North Atlantic Refining says hard road ahead

Come By Chance oil refinery on the edge: manager

Ashley Fitzpatrick afitzpatrick@thetelegram.com
Published on December 17, 2016

Come By Chance refinery manager Dan Harris speaks with reporters at the Sheraton Hotel in St. John’s Friday.

©Ashley Fitzpatrick/The Telegram

The North Atlantic refinery at Come By Chance is in a tough spot, according to refinery manager Dan Harris.

In a media briefing at the Sheraton Hotel in St. John’s on Friday, he said the refinery must reduce its production costs if it wants to continue operating well into the future.

The company is being challenged by shrinking revenue, an ongoing back and forth with the United Steelworkers over labour costs and a sustained, defensive position against any new, direct carbon tax (or, based on agreements in place, any costs associated with the province’s approach to greenhouse gas reductions).

“Is this refinery in jeopardy of shutting down? It is a possibility,” Harris said.

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Management announced a 128-person layoff from the refinery in November, with 107 of those individuals being unionized workers. The non-unionized workers went immediately, with unionized workers issued their notices.

If the layoffs proceed as announced, a handful of workers (less than 10), will lose their jobs in January and the rest of the 128 will go in March, according to Harris, who said the reduction was required for a sustainable future for North Atlantic.

He said there were no further layoffs being announced right now, but the company is still not competitive in terms of labour, even when allowances were made for differences between refining operations. Refinery workers average about $125,000 per year in compensation, he said, counting both salaries and benefits.

The company has offered early retirement incentives and is looking to address costs in other ways. He did not get too far into details, saying he would not want to be seen as negotiating in public.

Talks broke off between union representatives and the company after the union took a hard line against job losses, as TC Media previously reported. A grievance has been filed relating to the planned layoffs, with an arbitrator set to hear the matter early in 2017.

Harris said he believed management and the workers’ representatives will be able to get back into detailed talks in the new year.

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Another major cost for the refinery is the fuel required for the refining process.

While the refinery makes fuels — gasoline, diesel, jet fuel — the process of creating those products requires use of fuel as well.

The competitors of Come By Chance are typically burning cheap natural gas. It is fed cost-efficiently through land pipelines, Harris said.

By comparison, the cost of fuel for the North Atlantic refinery is off the charts, with the refinery using a mixture of inputs to make things work, including its own material that might otherwise be sold as a fuel product, he said.

The refinery has improved on energy efficiency, he added, but the cost of its fuel remains a hard reality.

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Carbon taxes are also a cost concern.

The refinery exports 90 per cent of what it produces, sending some diesel to Europe, but mostly shipping product to the United States. North Atlantic pays more than US$80 million per year on product going to the U.S. The company pays carbon taxes in the form of RINs (U.S. Renewable Identification Numbers). The payments are part of a complex system tied to the American requirement to mix ethanol to fuel products before they hit the pump. The ethanol requirement has been highly debated, but stands as a challenge for the local producer, given North Atlantic does not add ethanol to its products.

Harris said any new carbon tax on the Canadian side would end up being a double hit for the company, based on it being a majority export business, already paying for RINs.

It is why refinery representatives have been in close contact with the provincial government regarding rules relating to greenhouse gas emissions.

Environment Minister Perry Trimper said the province is aware of the concerns and has been working to make the federal government aware of some of the unique characteristics of local industry, from the refinery to the offshore, as well as understand what kind of a political approach will ultimately result in lower emissions.

Looking internationally, North Atlantic is a lower emitter than 85 per cent of fuel producers, Harris said. The refinery produces roughly one million tonnes of emissions per year.

The company is on record saying added carbon costs could place the refinery operation in jeopardy.

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“The premier is supportive of us,” Harris said. “His words back to me is, keep running.”

The refinery offers work for about 600 employees and contractors (it is more before the layoffs, less after), with spinoff business helping to sustain the employment of thousands of people in Newfoundland and Labrador.

But revenue per barrel is also a problem. There is a shrinking “crack spread” — essentially the difference between the cost of crude oil North Atlantic buys for processing and the sales on the final product.

While at roughly $15 per barrel a couple of years ago, the crack spread is closer to $5 a barrel today, Harris said.

“At $5 barrel is close to our break even — or that doesn’t allow us to reinvest in the refinery.”

It is not unique for an independent refinery to be challenged these days. There are roughly 130 refineries operating in the Atlantic Basin (essentially running product around and across the Atlantic Ocean). Another 25, Harris said, have shut down since 2008.

He expects another one or two refineries will go early in 2017.

“We’re making moves so that we’re not the next one.”

 

afitzpatrick@thetelegram.com