The closure of HOVENSA, a major refinery in the U.S. Virgin Islands, is another in a string of Atlantic Basin refinery closures over the past several years. With plans to turn the site into a product terminal, it continues the trend of companies shifting their focus from underperforming refining assets to other segments of the market. The closure of this refinery, which was the largest employer in the U.S. Virgin Islands, will likely have a major adverse impact on the economy of that U.S. territory. The impact on the mainland United States is not as large, but is still significant, as it is likely to affect petroleum product markets in nearby areas and up the East Coast.
HOVENSA, a joint venture between Hess Corporation and the Venezuelan state company Petróleos de Venezuela, shut down the St. Croix refinery in mid-February and announced its intention to convert the site to an oil storage terminal. In a January 18 press release, HOVENSA cited operating losses in excess of $1 billion in the last three years alone - and projections of continued losses - due primarily to lower demand for petroleum products and the addition of new refining capacity in emerging markets as reasons behind the closure. As an oil-fueled refinery, HOVENSA also identified its competitive disadvantage with mainland refineries fueled with low-priced natural gas as a factor underpinning the closure.
HOVENSA sent most of its product to the U.S. East Coast, but in recent years, it had increased its sales in other markets. In 2007, HOVENSA shipped two-thirds of its output to the East Coast; that share had declined to 55 percent in 2011 (through August). At the same time, the refinery's output dropped in 2011 after HOVENSA announced it was reducing its capacity from 500,000 barrels per day (bbl/d) to 350,000 bbl/d.
Total U.S. East Coast product imports from the U.S. Virgin Islands, have also declined, falling from 307,000 bbl/d in 2007 to 158,000 bbl/d in 2011 (through November). Imports of jet fuel and certain other petroleum products (mainly residual fuel oil and unfinished oils) have dropped off almost entirely. However, the U.S. Virgin Islands remained an important supplier of distillate and gasoline to the East Coast (Figures 1 and 2). In 2011 (though November), the U.S. Virgin Islands accounted for almost 30 percent of total East Coast distillate imports (second only to Canada), of which about 53 percent was ULSD, and 13 percent of regional gasoline imports (44 percent being RBOB). While the U.S. Virgin Islands' share of the East Coast's total 2011 distillate supply has declined somewhat from previous years, its share of the region's gasoline imports has remained relatively steady.