To Offload Its Old Refineries, US Looks to Foreign Markets

Stricter clean-air laws may force about 30 oil refineries in the US to shut down because of the expense of retrofitting

REFINERIES that will cease operation because of United States clean-air laws might be sold and shipped to another country. Conceivably, the fuel they produce might then be exported back to the US.

``I'm sure that could happen,'' says June Whelan, director of government relations at the National Petroleum Refiners Association (NPRA).

Refinery closures in the US are nothing new. In 1981, the government discontinued support payments of $2 per barrel to refineries processing less than than 10,000 barrels of oil daily.

``That was their profit,'' says Robert Nall, sales manager of the surplus division at Ventech Engineers Inc. in Houston. Most of those refineries were sold to China or countries in South America, he says. Ventech disassembles refineries for shipping. It also builds modular plants for quick assembly and start-up.

Today, the US has around 190 operating refineries. According to analysis provided by federal agencies for the NPRA, seven refineries are likely to cease operation because they cause more air pollution than is allowed by provisions of the Clean Air Act Amendments of 1990, which will take effect soon.

Thirty refineries may shut down because it would be too costly for the owners to retrofit them to make the reformulated gasoline that must be sold in certain markets beginning Jan. 1, 1995. As it is, the refining industry expects to spend $152 billion by 2010 to comply with new environmental requirements. Yet the book value of the industry's assets is just $37 billion.

``That's a real disparity,'' Ms. Whelan says.

Meanwhile, Alex Genin is shopping in the US for a used refinery for Estonia.

``Over there [in Estonia], it's not so active on the environment,'' Mr. Genin says. ``You can relax a little bit on the environmental rules.''

``Besides,'' he says, ``a shut down US refinery is of better environmental quality than a Soviet plant.''

Genin is managing director of Houston-based Eastern Credit Limited, a private company owned mostly by Texans whom he declines to identify. ECL has actively pursued business in the former Soviet Union, providing everything from pipelines to milk processing factories to artificial marble for bathrooms to financial services for Eastern investors playing the Western stock markets.

Estonia, Genin says, regards the refinery as a matter of national security. It must be able to process 30,000 to 50,000 barrels of imported Norwegian crude oil daily. That would meet 70 percent of the fuel needs of Estonia's 1.5 million citizens and end dependence on purchases from Russia, which Estonians regard as politically unreliable.

If it's so important, why buy a used one?

``Basically, it's the price,'' he explains. Genin expects to pay 10 to 20 cents on the dollar. Delivery and installation will cost perhaps that much again, for a savings of more than one-half the cost of a new refinery.

Ventech's Mr. Nall, however, says the savings are more likely to range from 30 percent to nothing at all. ``The real savings is in time,'' he says. Compared with building a refinery from scratch, a used refinery can be shipped, installed, and operating in half the time. That allows a faster return on investment.

But Nall questions whether US equipment, built to tolerate temperatures of -20 degrees F., could handle -70 degrees F. in the former Soviet Union. ``Most likely, there is no US plant that would work,'' he says.

Genin agrees that US refineries are not built for extreme cold. But Estonia is no colder than Germany. ``If you put it in Siberia, that's a problem,'' he says.

Genin has identified five possible purchases since he started looking a month ago. Thanks to some recent publicity, he received another ``six to eight real offers,'' he says. Genin has four months to make his choice.

``You have to figure out exactly what you want, plus make sure it's all working,'' he notes.

Nall lists other factors that complicate selecting a used refinery. One is that refineries are usually built to process a certain kind of crude oil. Substitute one with higher sulfur content, for example, and the equipment could be ruined within a year.

``What are the chances of crude oil in Louisiana being the same as in India? One in a million,'' he says.

Then there's compatibility with the local electric grid. The US system is 60 cycles. In Russia, it's 50 cycles.

A simple distillation refinery cannot make unleaded gasoline, Nall notes. ``Russia is so fuel-starved, they'll take anything they can get,'' he says. But gradually, the world is following the US lead on fuel standards.

His own sales statistics back him up. Nall gets up to 2,000 calls a year from potential buyers of used refineries. Yet only four refineries were sold by anyone in the US last year.

``It's not the easiest of businesses,'' he says.

The same is true for Louisiana Chemical Equipment Company of Baton Rouge, La. ``We get hundreds of inquiries. We may hit one,'' says Steve Rotenberg, general manager in the La Porte, Texas, office.

Over the years, Mr. Rotenberg's company has sold refineries and petrochemical plants to China, India, Canada, Mexico, and Peru. A deal with Argentina is in progress.

``Everything is inspected by the customer,'' Rotenberg notes. ``We sell on an `as is, where is' basis.''