Third Caribbean oil refinery faces closure

Caracas/Kingston, 30 April (Argus) — A longstanding dispute over worsening environmental problems surrounding Dutch-controlled Curacao's 335,000 b/d Isla oil refinery is escalating, with neither the Netherlands nor the plant's Venezuelan operator PdV willing to take responsibility.

The dispute is fueling rising demands by environmental and community groups to modernize or shutter the aging facility, potentially following the path of two other Caribbean refineries.

Both the 500,000 b/d Hovensa refinery, owned by US independent Hess and PdV, and the 235,000 b/d Aruba refinery, owned by US independent refiner Valero, were shuttered in 2012 and converted into oil storage terminals. The former has entered a 14-month sales process with the US Virgin Islands government.

In contrast to these refineries, Isla is owned by Curacao but operated solely by PdV under a 35-year lease that expires in 2019. With Venezuela's economy fast deteriorating and political stability in question following the country's contested presidential elections on 14 April, Caracas is not perceived on the island as a responsible long-term steward of the aging refinery.

The Curacao government is appealing to the Netherlands to find “the best option” for dealing with the environmental problems. “The Netherlands should support the government in its attempts to improve the situation and to help us solve the problems,” Curacao health minister Ben Whiteman said.

The island “does not have the resources to deal with the problems created by the refinery,” an official of the prime minister's office told Argus. “The levels of pollution from the refinery are significantly in violation of standards set by the Dutch government. The options we are considering are from a report that was done on the refinery for the government.”

Curacao is an autonomous country within the Netherlands, but the Dutch government is responsible for the island's finances, defense and foreign policy.

Dutch minister of the interior and kingdom relations Ronald Plasterk stated on 21 April that Curacao is responsible for the facility. Nonetheless, a Dutch parliamentary committee has ordered Plasterk to report by 1 June on the environmental issues caused by the refinery.

A study by Dutch consultancy Ecorys commissioned by Curacao's economic development ministry two years ago said $3bn is needed to modernize the refinery and reduce the environmental hazard.

Local and Dutch environmental groups say the plant emits high levels of sulfur dioxide and nitrous oxide that have sickened hundreds of people, caused acid rain, contaminated the soil and often forced island schools to close.

Shuttering the plant would hurt Curacao. Isla contributes about 10pc of the island's economy and 15pc of its foreign exchange earnings. The refinery employs 900 people directly and about 1,500 indirectly.

Under the terms of PdV's lease, signed in 1985 with Curacao, PdV is not legally required to make any capital expenditures involving major upgrades or environmental cleanups, a Venezuelan energy ministry official told Argus.

Isla was 67 years old when Curacao's government acquired it from Shell in 1985 and it had environmental problems long before PdV leased the facility that year, the official said, adding that Curacao authorities at the time should have insisted that Shell "clean up the mess it alone was responsible for creating." PdV "rejects completely any claims or allegations that it is responsible in any way for any environmental problems associated with the Isla refinery," the official said.

Shell sold Isla to Curacao's government in 1985 for the symbolic price of one dollar under an agreement that explicitly exempted Shell from all environmental liability associated with the refinery.

PdV has steadfastly ignored efforts by Curacao's government, including court rulings in 2008, to compel PdV to spend $2bn for environmental cleanup and technology upgrades.

New Venezuelan President Nicolas Maduro is unlikely to cede ground on Isla, particularly since PdV has been scaling back its regional downstream commitments since last year, the official added.

Isla is currently processing about 150,000 b/d of Venezuelan crude oil.

PdV does not rule out renewing the Isla lease when it expires in 2019. The refinery produces gasoline, naphtha, diesel, jet fuel, asphalt, base oils and lubricants.

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