January 28, 2015 / 3:23 PM / 3 years ago

Husky Energy shelves fall shutdown of Lima, Ohio, refinery - source

NEW YORK (Reuters) - Husky Energy Inc (HSE.TO) has shelved plans to shut its 155,000 barrel-per-day refinery in Lima, Ohio on Oct. 1 after postponing a crude flexibility project for two years, according to a person familiar with the facility's operations.

The Calgary-based company decided to delay the $300 million project because of low crude oil prices and unexpected costs following an explosion this month, the person said late Tuesday. The project was originally designed to allow for the processing of up to 40,000 bpd of heavy crude feedstock from Western Canada starting in 2017.

Construction was expected to begin this year, starting with a 40-day refinery-wide shutdown starting on Oct. 1, but now the work is not expected to start to start until 2017, with a completion date in 2019, the source said.

The company has instead planned smaller-scale maintenance work for March 2016.

In a December guidance call with investors prior to the fire, the company acknowledged delays to the flexibility project, saying it would be complete in the 2018 to 2019 time frame.

The company considered prices in making that decision, Mel Duvall, a company spokesman, said Tuesday. "In the current oil price environment, we have taken the decision to prioritize capital in favor of quick return near-term projects and stage some of our mid and longer term projects."

Earlier this month, the refinery's 26,000-bpd isocracker unit, which uses hydrogen under high heat and pressure to increase the amount of motor fuels made from crude oil, was destroyed after an explosion at the refinery rocked nearby homes and caused a large fire. The unit needs to be replaced, which is expected to take months and limit production at the facility by roughly 25,000 barrels, the source said.

Workers who were assigned to the flexibility project have been redeployed elsewhere, including to rebuilding the isocracker unit, the source said.

The flexibility project involves work on the coker and processing units and will maintain the refinery's ability to refine light crude oil. Since 2012, Lima has run over 60,000 bpd of Canadian crude, but only about 3,000 bpd of that would be particularly heavy with an API gravity below 30, according to U.S. government data.

The company, controlled by Hong Kong billionaire Li Ka-shing, is one of a number of Midwest refiners revamping operations to process more Canadian crude, which typically trades at a discount to U.S. grades.

Reporting by Jarrett Renshaw; Editing by Jessica Resnick-Ault and James Dalgleish

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