Phillips 66 puts New Orleans-area Alliance refinery up for sale citing market conditions

Phillips 66 is putting its 255,500 b/d Alliance refinery in Belle Chasse, Louisiana, up for sale "in response to market conditions and the evolving energy landscape," a company spokesperson said Aug. 25.

"The company intends to continue safe and reliable operations at the refinery during the marketing process," said Allison Stowe, a company spokesperson.

Phillips 66's Alliance facility is the second New Orleans area-refinery offered for sale over the last year.

Late in 2020, Shell put its 211,146 b/d Convent, Louisiana, plant up for sale but was unable to find a buyer, forcing it to shut the plant.

And while demand for refined products is recovering from the drastic fall-off from coronavirus lockdowns and stay-at-home protocols in 2020, a new wave of the delta variant sweeping the world is creating uncertainty as to what it will mean for demand as limited lockdowns are being enforced.

Phillips 66 also has a second Louisiana refinery – the 260,000 b/d Westlake plant in Lake Charles which is a more complex plant.

Buyers' market

Tudor Pickering Holt analyst Matthew Blair noted that the Phillips 66's strategy has long been to use cash flows from its refining sector to invest in areas with the potential for long-term cash flow like chemicals and midstream operations.

"We think [Phillips 66] would be lucky to get $500 [million] for Alliance, especially considering that late last year, [Shell] shut down the nearby [211,146 b/d] Convent refinery after it was unable to find a buyer," Tudor Pickering Holt analyst Matthew Blair said.

Blair noted "as a light sweet crude refinery in a highly competitive region, Alliance is likely one of the least profitable plants in the company's portfolio."

The refinery, located near New Orleans, was shut down in mid-September ahead of Hurricane Sally and did not resume operations until January 2021 as demand for refined products began to recover.

Refinery rationalization

Reduced demand for refined products due to the coronavirus pandemic has forced refinery rationalizations across the globe. During Phillips 66's Aug. 3 second quarter results call, a company executive noted that they expect more global refinery closures.

"We are seeing refinery rationalization: 3.7 million b/d of announced closures; 800,000 b/d of temporary closures; and we're up to about 1.7 million b/d of capacity that has been announced as considering terminals or other types of service or potential shutdown," said Jeff Dietert, head of Investor Relations on the call.

Besides chemicals and midstream, Phillips 66 is investing heavily in renewable fuels.

Earlier this year, Phillips 66 completed its hydrotreater conversion and began producing 8,000 b/d of renewable diesel at its Rodeo, California, plant – the first phase of complete conversion of the former oil refinery into a renewable plant. The project known as Rodeo Renewed, is expected to cost $800 million and come online in 2024.