Yorks economic development director Jim Noel pointed to a Valero refinery that closed last year and was purchased by a company called PBF Energy, with plans to reopen next year. Noel needs to go see PBF pronto.
Is there a better use? Mann said, Not likely. Petroleum cracking equipment is very specific. The closest conversion would be for commodity chemical manufacturing. But among those specialties, he added, Plants have been idled. Capacity is not needed.
Any re-use almost certainly has to be as a refinery, in some variation. The infrastructure commends it, and the ideal location on the York River begs for it. No one wants to disturb the land mass after 50 years of toxic spills. The soil must be preserved in amber industrially rather than redeveloped as homes or something else.
The discouraging thing is that no takers arose when the plant was for sale as a going concern. Now the price has to have fallen sharply.
You would think higher oil prices would help, but no. Again, Joe Mann: It is likely that all independent refiners, whose margins are already small, will find themselves under ever-increasing cost pressure. Only the most efficient refineries can be expected to survive at high oil prices.
It will be a dark night when the distinctive natural gas light is extinguished on the pipe stack. Mariners and taxpayers have benefited all these years.
Two upshots are at once fascinating and maddening. Dominion Virginia Power and Virginia Natural Gas evidently considered cutting rates for a big client, but not the destitute residential customer whos been laid off.
And the state had provided tax breaks in recent years as well, but York County didnt budge. The county couldnt do anything without enabling legislation from the General Assembly, and that would have done little to mitigate $60 million worth of losses.
August 20, 2010 at 12:12 pm #5509
Here is update on Western Yorktown Coking Refinery Closure (with comments on PBF purchase Valero Delaware fluid coking refinery). Looks like no one put offer in on sales attempt which seems strange given all foreign companies searching for US footholds – espcially since Yorktown is making some profit just barging in product from larger refineries to resell in the area.
This also will not be good for US green anode coke supplies to domestic calciners due loss Yorktown – but since it has been limping along anyway its not a suprise.
This would also be another canidate for EIA/OGJ as “idled capacity” but will likely get delisted as did Valero’s Delaware refinery in 2Q10 (but is now preparing for restarting which means it needs be added back) ……. which fits category for “idled” instead of closure.
August 20, 2010 at 4:54 pm #5508
Forgot to mention previous post on Yorktown Coking Refinery are @ :
8/10/10 – Sale & Current Operations
11/02/08 – Update2 Yorktown on Mkt
4/30/08 – Start up Gas Unit
3/02/08 – Coker 17% Increase to 21MBD
(FYI – you can always do search @ Coking.Com news for Refinery title to track previous post on refinery/sales/projects like this).
I also noticed from my notes that Yorktown had improved their margins some by running Marlim Crude in addition to North Sea/ect crudes. Does anyone know how the High TAN levels impacted Yorktown?
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