Welcome to the Jungle, Part 2 - Limetree Bay Restart Can Help East Coast Product Balance

Limetree Bay Refining’s plans to restart the former Hovensa plant in St. Croix, U.S. Virgin Islands, at the end of 2019 will add significant refining capacity to the North American stack, helping to offset the loss this year of the 335-Mb/d Philadelphia Energy Solutions plant in Pennsylvania. Limetree Bay is also poised to fill a void in Caribbean refining that’s been left by Venezuela’s economic collapse as well as the International Maritime Organization’s 2020 changes to the bunker fuel market. But the facility is not without its challenges, from high fuel costs and stiff competition from Gulf Coast refineries to tropical storms. Today, we conclude an analysis of the operation and potential markets for the refinery.

This blog is based on research from Morningstar Commodities and Energy. Click here for a copy.

In Part 1, we recounted the history of the former Hovensa plant in St. Croix that was once the world’s largest refinery. New owner Limetree Bay, backed by a consortium of private equity groups led by ArcLight Capital and trader Freepoint Commodities, aims to restart the plant with 200 Mb/d of capacity by the end of 2019. The refinery is ideally situated to fill the void in the Caribbean refining market left by the meltdown of Venezuelan national oil company PDVSA. Subject to U.S. sanctions since the start of the year, PDVSA no longer supplies crude and refined products to its neighbors — leaving the Caribbean market reliant on U.S imports. Limetree also hopes to tap into Central and South American markets –– particularly Mexico –– that are currently supplied by exports from U.S. Gulf Coast refineries. Limetree has reduced its exposure to market risk by entering into a long-term processing agreement with BP Trading under which the latter supplies crude and offtakes product for a fixed margin. This time we look at the refinery’s prospects for sales to the U.S. East Coast and the market opportunities created by the IMO 2020 regulations.

U.S. East Coast Market

Limetree Bay represents a possible new source of refined product supply into the U.S. East Coast market, defined by the Department of Energy (DOE) as Petroleum Administration for Defense District 1 (PADD 1). This region is net short of refined products due to poor refining margins that have led to the closure of several plants in the past decade, the latest being the 335-Mb/d Philadelphia Energy Solutions (PES) refinery. Apart from local refineries that supplied 16% of gasoline and 24% of diesel demand in PADD 1 in 2018, according to the Energy Information Administration (EIA), another 50% of gasoline and 56% of diesel needs were supplied by pipeline systems like Colonial from the Gulf Coast, or PADD 3. The balance of product — 34% of gasoline and 20% of diesel — came from overseas imports and tanker and barge shipments from the Gulf Coast. That meant PADD 1 imported an average 146 Mb/d of distillate and 586 Mb/d of gasoline in 2018, according to EIA, as well as shipping in another 119 Mb/d of distillate and 460 Mb/d of gasoline by barge and tanker from the Gulf Coast (Figure 1). Together, these net inbound shipments to the East Coast represent over 1 MMb/d of gasoline and 265 Mb/d of distillate. 

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