Weak demand and rising crude prices lead to another refinery closing; 550 workers let go

With fuel demand week, refineries shutting down

WILMINGTON, Del. — Refineries from New Mexico to New Jersey are under severe economic pressure because of falling demand for fuel, with a number of facilities shutting down in recent months.

Valero Energy Corp., which shuttered a major refinery over the summer, said Friday it would permanently close its Delaware City oil refinery and layoff 550 workers.

It is the largest largest refinery in the U.S. to close this year.

Refineries in the Northeast are particularly vulnerable because many are older, operate less efficiently and must compete with gasoline imported from Europe.

The Delaware City refinery, where workers were notified of the closing Friday, lost about $1 million every day this year, said Valero spokesman Bill Day.

Demand for fuel has been falling for some time and the recession has made things worse, squeezing profit margins for refiners everywhere.

Refiners are pulling capacity offline and are now operating at levels more consistent with the aftermath of a hurricane in the Gulf of Mexico.

El Paso, Texas-based Western Refining Inc. announced earlier this month that it would close its Bloomfield, N.M., facility, putting 100 people out of work.

Valero, based in San Antonio, said in September that it would idle two units in Delaware City, cutting about 150 jobs. Last month, the company said it would cut another 100 jobs at its Paulsboro, N.J. refinery by the end of the year.

The Paulsboro announcement came just days after Sunoco Inc. said it would indefinitely idle its Eagle Point facility, which employs about 400 workers in New Jersey.

In June Valero shut its refinery in Aruba, which had a capacity of about 275,000 barrels a day.

The Delaware City refinery had a capacity of 210,00 barrels a day.

Valero chairman and CEO Bill Klesse said the company had sought a buyer for the Delaware facility, but found no takers.

“At this point, we have exhausted all viable options,” he said.

It is a tough market for any company attempting to unload a refinery.

Rising gasoline prices have already changed the driving habits of Americans and the recession has hastened that trend.

About 30 percent of gasoline demand is closely tied to employment, said Ann Kohler, an analyst with Caris & Co.

The nation’s unemployment rate is hovering above 10 percent for the first time in 26 years.

“You’ve probably seen gasoline demand peak in this country,” Kohler said.

Valero expects the shutdown to lead to a pretax charge of between $1.7 billion and $1.8 billion in the fourth quarter, but said it will reduce pretax operating expenses by about $450 million in 2010.

Company shares rose 11 cents to $16.47 Friday.

Delaware is already wrestling with rising joblessness. The state’s unemployment rate has jumped 2 percent this year to 8.7 percent.

“The company’s decision to close the refinery leaves us with several problems to solve,” said Gov. Jack Markell

Markell said the state needs to help displaced Valero workers while ensuring accountability for the environmental issues related to the refinery closing.