Refinery shutdown result of long-term forecasts, industry analyst says

Staff Report

The long-term direction of the petroleum and chemical industry likely played a role in the decision by Shell Oil to shut down its refinery in Convent, according to a longtime industry insider.

Dan Borne

Dan Borne, who served 28 years as head of the Louisiana Chemical Association and Louisiana Chemical Industry Alliance, said it’s tough to determine what will happen after the shutdown, which will affect 700 full-time employees and 400 contract workers.

“It’s going to be interesting to see what happens with this site,” he said in a phone interview. “It may lead to some independent refining company picking up this site, for example, and then it becomes a question of marketwise, if a standalone independent refinery maybe run by a company or group of investors has the depth and resources for the long haul.”

The refinery opened in 1967 by Texaco, a former petroleum giant which sold out to Chevron in 2000. It once served a joint venture between Texaco and Saudi Crown.

The decision to shut down came as Shell has moved to consolidate petroleum and chemical operations.

“The way I read it, they’re going to rationalize their refining holdings, and apparently move the capital into other ventures,” Borne said.

While the future remains uncertain for the site of the refinery near the Sunshine Bridge, little doubt exists over the effect the closure will have on the region, state and even beyond.

He used a quote from LSU economist Dr. Loren Scott to describe the situation.

“Dr. Scott likes to use the phrase, 'You throw a pebble in a pond, and you can have a ripple effect,'” Borne said. “When you have an investment like that which is high in capital and has a rich labor force, all of whom are very competitively paid, it ripples into the regional economy because people don’t live immediately next to the plant.

“They commute from other parts of south Louisiana, maybe from Ascension Parish or Livingston Parish Iberville or St. Tammany or Thibodeaux and come this way,” he said. “They’re paid because they work for Shell in Convent but spend their money in their local communities.”

It’s not only the immediate employees and their families who will feel the effect

Support industries from all across the board will bear the brunt in some way.

“You have a subset of highly impacted folks who are contractors who worked at the plan on a permanent basis and had long term basis with a plant, either in maintenance or other things,” Borne said. “Those things are very important because contract labor is used to help maintain plants, and they work hand in hand with corporate safety departments.

“That’s another set of economic impacts, and then you have companies that are called on time to time to do turnarounds, when you go into the plant, shut down and turn it around, do things necessary to maintain it for the long term,” he said. “Those are scheduled many months in advance, and the type of labor force is scheduled a considerable amount of time before.”

It also hits the suppliers, ranging from items very large to some that are very small.

“When you shut that down, it affects that type of labor force all around the state and, indeed, all over the country, and you have those layers of economic impact in terms of employees, families and tax bases to which these employees pay their taxes,” Borne said. “There’s also the suppliers who provide everything pumps to paperclips to plants – everything that goes in and out of a plant is touched by a supplier. They may not work in the plants, but the provide, and so they’re impacted.”

Borne is no stranger to the circumstances that lead to a shutdown.

He worked for Kaiser Aluminum for 10 years and saw the effect of a shutdown. "As a result, we lost 1,000 jobs in Baton Rouge and 2,700 in Chalmette – that’s huge, even in today’s standards."

“I have a fairly good understanding of the rationale that leads to the decisions these companies make

from 1978 to 1988, and I lived through this type of situation,” Borne said.

The Baton Rouge plant employed 5,000 workers when he started, but economic circumstances and other factors led Kaiser to shut down most of its Baton Rouge operation and all of its Chalmette operations.

It hinges upon proving shareholders enough confidence to continue their investments with the company.

“It’s a matter of evaluating the good times in the bad, but not in the present,” Borne said. “Instead, it’s several years into the future.

“They have to deal with shareholders who want assurance that they will have a vision for the future,” he said. “They are positively major stakeholders for every companies planning for the future.”