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Shell is converting its Montreal refinery into a storage centre for gasoline, diesel and aviation fuels. ((Paul Chiasson/Canadian Press))

The battle to save hundreds of Montreal jobs has failed with Shell Canada's decision Friday to reject two final purchase offers and close its largest Canadian refinery.

The Calgary-based petroleum giant will convert the 76-year-old refinery in the eastern part of the city to a distribution terminal after rejecting two "expressions of interest" that were submitted before its Tuesday deadline.

The last oil shipment will arrive in August ahead of the final refining in September. Most of the 500 employees will be required over at least five months through the end of the dismantling and conversion process.

"There might be a small amount [of layoffs] but the bulk of our employees we require until towards the end of November," Shell spokesman Larry Lalonde said in an interview.

The streamlining move by Shell is part of a broader efficiency drive by the company, as it tries to improve its operations and financial performance in the refining and marketing part of its business.

Shell is already one of Canada's largest natural gas and petrochemicals producers and a pioneer in the northern Alberta oilsands, where it is spending billions of dollars in major planned expansions.

The company also operates a national network of Shell-branded stations in a  market where it faces tough competition from rivals such as Suncor Energy (TSX:SU) and its Petro-Canada unit and Imperial Oil (TSX:IMO), which operates Esso stations across Canada.

The decision to close the Montreal refinery is a blow to the 500 employees, including about 330 unionized workers and up to 400 contractors that have been hired for various projects.

'It's a very viable business option for Shell to run a terminal within Quebec and we had to make a value decision,' —Shell spokesman Larry Lalonde

An estimated 2,500 indirect jobs rely on the refinery's operations, which provide an estimated $240 million economic return for the city.

About 30 jobs will remain at the terminal that will distribute Shell products once the entire conversion is completed in about a year.

The company said it will no longer pursue discussions with the interested parties whose offers represented "a significant valuation gap" from its expectations.

Shell Canada president Lorraine Mitchelmore said the two sides were "too far apart on some of the terms put forward to realistically reach an agreement on the sale of the refinery."

She declined to provide details about the rejected offers.   

Union questions Shell's desire to sell

The refinery has been estimated by third-party valuators to be worth between $120 million and $160 million. Besides the offered price, Shell said it also had to factor in the fact that the location is a profitable distribution centre for its products.

"It's a very viable business option for Shell to run a terminal within Quebec and we had to make a value decision," added Lalonde.

The union representing workers said it was very disappointed by the decision and Shell's decision to inform workers by email.

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Jean-Claude Rocheleau, the president of the union representing most workers at the Montreal refinery, questioned Shell's sincerity in its attempts to sell the facility. ((CBC))

Union president Jean-Claude Rocheleau questioned Shell's sincerity in wanting a sale when one of the interested parties told him negotiations were far too brief.

"From what I have learned not all efforts have been exhausted," he told reporters at a news conference.

He also said the decision could have an impact on the industry in Quebec and undermine the province's energy security.

But Lalonde said Shell determined potential negotiations could drag on for months with no likelihood of success.

"The reality is on this that we're simply too far apart on some of the terms to realistically reach an agreement."

Quebec government disappointed

Quebec Economic Development Minister Clement Gignac said he was disappointed by Shell's decision, adding it has an obligation to explain the reasons that led it to its conclusion.

Gignac didn't question the goodwill of the company but said the decision came only a few days after receiving the purchase proposals.

The company announced plans in January to close the refinery after unsuccessfully trying to find a buyers for six months last year. Since February, a special committee led by former senator Michael Fortier had approached potential purchasers of the facility.

Three groups reportedly signed confidentiality agreements to gain access to Shell's "electronic data room."

The refinery is the largest operated by Shell in Canada. It processes more than 130,000 barrels of crude oil daily. Shell will be left with two Canadian refineries: Sarnia, Ont., and near Edmonton. But it also imports refined products from other facilities around the world.

The closure will leave Montreal with one operational commercial refinery, owned by Suncor Energy Inc. (TSX:SU). But some observers questioned if its days are also numbered.

Shell Canada is a unit of Royal Dutch Shell Group (NYSE:RDS.A), the British-Dutch energy giant that is one of the world's biggest oil and gas companies, with operations spanning the globe.