Exclusive: Price of Caribbean refinery overhaul nearly doubles to $2.7 billion as startup nears

By Laura Sanicola

(Reuters) - The cost of overhauling a long-idled Caribbean oil refinery has nearly doubled to about $2.7 billion (2.17 billion pounds), said people familiar with the matter, as it prepares to start commercial operations amid an oversupplied fuel market.

Limetree Bay Ventures is wrapping up construction and will soon start processing crude at the St. Croix, U.S. Virgin Islands, plant, a milestone for investors hoping to tap U.S. East Coast, Latin American and Caribbean demand for gasoline, diesel and marine fuels, the people said. Several plants that serve that region have closed in recent years.

The extensive repairs needed drove a more than $1 billion cost overrun and delayed first production to late summer, the people said. Formerly known as the Hovensa refinery, it will open into a weak refining market, with U.S. East Coast refining margins off 40% compared with a year earlier.

Investors led by investment fund manager EIG Global Energy Partners have poured hundreds of millions into the refinery and an adjacent storage terminal. They aim to reduce project risk by outsourcing crude supply and product marketing to oil major BP Plc <BP.L>, earning fees for processing crude and running the terminal.

EIG this year took majority control of Limetree Bay Ventures, the parent of the refinery and terminal, a person familiar with the matter said. Private equity firm Arclight Capital Partners, which acquired the site in 2016 and remains an investor, did not respond to requests for comment.

"We'll be starting up within the next few weeks," said Limetree Bay Ventures President Brian Lever, who declined to comment on the project's economics. Designed to process up to 210,000 barrels per day of crude oil, the startup fell behind its late 2019 commencement date due to extensive metal corrosion and routine startup issues, he said.

A March outbreak of COVID-19 among workers did not slow the repairs. "We've managed through it extremely well," Lever said in a brief interview. "We'll be starting up in the next few weeks."

BP has begun crude deliveries to the plant, the people said. BP acquired 725,000 barrels of heavy Colombian crude that was delivered to St. Croix in late April, a trader familiar with the matter said.

The refinery was a major bet on rising demand for low sulfur fuels spurred by the IMO 2020 regulatory mandate that began in January.

The overhaul was originally expected to cost $1.4 billion.

Limetree Bay Ventures still must come to terms on revisions to a 2011 consent decree with pollution regulators and the U.S. Justice Department, Lever said.

Negotiations are continuing, confirmed Jean-Pierre Oriol, commissioner of the U.S. Virgin Islands Department of Planning and Natural Resources. The DPNR must accept revisions for the plant to begin operation, he said.

(Reporting by Laura Sanicola in New York; Writing by Gary McWilliams; Editing by Matthew Lewis)