Stalled settlement talks pose new hurdle for Caribbean refinery restart

HOUSTON, Dec 3 (Reuters) - Negotiations on the last major regulatory hurdle to restarting an idled Caribbean oil refinery have dragged on, threatening further delay to a private-equity backed project that seeks to profit from a 2020 clean-air fuel mandate.

Limetree Bay Refining remains in talks with federal and local officials on modifications to a 2011 settlement with the previous owner of the refinery, Hovensa, a venture between Hess Corp and Venezuela’s state-run oil firm PDVSA.

“The parties are about 80%-85% through the document and appendices,” said Jean-Pierre Oriol, commissioner of the U.S. Virgin Islands Department of Planning and Natural Resources that is a party to the agreement.

Limetree Bay is undergoing a $1.6 billion refurbishment aiming to meet an International Maritime Organization requirement that ocean-going vessels cut sulfur emissions to reduce air pollution on Jan. 1.

The project will restore a portion of the refinery to process about 210,000 barrels per day (bpd) of crude, down from 550,000 bpd before it filed for bankruptcy protection.

The 2011 agreement required more than $700 million in new pollution controls to settle violations of the U.S. Clean Air Act. The changes are expected to require spending less than $700 million, reflecting the smaller processing capacity.

Limetree Bay and other refiners aim to process cheap, high-sulfur crude into clean fuels and capture expected higher margins as terminals and shippers stock up.

The plant restart already has been pushed back to early 2020 from late this year, a delay that means owners Arclight Capital Partners and trader Freepoint Commodities will miss initial demand for marine fuel with less than 0.5% sulfur.

An Arclight Capital spokesman did not reply to requests for comment.

A spokeswoman for the U.S. Environmental Protection Agency did not have immediate comment on the status of the talks.

Oriol said there was no timetable for completion of the changes to the settlement. (Reporting by Gary McWilliams; editing by Grant McCool)