Time to Move On - Shell's Plan to Sell Another Refinery, This Time in Louisiana's Refinery Row

Earlier this month, Shell announced that it was exploring the sale of yet another refinery — this time, it is the company’s Convent facility in Louisiana, which is one of the two refineries in the state that remain with Shell from the unwinding of its former joint venture with Saudi Aramco. Convent, with a capacity of 240 Mb/d, is near the middle of the pack in terms of refinery size and possesses some unique characteristics that could make it an attractive option for the right buyer and market conditions. But Shell’s announcement also raises a question, namely, how does the prospective sale compare with the company’s stated intent to focus on a smaller set of refineries integrated with Shell’s key trading hubs and petrochemicals operations? Today, we review the refinery’s characteristics and how it stacks up against its nearby rivals.

Convent is the fourth U.S. refinery that Shell is looking to unload in a little more than a year’s time. In June 2019, Shell announced the sale of its Martinez, CA, refinery to PBF Energy, and in March of this year, Shell put its Mobile, AL, and Puget Sound, WA, refineries on the block. In general, Shell has explained its refinery divestiture announcements by saying that it wants to focus its manufacturing interests on a smaller, core set of refineries that are highly integrated with the company’s key trading hubs and petrochemicals operations. If all of these facilities were to sell, Shell will be left with only two U.S. refineries: the Deer Park refinery in the Houston area, which is operated as a JV with Petróleos Mexicanos (Pemex), and the Norco refinery in Louisiana, whose operations are integrated to some degree with the Convent facility. Of note, both the Deer Park and Norco refineries are connected to adjacent ethylene crackers and related petrochemical facilities. 

Convent is located within the U.S. Gulf Coast region, which holds more than half of the country’s refining capacity. More specifically, the refinery (green refinery icon in Figure 1) is positioned in the middle of Southeast Louisiana (SELA), which is its own subset of Gulf Coast refiners located along the Mississippi River between Baton Rouge and the Gulf of Mexico. In recent years, the SELA region has been experiencing major changes in its crude oil sourcing options and crude oil flows with the additions of pipelines such as Zydeco, PELA (Permian Longview and Louisiana Extension), Bayou Bridge, and the pending Capline pipeline reversal (see map and Louisiana Rain). With its position along the Mississippi River, Convent also has access to international waters. This provides significant crude oil and feedstock sourcing flexibility, as well as outlets to refined product export markets. Additionally, the refinery’s location just upriver from the St. James, LA, storage and distribution hub provides a high degree of flexibility and optionality for both foreign and domestic oil supplies via pipeline. Over the last three years, all crude oil supplies have been delivered to the refinery via an 18-inch-diameter pipeline from St. James operated by Zydeco, which is owned by Shell and Shell Midstream Partners.