Get Ready for Higher Gas Prices
An oil refinery in St. Croix, U.S. Virgin Islands, will shut down by mid-February. It is owned by Hovensa, a joint venture of U.S.-based Hess Corp. and Venezuela’s state-owned oil company Petróleos de Venezuela, S.A. (PDVSA).
Losses at Hovensa . . . have totaled $1.3 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, said Brian K. Lever, president and chief operating officer of Hovensa LLC.
There are various other causes for the shutdown and this may be among them:
In January, Hovensa entered into a consent decree with the U.S. Environmental Protection Agency and Justice Department in which the company agreed to invest $700 million on pollution controls after a series of chemical releases affected people living downwind from the refinery. Hovensa also agreed to pay a $5.4 million penalty for violating the Clean Air Act.
Under current market conditions and having experienced substantial losses during the past three years, investing an amount equal to 53.85 percent of those losses as required by the EPA could be quite burdensome.
Closure of the St. Croix refinery may well effect U.S. domestic gasoline prices adversely, particularly on the East Coast:
[T]he coming loss of gasoline supply shocked markets for gasoline futures, which are likely to be soon reflected at the pump. Gasoline for February delivery rose 5.41 cents to $2.8254 a gallon on the New York Mercantile Exchange on Thursday, settling at the highest point since Sept. 8.
In St. Croix, the refinery employs about 1,200 people in addition to about 900 contractors. In 2010, the population of the island was 50,601, so the loss of about 2,100 jobs will have a substantial direct economic impact plus a significant multiplier effect. Food stamps and other welfare benefits are available there and the U.S. federal government contributes. There will also be significant long-term impacts on the tax revenues of the U.S. Virgin Islands, reducing them by at least $60 million per year through diminished real property taxes and employee income taxes.