Philadelphia Energy Solutions Seeks to Permanently Shut Oil Refinery

June 26, 2019

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by Jarrett Renshaw (Reuters) Philadelphia Energy Solutions (PES) will seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex, the mayor confirmed on Wednesday, a day after two sources told Reuters about the plans.

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Shutting the refinery, the largest and oldest on the U.S. East Coast, would cost hundreds of jobs and squeeze gasoline supplies in the busiest, most densely populated corridor of the United States.

The refinery is expected to begin layoffs of the 700 union workers as early as Wednesday, according to two sources familiar with the plans. They said employees have been instructed to immediately begin the process of mothballing units, shutting them indefinitely.

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Before the fire, the refinery had struggled financially for years, forced to slash worker benefits and scale back capital projects to save cash. It went through a bankruptcy process last year to reduce debt, but cash on hand dwindled even after it emerged from bankruptcy in August.

After bankruptcy, Credit Suisse Asset Management and Bardin Hill became the controlling owners, with former primary owners Carlyle Group and Sunoco Logistics, an Energy Transfer subsidiary, holding a minority stake.

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The blaze was the second in two weeks at the complex, .... READ MORE

Philadelphia Energy Solutions to close refinery damaged by fire, Mayor Kenney says; gas prices spike (Philadelphia Inquirer)

Philadelphia Energy Solutions To Permanently Shut Down Refinery Following Explosion, Fire, Mayor Jim Kenney Confirms (CBS( Philly)

Philadelphia refinery explosion sets up East Coast energy bottleneck (Washington Examiner)

Philadelphia Energy Solutions stopped buying biofuel credits ahead of closure: sources (Reuters)

UPDATE 1-Philadelphia Energy Solutions stopped buying biofuel credits ahead of closure -sources (Reuters)

PES held short position on RINs three months before announcing closure (Biofuels Digest)

EPA leaders helped bail out failed Philadelphia refinery (E&E News)

Analysts say Philadelphia refinery, shut down after fire, unlikely to find a willing buyer (National Public Radio)

European boosts gasoline exports to U.S. after PES refinery fire (Reuters)

Pennsylvania governor opposes tax dollars for refinery restart (Reuters)

Philadelphia Energy Solutions files for bankruptcy after refinery fire (Reuters)

PES refinery expected to shut remaining units as crude dwindles: sources (Reuters)

Philadelphia Energy Solutions files for bankruptcy after refinery fire (Reuters)

Philadelphia Energy Solutions seen selling RIN credits in months before bankruptcy: sources (Reuters)

Shipping companies sue Philadelphia Energy Solutions for $600,000 in unpaid bills (Reuters)

Philadelphia refinery site — including dangerous chemical — declared under control 3 months after fire, explosion (State Impact Pennsylvania/National Public Radio)

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Excerpt from National Public Radio: “This facility was significantly less sophisticated than the other East Coast refineries,” said Phil Verleger, an economist and industry consultant. “It could barely hang on in a strong market. Once the export ban was gone, it couldn’t survive.”

When the shuttered Sunoco refinery was revived in 2012 with the help of Brady, the Obama Administration and state grants, its new owner The Carlyle Group took advantage of cheap North Dakota crude oil traveling to Philadelphia by rail. One reason the Bakken crude was so cheap, Verleger said, is because an export ban meant producers couldn’t fetch a better price overseas. When that was lifted, he said, the PES refinery’s days were numbered.

PES filed for bankruptcy in early 2018, citing the rising costs of the Renewable Fuel Standard, a program that forces refiners that don’t blend ethanol to buy credits on the open market.

Verleger calls that claim a “fraud.” Nevertheless, the bankruptcy judge allowed the company to retire 138 million outstanding RFS credits.

This February, six months after exiting bankruptcy, Reuters reported the plant was again in bad financial shape. In just three months, its cash balance had fallen from $148 million to $87.7 million by the end of 2018. In May, Reuters reportedthe company had deferred payments into employee retirement accounts.

Verleger said it doesn’t help that investors aren’t eager to buy refineries these days, let alone one that had already fallen on hard times before the fire and explosion.

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There’s also the issue of the enormous environmental clean-up that needs to happen at the site. At this point, the doesn’t have an estimated cost but it’s likely in the millions.

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Christina Simeone, senior fellow at the University of Pennsylvania’s Kleinman Center for Energy Policy, said she doesn’t see how anyone would want to buy such an uncompetitive refinery that also comes with a long legacy of environmental pollution, including an underlying aquifer.

“Who buys the land in liquidation?” she said. “Can they find a buyer? And how does Sunoco’s responsibility to clean up the site get impacted by the need to liquidate? There’s a bunch of really unanswered questions.”

Although the refinery was the largest on the East Coast, with its capacity representing about 27 percent of the fuel consumed in the region, there’s no lack of alternative sources.

Verleger said new refineries are opening up all around the world, including China. READ MORE

Excerpt from Reuters: “In addition to the damage to the facility, there are outstanding questions about safety and contamination,” Abbott (Pennsylvania Governor Tom Wolf spokesman J.J. Abbott) said. “Furthermore, the facility faces competitive challenges against more modern refineries that would be extremely costly and difficult to overcome.”

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The refinery would need significant ongoing investments from its owners to continue operating safely, he said, adding that Wolf’s office has activated a team of specialists to help refinery employees find new jobs and seek out other employment-related services.

The lack of government support - both politically and financially - will likely make it harder for PES to sell and restart the largest and oldest refinery on the U.S. East Coast.

Ryan O’Callaghan, head of the refinery union, criticized Wolf’s position.

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The last time the refinery faced a shutdown, less than a decade ago, city and state politicians from across party lines swooped in to support a deal that kept it open.

Then-Governor Tom Corbett, a Republican, and former Mayor Michael Nutter, a Democrat, teamed up, publicly touting the agreement as saving hundreds of jobs and sparing consumers price spikes at the pump. The Obama administration worked behind the scenes to help usher the plan through, luring private equity giant Carlyle Group with a sweetheart deal.

The political will to again save has palpably diminished, particularly after the explosion, which agitated opposition from environmental activists and influential community.

Current Mayor Jim Kenney’s office on Wednesday took a similar tone to the Wolf administration, but stopped short of opposing the use of tax dollars to keep the refinery running.

“The mayor hopes that the future use of the site will provide jobs and have economic benefits for the city as a whole,” Kenney’s office spokesperson said in an email. “We plan to have discussions about the future of the site, as a refinery or for some other purpose.” READ MORE