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Shell to Convert Montreal East Refinery Into Terminal


By Aaron Clark

Jan. 7 (Bloomberg) — Royal Dutch Shell Plc said it will convert its Montreal East refinery into an oil-products terminal because the plant no longer fits into the company’s “long-term strategy.”

“The entire conversion is probably going to take the better part of a year,” said Larry Lalonde, a spokesman for Shell Canada.

The terminal will be used to receive gasoline, diesel and aviation fuels, which will be distributed through another Shell terminal in Montreal, the company said in a statement distributed by Canada NewsWire.

“It was on the bubble because it’s an old refinery that is not very complex,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “Other refiners will increase runs to make up for any supply shortfall.”

The 130,000-barrel-a-day refinery was opened in 1933, according to the Shell Web site.

“Currently there are about 500 employees and contractors,” Lalonde said. Shell has not determined the number of jobs to be eliminated after the conversion, he said, “but in theory it will require fewer staff.”

Refinery’s Products

The Montreal refinery manufactures low-sulfur gasoline, distillates, jet fuel, lubricating oils, waxes and bitumen. Products from the refinery are used in the Quebec and maritime markets, Lalonde said.

“We’re still going to provide fuel to those markets,” he said. “We receive it from a combination of domestic and foreign sources.”

Shell is seeking to rebuild profits battered by a global recession and reduced energy demand. The company, whose refining earnings fell 47 percent in the third quarter, is responding by cutting 5,000 jobs, or about 5 percent of its workforce, and reducing operating costs by about $1 billion in the first nine months of last year.

Shell expects pressure on refining margins and costs to persist this year as the economy stays “challenging,” Peter Voser, chief executive officer, said last month.

“I expect that 2010 will be, from a macro environment point of view, still a challenging year,” Voser said in a video to employees. “We’ll see pressure on refining margins and some further pressure on competitive performance regarding costs.”

Streamlining Operations

Voser, who took over from Jeroen van der Veer in July, wants to streamline operations after saying the company was “too complex.” As the first non-British or Dutch national to head Shell in its 102-year history, the Swiss-born Voser started by announcing a reorganization called Transition 2009, almost two years after a similar shakeup at BP Plc.

Shell placed 15 percent of its refinery capacity, equal to about 600,000 barrels a day, under review. The company would have preferred to sell the Montreal plant if a buyer had surfaced, Lalonde said.

The company is in exclusive talks to sell the Stanlow refinery in the U.K., as well as the Hamburg and Heide refineries in Germany, to Essar Oil Ltd. It also may put its Gothenburg refinery and marketing business in Sweden up for sale, Kirsten Smart, a spokeswoman for Shell, said Dec. 15.

Other Canadian refineries, such as Irving Oil Corp.’s Saint John, New Brunswick, plant, Valero Energy Corp.’s Quebec City refinery and Korea National Oil Corp.’s North Atlantic plant, may increase production and benefit, according to Lipow.

“There is going to be some rejuggling that is going to take place,” Lipow said.

To contact the reporter on this story: Aaron Clark in New York at [email protected]

Last Updated: January 7, 2010 17:48 EST

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