North At­lantic Re­fin­ing says hard road ahead

Come By Chance oil re­fin­ery on the edge: man­ager


The premier is sup­port­ive of us. His words back to me is, keep run­ning. — Dan Har­ris

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, Dec. 16, 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.

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.

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 cost­ef­fi­ciently 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.

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.

“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.”

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