Atlantic Basin Refining Inc. agreed to buy Hovensa LLC, the company said in a statement. Hovensa’s refinery, which was converted into an oil storage terminal in February 2012, will process about 300,000 barrels of light oil a day when it reopens.

It will take as long as two years to start the refinery, the Virgin Islands government said in a statement late yesterday. Hovensa’s return will add an oil buyer to a market where crude prices have fallen 25 percent in the past four months because of growing supply and weaker global demand. It may also bring more gasoline to the U.S. East Coast, helping to reduce fuel prices for American drivers.

“The U.S. shale revolution has created an abundant supply of U.S. light sweet crude and there is currently a limited ability to process this type of feedstock at U.S. refineries,” Mark W. Eckard, Atlantic Basin’s managing director for legal and governmental affairs, said in the statement.

Hess Corp. (HES) built the refinery in 1966 and formed a joint venture with Petroleos de Venezuela SA in 1998 to create Hovensa. Hess expanded the plant to 650,000 barrels a day in 1974, making it the largest in the world. Operators reduced capacity in the years before shuttering it as the economic slowdown that began in 2007 reduced global fuel demand.

Shale Boom

The shale boom, which has boosted U.S. crude production 66 percent in the past five years and driven the cost of domestic oil below foreign grades, should give the refinery an advantage, said Dan Finelt, a Houston-based energy consultant with Baker & O’Brien Inc.

In 2011, Hovensa imported 283,000 barrels a day, EIA data show. About 88,000 of that was light, sweet crude from West Africa, some of the priciest barrels on the planet.

The U.S. Virgin Islands aren’t subject to U.S. crude export restrictions and deliveries can be made on foreign-flagged tankers, so the refinery can now purchase U.S. crude and ship it for a little more than $1 a barrel from the Gulf Coast, Finelt said.

Cheaper Fuel

Even with the crude advantage, the new owners will have to find an answer to the fuel problem that plagued Hovensa. The plant burned oil products to generate heat and steam, putting it at a disadvantage to U.S. refineries that use cheaper natural gas. Losses totaled $1.3 billion in the three years before it was closed, Hovensa said in a statement at the time.

Drivers in the eastern U.S. may benefit on from additional supply and lower prices. St. Croix provided 83,000 barrels a day of gasoline and 47,000 barrels of distillate to the U.S. East Coast before closing, according to the Energy Department.

“It would certainly add some downward pressure,” Patrick DeHaan, a Chicago-based senior petroleum analyst for GasBuddy Organization LLC, said yesterday.

The deal will need to be ratified by the Legislature of the territory. The islands will ultimately gain more than $100 million in annual tax revenues from the refinery, Atlantic Basin said.

Lorrie Hecker, New York-based spokeswoman for Hess, said the company continues to negotiate with a potential buyer for the plant. A PDVSA media official, who is not an authorized spokesperson, declined to comment when questioned about the refinery divestment.

It will cost about $1 billion to upgrade the refinery before it starts, the government said in its statement. The company will also be obligated to take down the facility and clean it up if it’s not restarted or it shuts down in the future.

“I still think they’ve got quite a mountain to climb to be competitive,” said Finelt.