Shell of its former self

Shell’s been trying to close its rusting out, money-hemorrhaging oil refinery in East Montreal for over a year, but it has not been an easy goodbye. The courts are now blocking its exit and the city is desperately fighting to keep its refinery business alive.

After conducting a “strategic review” of the plant last year, Shell announced it was looking for a buyer. But with no takers, the company said in January it would turn the site into a fuel-storage terminal. The province and union then struck a committee to look for buyers to prevent the conversion, and in July the union managed to obtain a court injunction preventing the plant from being dismantled until September. Jean-Claude Rocheleau, the union head that represents the refinery’s workers, says the loss of the plant, which injects about $200 million annually into Montreal’s economy, will be irreparable. “That’s 800 direct jobs and 3,500 indirect jobs,” he says. “If the refinery goes, that is the end of the industry in Quebec.”

The committee contacted more than 100 companies over the last year, and one, Delek US Holdings Inc., a branch of the Israeli multinational Delek Group, said it was interested. It made an offer, but it also wanted the rest of Shell’s business in Quebec, including its gas stations. Talks broke down for good last week. Now, Shell says it will wait out the injunction and dismantle the refinery in September. “The Montreal east refinery was one of the least competitive in North America,” says Larry Lalonde, Shell’s spokesman. “Globally we have more refining capacity than there is demand.”

Tom Velk, an economist at McGill University, says Shell is facing two problems. “The infrastructure itself—the pipes and generators—is old and worn out, and the workers and government think they have a cash cow they can squeeze for better salaries and higher taxes.” This situation, he says, makes it impossible for the refinery to turn a profit.

Rocheleau says if the plant closes, cost-sharing arrangements Shell struck with the nearby Suncor refinery will end, likely forcing it to also shut down operations within the next few years—putting thousands more people out of work. Rocheleau says the union has asked to schedule a meeting with Quebec’s Natural Resources Minister Nathalie Normandeau, where he hopes to convince the government to force Shell back to the bargaining table. Velk thinks they’re wasting their time. The only way the plant could possibly stay open is if the company, government, union and other stakeholders agreed to a rescue package that would include cuts to wages, benefits and taxes. It would cost so much, he says, that it would “be cheaper to pay off all the workers and stakeholders and hope that something else comes along.”