Lawmakers approve St Croix refinery restart

US Virgin Island (USVI) legislators approved plans early today to restart part of the idled 525,000 b/d former Hovensa refinery on St Croix.

Senators skeptical of the financial and employment benefits of the plan approved an ArcLight Capital Partners proposal to begin running the facility at reduced rates by the end of next year.

The $1.4bn restart plan bet on an upcoming change to marine fuel regulations sparking three to four years of profitable sour crude margins. ArcLight would bring a crude unit, delayed coker, hydrotreaters and a reformer online by the end of next year to produce gas oils and distillates suitable for marine fuels under lower-sulfur rules that take effect January 2020.

Without that rule, "it would be difficult to justify" operating the refinery, ArcLight principal Evan Schwartz told legislators.

The investment firm proposed an aggressive schedule, and said the plan may not work if it cannot restore operations by the end of next year. Securing sufficient skilled construction labor was a bigger hurdle than even hurricanes to restarting the facility, ArcLight said today.

"Frankly, time is of the essence," Schwartz said.

The government has bundled the proposal with land sales for a new hotel development in transactions all targeted to add a few more years of solvency to the island's pension program.

The lawmakers wanted firmer commitments of local employment and tax revenue from the project. Senators questioned the deal structure, which sets payments at a minimum $14mn a year while exempting many taxes. The government struck that deal to avoid the risk of receiving nothing, through either poor performance or as the $1.4bn depreciated.

And senators chafed at the speed of the arrangement, pressed through in a blur that began in early July — and set a vote just two weeks before the island's political primaries. Early voting began 18 July, just ahead of the legislature's deliberations.

"I personally believe the government sent this down as a political move, at this time," said senator Tregenza Roach, who voted against the agreement.

But the facility's closure in 2012 was a deep blow for an island community seeking more diversified employers. Legislators voted 9-5, with one absent, following a marathon 13-hour session that stretched into early this morning.

"The refinery is there," senator Janelle Sarauw said. "Let's make the best use of it."

Approval sent the proposal back to the territory's governor.

Hess and Venezuelan national oil firm PdV shut the joint venture refinery in 2012 after losing $1.3bn over three years. An economic downturn and the facility's lack of access to natural gas, which nearby US Gulf coast competitors easily access for inexpensive power and hydrogen, helped to seal the facility's fate.

Operating fewer units and at a much lower rate should reduce the facility's power and hydrogen disadvantages, according to ArcLight.

The island's legislature blocked an Atlantic Basin Refining (ABR) proposal in 2014 to spend $1bn restarting the facility as a 350,000 b/d refinery, and rejected a Buckeye Partners bid that only saw a future for the terminal. Governor Kenneth Mapp, who took office shortly after that vote, had urged caution while the outgoing governor John de Jongh had hoped to add island jobs. Refiners employ far more workers than terminals.

But refinery jobs tend to be specialized, and senators yesterday questioned how many USVI residents would work at the facilities. Limetree struggled to identify how many of its employees had lived on the island instead of moving from abroad to work on the project.

Limetree Bay Holdings, a unit of the US private equity fund ArcLight Capital Partners, purchased the facility in late November 2015. The agreement ratified by the island's legislature included a commitment to evaluate the refinery for at least 18 months.

Today's agreement splits the businesses into Limetree Terminal and Limetree Refining. If Arclight ultimately sells Limetree Refining, the government would receive 10pc of the sale.