(Reuters) - Vitol Group VITOLV.UL has won a five-year contract to supply propane to the U.S. Virgin Islands, making the global commodity trader the primary provider of the territory's energy supplies.
The U.S. Virgin Islands has been wrestling with higher electricity costs since the 2012 closure of the 350,000 barrel per day refinery on St. Croix, the largest of the territory's islands. Since then, the territory has mainly relied on imported crude and fuel oil to run two generators at the refinery that supply power to the islands.
"Propane is the best near-term option to significantly reduce the cost of fuel for power generation in the territory," Governor John de Jongh said in a statement on Thursday.
As part of the deal Vitol will pay the upfront costs of building propane storage and import facilities and converting the two turbines at the St. Croix plant to run on propane.
The U.S. Virgin Islands Water and Power Authority (WAPA) will reimburse Vitol as part of the supply deal over five to seven years. Full terms of the deal were not disclosed.
Construction is expected to start in late 2013 or early next year, with the project scheduled to be completed in autumn 2014.
WAPA said on its website the deal could lower its fuel costs by about 30 percent or, approximately $90 million a year, based on current prices. It could also cut greenhouse gas emissions by about 20 percent.
Vitol has become one of the biggest traders and exporters of natural gas liquids like propane in North America, as a surge in production coming from the U.S. shale boom has threatened to swamp local markets.
In February, Vitol announced a deal with Japanese merchant trader ITOCHU Corporation to jointly develop a natural gas liquid storage and export facility in Beaumont, Texas, that will be able to handle and export around 95,000 bpd of propane and butane.
The U.S. Virgin Islands consumed an average of just over 150,000 barrels per day of crude oil last year, according to data from the U.S. Energy Information Administration. It was not clear how much was used in power generation versus transport and other uses.
(Reporting By David Sheppard; Editing by Peter Galloway and Steve Orlofsky)