When Irving Oil announced in early June that the company was undertaking a strategic review of its portfolio, it raised major questions about the future of the operation of its Saint John, New Brunswick refinery and the thousands of associated jobs.
Possible outcomes include a sale of the plant, a cessation of operations or business as usual. All options remain on the table. But the North American refining market has seen few facilities change hands in recent years and the long-term trend has favoured closures.
Saint John heavily dependant on refinery industry
Irving Oil’s expansive operations include fueling stations on both sides of the Atlantic, a complementary network of marine terminals, home delivery of heating products and more. It also operates two refineries — one in Ireland and another in its hometown of Saint John, long seen as the crown jewel of the company.
The Saint John facility is the largest oil refinery in Canada with a processing capacity of 320,000 barrels per day (bpd). It is the primary supplier of refined petroleum products to Atlantic Canada and the U.S. northeast. It is also among the largest employers in New Brunswick and solely responsible for a majority of the province’s exports by GDP.
“Saint John is highly dependant on these [heavy] industries,” said Dr. Herbert Emry, the Vaughan Chair in Regional Economics at the University of New Brunswick. “They’re a huge creator of wealth to the local economy.”
But businesses operating on such a scale are forced to consider factors beyond their home shores.
IHS Markit predicts global demand for refined petroleum products to be below 2019 levels by 2050, due to stringent government environmental policies, improved fuel economy in internal combustion engines, growing demand for electric vehicles and an increased use of biofuels in the transportation fuel mix.
Refineries are decades-long, capital intensive investments. The bleak long term demand projections present a challenge for many refineries.
Survey of refinery landscape reveals worrying precedents
In 2021, the island of Newfoundland’s only refinery, NARL Refining Limited Partnership (NARL), was sold. With direct government support, the new owners intend to convert the plant to a biofuel processing facility, removing 135,000 bpd of crude oil refining capacity.
Before the NARL transaction, the most recent Canadian refinery sale occurred in 2017, when Parkland Fuels acquired a smaller 55,000 bpd British Columbia facility from Chevron, along with 129 retail sites for $1.5 billion.
Shell Canada abandoned its plan to sell a Sarnia, Ontario plant in 2020 after having shopped it unsuccessfully since early 2019. In Nova Scotia, Imperial Oil closed its Dartmouth facility in 2013 and began work on dismantling it. This followed Shell closing its Montreal facility in 2010 after 76 years in operation.
Against this string of closures, only one new refinery has been constructed in Canada in over 35 years: the 80,000 bpd Sturgeon refinery that commenced operations in Alberta in 2020. It is 50 per cent owned by the Alberta Petroleum Marketing Commission and benefits from favourable long-term feedstock agreements with that crown corporation.
The trend is similar south of the border. According to the U.S. Energy Information Administration, six American facilities closed between 2020 and 2021, including two with access to tidewater on the Atlantic coast, a strategically important feature that Irving Oil shares in Saint John.
A worrying precedent for Irving is the 2019 bankruptcy and closure of Philadelphia Energy Solutions’ 335,000 bpd refinery. The Philadelphia facility was a direct Irving competitor and the largest refinery on North America’s east coast. The plant and its 1,600-acre site have since been acquired by a real estate development company that is repurposing the land for other uses.
‘Communities don’t come back from that kind of industrial loss’
Management consulting firm McKinsey and Associates predicted in 2022 that the rationalization of refineries will continue. In their view, the most vulnerable refineries exhibit four characteristics: “a simple configuration [low complexity], coastal location with exposure to export competition, non-integration with petrochemicals, [and] private ownership.”
To its benefit, the Saint John refinery is complex, but it is also privately held and has limited petrochemical integration. The issue of export exposure is more nuanced as the refinery has traditionally benefited from U.S. domestic shipping restrictions affecting U.S. refiners but competes on the Atlantic basin with players from multiple continents.
While Irving Oil’s strategic review progresses on an undetermined or undisclosed timeline, the people and economy of Saint John, the province and beyond will be in a position of uncertainty.
“Picture the [Port of Saint John] losing 95 per cent of its trade by volume,” ruminates Dr. Emry. “Picture what Thunder Bay looked like when they lost their pulp mills. Communities don’t come back from that kind of industrial loss; it’s something that everyone takes for granted saying, ‘Well, it’s a refinery but we’ll get something else,’ but it’s not clear what that something else is.”
