Houston refinery needs investment: LyondellBasell

LyondellBasell's decision to close its 268,000 b/d Houston refinery by 2023 partly reflects concerns about the facility's condition, with the company uninterested in making investments necessary to keep it running beyond next year.

"Operation of the refinery beyond next year would require significant capital investment," said interim chief executive Ken Lane today on the company's first quarter earnings call. "After thoroughly analyzing our options, we determined that exiting the business was the best path forward."

The company announced last week that it would shut the refinery — which has been up-for-sale since last year — as part of a bid to reach net zero emissions by 2050. But investments required to run the facility reliably may have loomed large in discussions with potential buyers.

Valero earlier this week waved off the possibility of buying the Houston refinery or Marathon Petroleum's 63,000 b/d Kenai refinery in Alaska — the other US refinery known to be up for sale — due in large part to operational concerns.

"Sometimes you get in there and you start looking at it and [my team] tells me it is going to cost $3bn to get it up to Valero standards, and you think maybe that wasn't exactly the best thing," said Valero chief executive Joe Gorder on 26 April. "It is not that these assets are not good or attractive, we just feel we have better uses for our capital than buying a refinery that is on the market at this point in time."

LyondellBasell's Houston refinery closure would fit within a recent trend of US refiners retiring or converting aging facilities first constructed in the early 20th century. Rival Phillips 66 late last year decided to convert the 250,000 b/d Alliance refinery in Belle Chasse, Louisiana, into a terminal after Hurricane Ida damaged the facility beyond repair. It would also align LyondellBasell with European peer Shell, which has moved away from US refining in recent years amid legal and investor pressure to pursue decarbonization goals.

While increased competition for key crude feedstocks from Canada, Mexico and Colombia in the wake of US sanctions on Russian energy may have also clouded the facility's long-term outlook, the Houston refinery continued to run profitably in the first quarter. The refinery recorded $148mn in profit in the period, its third straight consecutive profitable quarter, and more than doubled year-over-year refining margins as measured by the Maya 2-1-1 crack spread.

But recent quarters have offered signs that the facility, a key producer of gasoline and diesel in the US Gulf coast, was not in ideal shape. LyondellBasell took a $624mn impairment charge against the refinery in its fourth quarter 2021 results for undisclosed reasons, after committing a $570mn impairment against the facility in 2020.

Alternative uses

LyondellBasell has not abandoned efforts to sell the facility, but the company will continue to evaluate other uses for the site along the Houston Ship Channel. One option would include using the facility as part of a recycled plastics business lines linked with its nearby petrochemical facility in Channelview, Texas.

"The refinery site is located in a very good position geographically on the [Houston] Ship Channel and has great pipeline connections with the [930,000 t/yr mixed-feed] crackers at Channelview," said LyondellBasell's Lane today. "And a lot of those pyrolysis oils [from plastic waste] do need some hydrotreating and things like that."

Historically the Houston refinery enjoyed a high degree of integration with the Lyondell Channelview complex since its expansion under Arco ownership in the mid-1970's. It underwent an expansion and reconfiguration in 2004 as a joint venture between Lyondell and Citgo that geared the facility for heavy sour crude processing, before Lyondell took full control of the refinery in 2006.

LyondellBasell reported $1.32bn in profit in the first quarter, up from a $1.1bn profit in the same quarter last year.

By Dylan Chase