One of the world's largest oil refineries will close next month, the company has announced, threatening to upend the reeling economy of the US Virgin Islands.
Industry analysts said the closure is unlikely to have a major effect on the global oil market, but will be a blow for the US territory of about 108,000 people.
Losses at Hovensa, a joint venture of US-based Hess and Venezuela's state-owned oil company, have totaled $1.3 billion (€1 billion) over the past three years and were projected to continue due to reduced demand caused by the global economic slowdown and increased refining capacity in emerging markets.
Hess announced in New York that it will take a $525 million after-tax charge against its fourth-quarter 2011 earnings due to the shutdown.
The refinery, founded in the 1960s, has been producing about 350,000 barrels per day during the rough economic climate. It relies on oil for fuel while competitors on the US mainland use less expensive natural gas.
Hovensa was the third largest US refinery before it cuts its capacity of 500,000 barrels by 30% last year. It is now the eighth largest, according to the US EIA.
Dozens of workers wondered where they would go after the refinery is converted to an oil storage terminal.
The company's website says it is still one of the 10 largest oil refineries in the world, but the closure is not expected to have a major effect on the oil industry because it had not been operating at full capacity, said Fadel Gheit, senior energy analyst for Oppenheimer & Co.
Hess benefits because it had been hemorrhaging money through the refinery, he says.
The closure reflects a three-year trend across the US of refineries closing because of the global financial crisis, a drop in petrol consumption and a shift in growth elsewhere.
‘They cannot compete with the modern refineries being built in India, China and the Middle East,’ he explains.
Despite the closure, the US remains Venezuela's largest customer, and Venezuela is still among the top four suppliers of crude oil to the US.
Alejandra Leon, a Latin America oil analyst for Cambridge, Massachusetts-based IHS CERA, said that in 2010, PDVSA reported the Hovensa refinery processed 389,000 barrels a day, of which 227,000 barrels a day were supplied by Venezuela. She said it wasn't clear where the remainder came from.
She said there is an excess of refining capacity globally, so Hovensa's closure ‘is helping to rebalance the market.