* Plans decision on refinery's fate in coming months
* Refining margins expected to stay weak
* Montreal East facility employs about 500 people (Adds comments by union leader)
By Jeffrey Jones and Tom Bergin
CALGARY/LONDON, July 9 (Reuters) - Royal Dutch Shell Plc
The Anglo-Dutch oil major will decide in the coming months the future of the 130,000 barrel per day crude processing facility, which could also result in its continued operation by Shell or conversion into a terminal, a spokesman said.
Shell has been reviewing its refinery portfolio in recent years, scaling back in areas such as Europe, where it believes there will be little or no growth in demand.
The Montreal East facility, one of three refineries in Quebec, employs about 500 people. It opened in 1933.
The head of the union local at the refinery said Shell informed the employees about its review on Tuesday, but gave no reason for the move.
"They only said it's a strategic review, it was called by those way up at Shell, and they said they would give an update at the end of September," Jean-Claude Rocheleau told Reuters.
"We asked questions but they didn't have any answers, so it's hard to follow them."
Refining margins, or the difference between the cost of crude oil and price of wholesale gasoline, are weak amid the recession and little improvement is expected in the near to medium term, said Michael Ervin, president of MJ Ervin & Associates, a Calgary-based refining and marketing consultancy.
Currently, fuel supplies in Eastern Canada have been more than adequate and importing gasoline from Europe is not a problem, Ervin said.
"I'm sure that's one of the factors influencing their consideration right now," he said.
A major jump in supply could be in store for Eastern Canada and the Northeastern United States over the next decade if Irving Oil Ltd proceeds with plans to build a new 300,000 barrel a day refinery in New Brunswick.
Rocheleau said the Montreal refinery's closure would mean higher pump prices for Quebec drivers and economic hardship for more than just its employees.
"That means all the other contractors, the suppliers and the retailing are under review too," he said. "If you close the whole thing, you're talking about 2,000-3,000 workers who will be without jobs."
The strategic review comes one year after Shell scrapped plans to build a refinery in southwestern Ontario, blaming poor market conditions and surging construction costs. It was to have had a capacity of up to 200,000 barrels a day and be tied to the company's Alberta oil sands production operations.
In 2002, Shell started up a C$150 million ($129 million) gasoline hydrotreater at Montreal East, allowing it to produce low-sulfur fuel.
Shell also has refineries in Edmonton, Alberta, and Sarnia, Ontario.
Ervin said the company might have difficulty selling the operation, given weak conditions in the refining sector. Shaky credit markets have also cut the number of potential buyers.
($1=$1.16 Canadian) (Editing by Rob Wilson)