As one of the world's largest refineries is poised to reopen, Wood Mackenzie assesses its potential economic performance and the impact of US tight oil.
A tentative agreement has now been reached to restart the Hovensa St Croix refinery in the US Virgin Islands under new ownership. Atlantic Basin Refining (ABR) plans to invest US$1 billion over two years to reconfigure the plant, with the crude slate shifting from heavy Venezuelan crude to US tight oil.
Although St Croix is to operate with ABR running only 300 kbd of the 500 kbd total crude oil distillation unit capacity (CDU), its restart would significantly increase the supply of refined and intermediate products in the Atlantic Basin.
Wood Mackenzie also suggests it could supply up to 70 kbd of vacuum gas oil (VGO) to US refineries. This comes at a time when Russia, the US largest supplier of VGO, is drastically cutting exports following a wave of plant upgrades.
St Croix has an edge over its competitors on the US East Coast in terms of shipping rates, having been made exempt from Jones Act laws for marine transport between US ports in 1970.
Consequently, ABR could move crude oil and refined products to and from the US on cheaper foreign vessels. This would create a new destination for US tight oil, with scope to process over 200 kbd of Eagle Ford crude.
However, unlike US refineries which are powered by cheap natural gas, St Croix was built to run on fuel oil which has always been the biggest hurdle facing its profitability. Our research shows that this disadvantage could be worth $3 to $5 per barrel.
LPG and LNG have been raised as possible solutions, with St Croix potentially increasing its LPG yield by running some Eagle Ford condensate.
Wood Mackenzie’s analysis of a reconfigured St Croix shows a net cash margin (NCM) of $1 to $3 per barrel - well below US Gulf Coast refineries. Going forward, its economics will undoubtedly balance on a knife edge, as any further sustained shifts in crude oil and product prices could sink the NCM further.
Image from EIA