Editor's Note: This article originally appeared in the March 2016 edition of Midstream Business.
Diversifying into the downstream makes sense from a strategic perspective, but the economics are lacking for most players to build a reﬁnery from scratch.
That’s why the recent deal for ArcLight Capital Partners and Freepoint Commodities to purchase the moth-balled Hovensa refinery complex in St. Croix, U.S. Virgin Islands, has intrigued so many in the industry.
The 2,000-acre facility, with docks that jut into Limetree Bay and that sits just across the road from the Captain Morgan Rum Distillery, houses about 32 million barrels (bbl) of crude and petroleum product storage, reﬁning units with a peak capacity of 650,000 barrels per day (bbl/d), a deepwater port with nine docks, six tugboats and other related equipment. It was closed in 2012 and purchased during a bankruptcy auction for $190 million.
“They’ve indicated that with a couple hundred million dollars of investment, they can make that facility work as a terminal to receive crude from various parts of the world, blend it and then send it over to other parts of the world to be reﬁned later,” Greg Haas, director with Stratas Advisors, told Midstream Business. “It will become a new hub, and a very important new hub in the Caribbean area.”
The Limetree Bay Terminals project already has a major customer waiting when it relaunches operations. China Petroleum and Chemical Corp. (Sinopec) the Chinese oil company, has taken a 10-year lease for 10 million bbl, or about 75% of crude oil storage capacity. Sinopec’s eagerness to sign on enabled ArcLight and Freepoint to purchase the facility.
“One way [to diversify] in low-price environments is to ﬁnd existing facilities so that you can make small incremental investments and repurpose facilities into new uses,” he said. “It had been a reﬁning site, it’ll now be a crude oil blending terminal, and it’s under long-term contract even through these prices.”
Sinopec’s motivation comes from its production deal with Venezuela. The company needed a terminal to blend, ship and load the crude and the former Hovensa plant became available.
“ArcLight is helping to make that happen on U.S. soil, rather than Venezuela or other nations that could have potentially put together a package to serve as China’s shipping grounds,” Haas said.
ArcLight and Freepoint will reportedly spend more than $300 million to purchase the site and bring storage tanks back into service in batches throughout this year. Fully repurposing the facility would cost quite a bit more if the partners choose to do that, but the cost will still be miniscule compared to building such a complex from the ground up.
For example, the latest cost estimate for Kuwait’s full-service Al-Zour reﬁnery, scheduled to open in 2019 with a capacity of 615,000 bbl/d (similar to Hovensa) is $16 billion. Even for ArcLight, that might be a bit much. In the 15 years of its existence, the sum of ArcLight’s investments in some 90 projects totals less than $14 billion.
2022-05-12 - The three sales were the last to be held under a 5-year plan for leasing in federal waters on the outer continental shelf. That plan expires in June, and the Biden administration has not finalized a new program.
2022-04-11 - Analysts point to data indicating improvement for offshore oil and gas drilling, particularly floating rigs, with room to grow.
2022-03-09 - The U.S. shale industry is challenged to overcome supply chain woes as the energy crisis and years of weak oil and gas investment call for action to meet today’s rising energy demand.
2022-03-24 - Rising costs, supply chain woes and inflation challenges grow amid drive to boost U.S. shale production, analysts say.
2022-03-01 - Experts with Project Canary and MiQ share insights and strategies on emissions monitoring technology, certification and leak prevention.