UPDATE 2-Valero to convert Aruba refinery to product terminal
* Reorganization to terminal to be completed by end 2012
* Facility still on the sales block as a terminal or refinery
NEW YORK, Sept 3 (Reuters) - Valero Energy Corp on Monday moved closer to permanently shutting its Aruba refinery, saying it would convert the shuttered refinery to a refined products terminal as it continues to seek a buyer for the facility.
Valero said it would maintain the refinery in a ready state in case a buyer emerged or in the event it decided to restart the refinery.
Valero and the government of Aruba have been trying for months to find a buyer for the plant, with rumors of Chinese oil giant PetroChina bidding on the plant earlier this year as it seeks a foothold in the American market.
The Aruba refinery has been idled at least twice in the past few years, most recently earlier this year, due to poor profit margins that have plagued refiners in Europe, the Caribbean and on the U.S East Coast.
"It is perhaps the best they can do for the facility unless a buyer is found," said Mark Routt, senior consultant at KBC in Houston.
"This shutdown will mean a significant loss in jobs but it is difficult for the refinery to compete when it is using fuel oil for fuel when natural gas is so much cheaper for continental refiners."
The 235,000 barrel per day refinery stopped running in March but was kept in a ready state by the workers at the request of the government as a buyer was sought.
In May, Valero received a non-binding bid of $350 million plus working capital from an unidentified buyer for a refinery.
PetroChina was the bidder, sources familiar with negotiations told Reuters.
It was the second time in two years the Chinese company had discussed the purchase of the plant, which is located near Venezuela, China's fourth-largest crude supplier, sources said.
It is unclear what scotched the deal but sources familiar with the refinery said that it was expensive to operate because of its dependency on more expensive fuel oil to power the refinery instead of cheaper natural gas, which places Aruba at a disadvantage over other East Coast refineries recently sold.
Delta Air Lines recently paid about $180 million for a 185,000 bpd refinery in Trainer, Pennsylvania also slated for closure to keep its fuel costs in check. Sunoco Inc banded with Carlyle Group to keep a 330,000 barrel per day Philadelphia refinery running.
The work on Aruba is expected to be completed by the end of 2012.
Conversion of the Aruba site follows the lead of the massive Hovensa refinery on St. Croix. Like Valero, its joint-venture owners, Hess Corp and Petroleos de Venezuela, hope to restore the site to profitability by taking advantage of geographic location and shipping facilities to convert it to a terminal.
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