Hawaii down to one oil refinery after sale

Hawaii’s two oil refineries are going to be concentrated in the hands of one company under a sale announced Wednesday, though the firm selling its facility still would supply gasoline and other fuels by importing them.

Island Energy Services LLC plans to cease refining oil into fuel for cars, planes, utilities and other uses as part of an agreement to sell its refining machinery at Campbell Industrial Park to competitor Par Pacific Holdings Inc. for $45 million.

After the sale, Island Energy will focus on importing refined petroleum fuels that it will supply to customers and its 56 Texaco gas stations.

Par, which has its own refinery at Campbell where it makes products including gasoline and jet fuel from crude oil, will become the only crude oil refiner in the state. The company also will become the sole producer of fossil fuel oil for electric utilities statewide, although it will sell most of this to Island Energy so that Island Energy can fulfill supply contracts with Hawaiian Electric Industries utilities on five islands and the Kauai Island Utility Cooperative.

About 150 of 310 Island Energy employees are expected to be laid off, though Par intends to hire 65 for refinery work and could add another 20 to fill vacant positions.

The sale is anticipated to close by the end of the year.

Island Energy, which is owned by New York-based investment firm One Rock Capital Partners, described its move as a strategic shift that focuses on importing refined fuel at competitive prices and operating retail stations.

“We look forward to maintaining our role as a trusted local fuel supplier for the state as we respond to changing market conditions, industry regulations and Hawaii’s long-term energy mandate,” company CEO Jon Mauer said in a statement. “Our immediate and long-term focus is to continue to reliably service our customers, both through this transition and beyond.”

Island Energy said it plans to open more gas stations throughout the state, including one slated to open in Kapolei early next year. The company also is retaining fuel storage facilities and pipelines that will be used by Par.

Par owns 37 Hele and 76 brand gas stations in Hawaii while independent operators own another roughly 60 Hele and 76 stations under licenses from Par.

Of the two refineries, the bigger one is owned by Par. This facility, which used to operate under the Tesoro name, has a daily processing capacity of about 94,000 barrels of oil. Par concentrates on jet fuel but also makes gas and diesel. The company also was a secondary supplier of fuel oil to local utilities. Its other products include marine fuels and asphalt.

The Island Energy refinery, which was formerly a Chevron refinery until One Rock’s purchase in 2016, has a processing capacity of 54,000 barrels of oil a day. Island Energy produced most of the fuel oil for local utilities and also focused heavily on gas production. Its other products include diesel, jet fuel and propane.

Though One Rock said in 2016 that it had no plans to end refinery operations, a shutdown of one or both refineries in favor of importing refined fuel has been anticipated in recent years because of market pressures.

In 2013, Texas-based Tesoro Corp. announced it would convert its refinery into an import terminal and lay off 180 to 200 workers. But Par, whose parent company is also based in Texas, bought Tesoro’s Hawaii operations and kept the refinery open.

While the Tesoro refinery shutdown plan was still pending, East-West Center energy expert Fereidun Fesharaki predicted Chevron would also close its refinery and make Hawaii totally reliant on imported gas and other refined petroleum products.

Fesharaki said at the time that Hawaii’s small market size, heightened environmental regulations and the state’s goal to get 40 percent of energy from renewable sources by 2030 were squeezing the local refining business.

Fesharaki said such a change wouldn’t affect consumer prices because refined fuel can typically be imported at prices competitive with local refining. However, Fesharaki also noted that there could be a scenario where imported refined fuel could cost more, such as a global crisis that intensifies demand for refined fuel products.