Biggest East Coast Refinery to Close, Driving Up Fuel Prices
(Bloomberg) -- The biggest refinery on the U.S. East Coast will shut down, after a massive explosion and fire crippled operations at a site that has helped fuel the region for 153 years.
The Philadelphia Energy Solutions Inc. complex on the banks of the Schuylkill and Delaware Rivers in Pennsylvania has been in place since 1866, a year after the Civil War ended. It emerged from bankruptcy just 10 months prior to two fires in June that closed down key gasoline-making units just as the summer driving season gears up.
Philadelphia Mayor Jim Kenney said Wednesday the refinery will close within the next month. The complex produces 335,000 barrels a day, meeting about 3% of gasoline demand in a densely populated region. Futures in New York jumped more than 5% on a Reuters report Tuesday night that the refinery would close.
PES will dismiss half of its 640 union workers and 130 salaried employees Wednesday, said a person familiar with the plans.
The company will close the refinery in a month, Kenney said in an interview. "I assume they will try to find a buyer."
PES confirmed in a statement that it’s shutting the site, saying the fire made it impossible to continue operations, and "will position the refinery complex for a sale and restart." It filed a notice with the state that it will dismiss 1,024 workers at the refinery and rail yard, effective July 1.
On Monday, the United Steelworkers union said any decision to shut the complex would have lasting consequences “starting with almost 2,000 workers directly employed by PES and tens of thousands more whose employment depends on the refinery to some degree,” according to a statement by USW International Vice President Tom Conway.
Ryan O’Callaghan, president of USW Local 10-1, said he hadn’t been given prior warning of any plans to close.
The refinery was beset by two fires, on June 10 and June 21. The most recent, affecting an alkylation unit used to make high-octane gasoline, was triggered by an explosion in the complex’s Girard Point section that could be seen miles away and was picked up by weather satellites. The earlier blaze was at a fluid catalytic cracker in the Point Breeze section of the refinery.
The plant is the biggest of five refineries in the Northeast. It’s faced threats before. In 2012, with supply outpacing demand, it took a change of ownership and a push by lawmakers and unions to keep it operating.
"That refinery plays a huge part in the gasoline market," said Gene McGillian, vice president at Tradition Energy, a risk management firm in Stamford, Conn.
The loss of the refinery will likely increase the region’s dependence on supplies from Canada, Europe and the Gulf Coast, potentially boosting prices for drivers and profit margins for the remaining plants in the area. Shares of PBF Energy Inc, which operates two refineries near Philadelphia, have surged 16% since Thursday.
"The US Gulf Coast will remain a key supplier of refined products with supplemental gasoline imports from Europe likely needed to replenish lost production from the facility," Marc Amons, senior research analyst, North America refining at Wood Mackenzie, said in an emailed statement.
In 2012, the Philadelphia facility almost closed before being taken over by Energy Transfer Partners subsidiary Sunoco Inc. and the Carlyle Group. It emerged from Chapter 11 bankruptcy in August with the previous owners retaining smaller stakes.
The fundamental problems that undercut the complex in 2012, though, largely remained.
East Coast refiners aren’t on the receiving end of crude pipelines from America’s oil shale riches in Texas and North Dakota. So the only way they can get hold of U.S. crude is by train or U.S.-flagged tankers, which are much more expensive. The result: Philadelphia-area fuel makers still import crude from West Africa and the North Sea.
PES used to take at least 200 rail cars a day of Bakken crude, but most was diverted to the Midwest and Gulf Coast after pipeline expansions. Margins for processing imported crude sank in early June to the lowest in three years, according to Oil Analytics data. At the same time, refiners in the Midwest were threatening to encroach on part of the western Pennsylvania market.
Girard Point was already facing months of downtime as inspections continue to determine extent of damage from Friday’s explosions and fire.
To permanently shut the complex “could take up to a year to fully secure the facility and removes the crude and products that remain in the process units and the storage tanks,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
(Updates with mayor, company comments starting in fifth paragraph. A previous version corrected spelling of a river in second paragraph.)
--With assistance from Michael Roschnotti.
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