The company has not yet decided when the refinerys base oil plant would discontinue operations, and if the terminal would also handle lubricants. That will be determined in the coming weeks as part of developing a transition plan, Lalonde stated. Subject to governmental approval/legal requirements that may apply, Shell will undertake steps to develop a transition plan for the facility conversion, including more detailed timelines for the reconfiguration.

Stephen Ames, principal of SBA Consulting, Pepper Point, Ohio, said the plan to convert the Montreal refinery into a terminal did not come as a surprise. Shell had placed six of its refineries on the sales block this past year, Ames said, wanting to reduce their refining footprint by 800,000 barrels per day. He noted that all six are considered Solomon 3rd and 4th quartilers, status that implies they are at the lower end of competitiveness.

Three of the six – Montreal East, Harburg, Germany, and Stanlow, U.K. – also have base oil plants. Shell previously stated it would convert one or two of the refineries into fuel terminals if they could not find buyers.

Shells situation is part of a much broader issue for petroleum refiners, according to Ames. The recession reduced demand for all fuels whilst major new capacity was streamed in Asia, he told Lube Report. Just this week Marathon streamed a 180,000 b/d expansion at their Garyville, Louisiana refinery. There is a glut of capacity, and refining margins are very weak.

Moreover, The OPEC World Oil Outlook 2009 indicates crude runs at North American refineries have already peaked, Ames continued. Any additional fuels production will be mainly from alternatives, which include biofuels (ethanol, biodiesel), Canadian tar sands and condensates. So the outlook is that it will probably not get much better in the next five years.

He noted that European refineries are not immune as they have historically relied on the North America market to place their surplus gasoline. A number of industry experts have estimated some 2 million barrels per day of refining capacity in the Atlantic Basin will close in the next few years. Sunocos Eagle Point, Pennsylvania, and Valeros Delaware City have recently been closed, and Valero Aruba has been idled. They plus Shells Montreal East are but 740,000 barrels per day, so there is more likely to come, Ames continued.

He emphasized that although the base oil plants are also going through a rough patch, they are not necessarily the cause of the refineries being shut down but may be a contributor. Its the front end of some Atlantic Basin refineries that may not be viable, and their base oil plants may not be providing economic uplift, especially as many are operating at reduced rates, he said.

By 2014, according to Ames, some 9 to 11 million metric tons per year of global base oil capacity could be at risk, mostly Group I. However, closures, due to their impact on the employees and local economy, are very emotive undertakings, he said. Unprofitable plants often continue to operate long past their sell by date. Nevertheless, with such shutdowns, the supply of bright stock and heavy neutrals may become problematic, he added, prompting reformulations for noncritical uses.

In early November last year, Shell confirmed it was negotiating with a single potential buyer, Indian conglomerate Essar Group, on the potential sale ofthree Europeanrefineries, includingHarrburgand Stanlow. At the time, Shell stated the discussions with Essar had no timetable and there was no guarantee they would result in a sale.