Refineries Across U.S. Closing Due to Weak Fuel Demand

by Michael Smith (Veshengro)

WILMINGTON, Delaware – Refineries from New Mexico to New Jersey are under severe economic pressure due to falling demand for fuel, with a number of facilities having shut down in recent months.

Valero Energy Corp., which temporarily shuttered a major refinery over the summer, said that it would permanently close its Delaware City oil refinery and lay off 550 workers.

That makes this the largest largest refinery in the United States to close this year.

Refineries in the Northeast are particularly vulnerable because many are older, operate less efficiently and must compete with gasoline imported from Europe.

The Delaware City refinery, where workers were notified of the closing on Friday, November 20, 2009, lost about $1 million every day this year, Bill Day, the spokesman for Valero said.

Demand for fuel has been falling for some time and the recession has made things worse, squeezing profit margins for refiners everywhere.

Refiners are pulling capacity offline and are now operating at levels more consistent with the aftermath of a hurricane in the Gulf of Mexico.

El Paso, Texas-based, Western Refining Inc. announced earlier this month that it would close its Bloomfield, N.M., facility, putting 100 people out of work.

Valero, based in San Antonio, said in September that it would idle two units in Delaware City, cutting about 150 jobs. Last month, the company said it would cut another 100 jobs at its Paulsboro, N.J. refinery by the end of the year.

The Paulsboro announcement came just days after Sunoco Inc. said it would indefinitely idle its Eagle Point facility, which employs about 400 workers in New Jersey.

In June Valero shut its refinery in Aruba, which had a capacity of about 275,000 barrels a day.

The Delaware City refinery had a capacity of 210,00 barrels a day.

Valero chairman and CEO Bill Klesse said the company had sought a buyer for the Delaware facility, but found no takers.

"At this point, we have exhausted all viable options," he said.

It is a tough market for any company attempting to unload a refinery.

Rising gasoline prices have already changed the driving habits of Americans and the recession has hastened that trend.

About 30 percent of gasoline demand is closely tied to employment, said Ann Kohler, an analyst with Caris & Co.

The nation's unemployment rate is hovering above 10 percent for the first time in 26 years.

"You've probably seen gasoline demand peak in this country," Kohler said.

Delaware is already wrestling with rising joblessness. The state's unemployment rate has jumped 2 percent this year to 8.7 percent.

"The company's decision to close the refinery leaves us with several problems to solve," said Gov. Jack Markell

Markell said the state needs to help displaced Valero workers while ensuring accountability for the environmental issues related to the refinery closing.

So, while we see refineries close in the United States there are off the British coast tens of oil tankers at anchor.

Those tankers will not be docking and discharging their load, we have been told, because the owners of the vessels, the oil companies, have told them to lay off shore until the prices have risen more.

This is a repetition, of sorts, of the oil crisis of the 1970s, the one that was man-made and never really was, and which was just an attempt to see what people's reactions would be to a lack of gasoline.

Then too fully laden tankers were anchored in the roadstead well off shore so that people would not realize that they were deep in the water and thus could be safely assumed to be fully laden, when the people were being told that no crude was coming through from the Gulf.

On the other hand, prices in the UK are very high, with over $1.50 per liter, making a US gallon about US$6, and people are still using their cars though.

Things are changing, it would seem and some people have changed their traveling habits with some cycling and other walking and other using public transit systems or a combination of all three. In some cases commuting no longer even happens as people are working from home.

No doubt that is refineries are being shut in the USA the same may soon happen in Britain (and elsewhere in Europe) too. Thus putting even more people out of work.

© 2009