HOUSTON (Reuters) – LyondellBasell Industries LYB.N said on Tuesday that it plans to cut salaried staff at its Houston oil refinery because of losses during the COVID-19 pandemic.
The company confirmed the contents of an email seen by Reuters, in which executive vice president Torkel Rhenman said Lyondell wants “a reduction of approximately 10% of the refinery population.”
Refiners have posted large losses this year as air and road travel have cratered amid widespread lockdowns and work-from-home policies to combat the spread of the coronavirus.
Several U.S. refineries have closed or reduced operations this year. In August, Marathon Petroleum MPC.N said it would permanently close two plants in response to lower fuel demand. Calcasieu Refining idled its Louisiana plant for economic reasons the same month.
“The refinery utilization rate is within two to four bad weeks of taking out the all-time record low of 66.7%,” Robert Yawger, director of energy futures at Mizuho Securities USA, said in a note on Tuesday. Gasoline margins are threatening to go negative, he said, and leave the price of a barrel of gasoline below the cost of the oil used to produce it.
Lyondell employs about 800 workers at its Houston refinery.
The planned job cuts would not apply to refinery workers covered by a union contract, which prohibits layoffs.
In a letter to employees, Refinery Manager Greg Nevermann said that before imposing involuntary layoffs the company would offer enhanced retirement packages to eligible employees and offer reassignments to the chemical maker’s other locations.
“Given the drop in demand and increase in industry refining capacity, we anticipate the outlook for the refinery will remain challenging for the next several years,” Nevermann said in the letter, which was seen by Reuters.
Lyondell’s cost-cutting, including cutting travel and outside consultants and deferring non-safety-related maintenance, has not succeeded in reducing losses, he wrote.
In July, Lyondell said the refinery lost $107 million in the first six months of this year before interest, taxes, depreciation and amortization. During the same period of 2019 it posted earnings before interest, taxes, depreciation and amortization for the refining business of $81 million.
The refinery dates to 1918. Between 1985 and 2007, the 263,776 barrel-per-day plant was an integral part of Lyondell’s operations, supplying feedstocks to its chemical units.
Following a merger with Basell in 2007 and emergence from bankruptcy in 2012, the company expanded chemical production plants around the world, making the oil refinery secondary to its petrochemical business.