In beautiful St. Croix, US virgin Islands, a massive 500,000 barrels per day (about 23,000,000 million gallons) of heavy sulfur crude from Venezuela will potentially be processed.
ArcLight Capital Partners LLC, Boston is wooing the government with a proposed $1.4-billion operating agreement - something that legislatures would have a hard time saying NO to..
Here is the map showing relative locations of where the refinery (currently shut-in, idled) is located and prominent locations.
The "plan" proposes millions of $ of revenue coming into the local government, and many hundreds of jobs.. (see below) Up to 2000 people were laid off when the refinery went idle..
Here are the details:
The oil refinery and related installations at the site that, together, could restart in about 18 months, according to Gov. Mapp’s office.
Alongside reopening the refinery, the plan, if approved, would create hundreds of jobs in the Territory and inject hundreds of millions of dollars into the local economy, generating new tax revenues as well as shore up solvency of the Government Employees Retirement System (GERS), Mapp said.
Under the agreement, ArcLight—owner of Limetree Bay Terminals LLC (LB Terminals), which in 2016 restarted terminal assets connected to the former Hovensa LLC-owned refinery at Limetree Bay—would invest more than $1 billion between now and 2020 to rehabilitate, restart, and operate the refinery, creating about 1,400 jobs during the construction phase and 700 full-time jobs once the refinery restarts.
Upon closing of the proposed transaction, newly created ArcLight subsidiary Limetree Bay Refining would pay the government $70 million, and upon restart of the refinery, annual payments in lieu of taxes of $22.5 million, with an adjustment based on the refinery’s performance that could raise the annual payment to as much as $70 million but never below $14 million in normal circumstances.
If the refinery performs as the government’s industry experts at Gaffney, Cline & Associates have projected, the government would receive more than $600 million during the first 10 years after restart vs. the $330 million Hovensa—a joint venture of Hess Corp. and Petroleos de Venezuela SA—paid the government in corporate income taxes in the more than 30 years it operated the refinery, according to Mapp.
The $600 million in payments would be in addition to the income generated by LB Terminals’ oil storage terminal, which will continue to make payments currently amounting to about $11 million annually as promised under the original terminal operating agreement (OGJ Online, Jan. 8, 2016; Jan. 4, 2016).
To date, LB Terminals has invested about $260 million in capital improvements to the terminal operations and presently is in the final stages of building a single-point mooring buoy that will allow the terminal to handle the world’s largest tankers, Mapp added.
New refinery operating agreement
Alongside minor amendments to the existing terminal operating agreement, the new deal establishes a refinery operating agreement, under which LB Terminals will transfer its ownership of the refinery to LB Refining, which in turn will enter into a separate operating agreement with the government as well as assume independent financial and other obligations, according to government documents.
Under the refinery operating agreement, LB Refining will:
• Pay the government $70 million at closing, consisting of $30 million to purchase government-owned lands surrounding the refinery and another $40 million in prepayments of future taxes.
• Pay the government annual payments of $22.5 million, adjusted based on refinery's performance to a maximum of $70 million and a minimum of $14 million in most circumstances.
• Pay the government a 10% commission if the refinery is sold at a profit, with a minimum payment of $12.75 million (one-half the original $25.5 million minimum payment, with the other half coming upon a sale of the terminal).
• If the refinery fails to restart, or if the refinery restarts and then shuts down permanently, decommission and deconstruct the facility at its own expense.
Regarding issues of employment for USVI residents—more than 2,000 of whom became jobless following Hovena's 2012 closure of the refinery and one of the most recurrent hurdle facing the original 2016 terminal operating agreement—the new refinery operating agreement requires LB Refining to aggressively advertise open positions, to give preference to qualified local residents over nonresidents, and to use commercially reasonable efforts to ensure that at least 80% of workers are USVI residents.
Qualified residents of St. Thomas and St. John interested in working during reconstruction of the refinery also will be offered a place to live while working on St. Croix without charge, according to the governor.
Schedule
The parties intend that the amended terminal operating agreement and new refinery operating agreement will close simultaneously subject to execution of both agreements by the parties, the legislature's approval of the two agreements, and finalization by LB Refining of certain unidentified contracts with long-term supply and offtake contracts.
Ideally, the new deal would result in the refinery’s restart by year-end 2019 with an initial crude processing capacity of about 200,000 b/d, Gov. Mapp’s office said.
“The objective of the overall strategy is to have refined product from the St. Croix refinery in the market come January 2020,” the governor said.
The deal also would help fund a new 110-room upscale hotel on St. Thomas—its first new hotel development in more than 38 years—as well as provide an infusion of cash to help resuscitate GERS, which is currently scheduled to run out of money in 2024.
Combined, the amended terminal operating and new refinery operating agreements could bring an estimated $775 million in revenues to the government during the next 10 years, of which more than $600 million would be generated entirely by the refinery, the governor’s office said.
Given ArcLight’s plan to commit a massive capital investment in a compressed time period to capture market opportunity in the oil industry, timing is of the essence in completing the turnaround and restart of the refinery, according to Gov. Mapp.
“This landmark deal to jumpstart our recovery and to pave the road to better times requires us to move expeditiously if the refinery is to restart on schedule,” Mapp said, noting the 2-year process of complex negotiations required to reach the deal via collaboration between his administration, ArcLight, US President Trump’s administration, the US Environmental Protection Agency, the US Department of Justice, and other unidentified major players in the global oil industry.
“More work remains to be done, but this agreement allows the Virgin Islands to accelerate its recovery, grow its economy, create jobs for its people, propel new startup businesses, as well as support existing businesses, and ultimately provide revenues for our government and our retirement system,” Mapp added.
ArcLight will detail its strategy and schedule for construction activities during the special legislative session.
Petroleum composition of "Heavy Crude"
It is not the cleanest nor the easiest crude to process - that's why it cost's less to buy from the producer..
When it comes to general properties, heavy crude is thicker, more resistant to flow, and usually contains higher levels of sulfur and other contaminants than does light oil.
For heavy oil to be made into gasoline, it has to be refined, cracked to make large hydrocarbons smaller, and treated to remove contaminants like sulfur. All of this extra refining requires more energy input for the same energy output, which reduces the energy returned on energy invested (EROEI) ratio. EROEI helps to determine how valuable a barrel of crude is because crude that requires more energy input is more expensive to refine, which reduces profit. Beyond the need for additional refinement, heavy crude also poses extraction and transportation issues that are not present with light crude.
Extraction of heavy crude requires higher energy input.
Heavy crude does not flow like light crude. In fact, its consistency is often compared to that of molasses at room temperature and it is even occasionally solid if not heated. The field of petroleum chemistry has its origins in attempts to make heavy crude easy to extract and transport. Current methods of extraction include open-pit mining, steam stimulation (to make it less viscous), the addition of sand to the oil, and the injection of air into wells to create fires that burn heavier hydrocarbons and degrade them into lighter, more easily pumped varieties.
Transporting heavy crude often requires the addition of diluting agents, particularly in pipeline transport. These diluents are referred to as Heavy Oil Drag Reducing Agents or DRAs. Most pipelines were initially designed for light crude and thus cannot accommodate heavy crude unless it is modified. Often times, heavy and light crude are mixed to promote transport through pipeline. This, of course, results in contamination of the light crude and a reduction in its value.
The other major drawback to heavy crude is its environmental impact.
Two specific aspects of heavy crude contribute to this.
First, it is contaminated with sulfur and heavy metals, both of which must be removed. Heavy metals are often toxic and their removal from crude presents disposal issues. The sulfur content of heavy oil may be as high as 4.5%.
Sulfur contributes to acid rain and in combination with hydrogen, produces hydrogen sulfide, which can be deadly. Sulfur is corrosive to pipeline metal and refinery components.
The other environmental impact of heavy crude is carbon dioxide output, which can be as much as 3 times that of light crude of the same quantity. There are two reasons for this. First, more energy must be input to generate the same quantity of useable material from heavy crude compared to light.
This means more carbon dioxide is released for the same amount of useable energy produced. In addition, heavy crude has a higher carbon to hydrogen ratio than light crude.
In other words, it contains less hydrogen per carbon than does light crude, which means that when it is burned, more carbon dioxide is created.
Most heavy crude is found in Canada and Venezuela, though there are deposits throughout the world. It is generally divided into two categories based on sulfur content.
Low sulfur heavy crude has less than 1% sulfur and is primarily found in Africa.
High sulfur crude is found throughout the rest of the globe, with Venezuela having the largest single deposit.
In fact, the deposit of heavy crude in Venezuela is greater than any recoverable deposit in the world, including Saudi Arabia and Canada.
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