Come By Chance refinery owner warns U.S. court about risk of 'serious disruptions' in N.L.

Senior officials with the Come By Chance oil refinery have warned an American court that a corporate dispute could cripple Newfoundland's electricity system and transportation both on and off the island.

NARL Refining Limited Partnership is the owner of the refinery.

NARL filed an action in New York in January, seeking a preliminary injunction against BP Products North America.

The two sides have a crude oil purchase and sales agreement. BP supplies the oil processed at Come by Chance, and buys most of the product back after it is refined.

But the companies are squabbling over how the agreement is being implemented.

While it is currently business as usual at Come by Chance, NARL is warning that any sudden termination of the deal would be devastating to the refinery — and the province.

"I expect that a refinery shutdown today would have substantially greater impact on the local economy and on the livelihood of Newfoundland residents than in the past," NARL president Kaushik Amin said in a declaration to the court in late Feburary.

"It would also result in the refinery's bankruptcy."

BP downplays concerns

But in its court filings, BP is downplaying those remarks.

"[NARL] vastly exaggerates the potential harm which it claims would occur to itself and to the Newfoundland population at large, if BP sought to terminate the contract," those documents note.

BP says refineries in general — and Come By Chance in particular — experience frequent shutdowns and outages, including for a 70-day period after a fire in 2010, adding "yet Newfoundland survived."

The company notes NARL has not filed any declarations from provincial government officials about the "irreparable harms" the refinery owner claims are at stake.

Furthermore, BP insists it "has never purported to terminate its contract" with NARL and "continues to perform its obligations thereunder."

The existence of the tangly dispute between NARL and BP was first reported last month by Reuters.

Now, hundreds of pages of court filings obtained by CBC News shed some new light on what the owners of Come By Chance say would be the consequences of an abrupt end to its agreement with BP.

In Newfoundland and Labrador, officials say they have received assurances downplaying the potential impact of the court dispute.

'Supply of electricity would be jeopardized'

But in U.S. court filings, NARL officials are making more dramatic claims about the situation, if the worst-case scenario comes to pass.

"If the refinery were to shut down, Newfoundland's supply of electricity would be jeopardized and there would be serious disruptions to its supply of heating fuel, diesel, jet fuel and gasoline as quickly as within one week," David Button noted in a late February declaration.

Button is the CEO of a subsidiary company called NARL Marketing Limited Partnership.

He says Come By Chance is the exclusive supplier of fuel for Newfoundland and Labrador Hydro's three thermal generating stations in Paradise, Holyrood and Stephenville. It does not supply the main Holyrood plant, which runs on heavier fuel.

If the refinery were to shut down, Newfoundland's supply of electricity would be jeopardized.- David Button

Button notes low water levels at hydroelectric facilities on the island meant Hydro was using this fuel at more than 20 times the expected rate earlier this winter.

At that rate of use, and based on Hydro's "limited storage capacity," he estimates Hydro would run out of fuel for its thermal generators within one to two weeks if the refinery were to shut down.

"A forced closure of NL Hydro's oil-based thermal generating facilities would jeopardize the reliability of the electrical grid for a significant number of Newfoundlanders, causing blackouts," Button noted.

He also says heating oil and propane would run out within a week of any refinery shutdown.

"I know of no other supplier of heating fuels in Newfoundland capable of replacing [NARL] and the refinery in supplying and delivering this quantity of furnace oil and propane without creating significant disruptions," Button wrote.

And he predicts the refinery would also run out of jet fuel and gasoline within a week of any shutdown, and no other supplier would be able to fill the gap "without severe disruption."

NARL 'committed' to refinery, province told

Natural Resources Minister Siobhan Coady told CBC News in a recent interview she has spoken to officials with both NARL and BP, who have made reassuring comments about the future of Come By Chance.

"They've given me indications that they are committed to the North Atlantic refinery, the refinery itself in Newfoundland and Labrador," Coady said, adding "they are working through the arbitration process."

They've given me indications that they are committed to the North Atlantic refinery, the refinery itself in Newfoundland and Labrador.- Natural Resources Minister Siobhan Coady

At this point, Coady says, the government is continuing to monitor the situation.

Newfoundland and Labrador Hydro issued a statement saying it has been in contact with NARL and "has been provided assurance that the supply of fuel we receive from them will not be interrupted."

NARL communications manager Gloria Warren-Slade said the company can't comment publicly because of the ongoing legal dispute, but did stress that it is business as usual at Come By Chance.

"We can say that we have taken proactive measures to ensure this does not impact refinery operations or our supply of quality fuels and quality service to our many valued customers," Warren-Slade noted by email.

BP did not respond to emails from CBC News.

Dispute in arbitration

The conflict between the two sides is a complex one.

According to court documents, NARL buys crude oil from BP and sells back more than 80 per cent of the finished refined petroleum products to BP through a financing intermediary.

But "a number of disputes have arisen" between NARL and BP since the arrangement began in late 2014.

Those disputes include a conflict over the type of product refined at Come By Chance.

The matter has gone to arbitration, with BP accusing NARL of "manipulating the [agreement] to massively increase its exclusive benefit — at the expense of the refinery's overall margin and the benefits that [BP] bargained for."

For its part, NARL has accused BP of "recommending and delivering crudes to the refinery that fouled the refinery's equipment, disrupted its operations, and were inconsistent with BP's duty to 'optimize the economics to the refinery.'"

Arbitrations like this one usually take place behind closed doors.

But details of the dispute became public when NARL filed the application in New York to ensure BP doesn't suddenly terminate the purchase and sales agreement. BP says it has no intention of doing that.

Court proceedings in the matter are ongoing.