Shell to Close Major Refinery Amid Pandemic-related Slump in Fuel Demand

Multinational energy company Royal Dutch Shell will shut down one of its major oil refineries in the United States later this month as efforts to sell the plant have not yielded a buyer, the company said Thursday.

The planned closure of the facility in Convent, Louisiana is the latest in a string of refinery rationalizations across the world – it is the ninth to be shut down or idled in North America – since the coronavirus outbreak dampened fuel demand globally.

However, the Convent refinery, which employs nearly 700 full-time and 400 contract workers, is the largest facility based in the U.S. and first on its Gulf Coast to close so far according to a Reuters report. 

The 4,000-acre plant has a capacity to produce over 200,000 barrels of crude oil, gasoline, jet fuel, diesel, and sulfur daily but received no bids when put on the market since July, forcing Shell to assess its finances and decide to shut it down instead, company officials said in a statement.

“After looking at all aspects of our business, including financial performance, we made the difficult decision to shut down the site,” Shell spokesman Curtis Smith said. 

Shell plans to consolidate its assets into six energy and chemical parks in line with efforts to restructure its global operations and “provide customers with the lower-carbon products they desire,” it said. The company will focus on its chemicals business and produce more environmentally friendly products like biofuels, hydrogen, and synthetic fuels.

But the Convent plant closure isn’t unconnected to the pandemic, which has exposed the weakness of refining economics. Refiners have been unable to make profit since the pandemic hit, with current selling prices lower than production cost. 

That has seen a long list of refineries either shut down, idled, or reconfigured across the world – in North America alone, almost 1.2 million barrels per day of refining capacity have been closed, per estimates from S&P Platts Global. 

The reduced fuel demand and rising inventories have also seen some refineries in Africa halt production. These include Chad’s Ndjamena refinery in Djarmaya, Durban-based Engen refinery as well as Sasol’s Natref refinery in South Africa. Across the world, nearly 2 million bpd refining capacity has been permanently shuttered due to the coronavirus pandemic.

Shell’s profits took a huge hit in the second quarter of this year as the company posted a net loss of $18.1 billion in the period, compared to $3.2 billion net income in Q2 2019, largely due to an almost $17 billion write-down it took on the value of its assets amid low oil prices and plunging demand.