The largest oil refinery on the US east coast is up for sale less than a week after explosions destroyed an expensive piece of equipment, marking a fiery conclusion to years of financial duress.
The Philadelphia Energy Solutions refinery has been rescued repeatedly in the past decade by a private investor, government assistance and a bankruptcy court as its managers tried to manoeuvre through a radically shifting oil market.
Mark Smith, PES chief executive, on Wednesday announced the refinery would shut down. “The recent fire at the refinery complex has made it impossible for us to continue operations,” he said, adding that the company would “position the refinery complex for a sale and restart”.
Fears about the fire had already prompted a scramble to convey petrol to US east coast cities at the start of the summer holiday driving season. More than 6m barrels of petrol was leaving Europe in the week to last Friday, more than double the previous week, according to Genscape, a commodities data company. New York gasoline futures have rallied 13.5 per cent in the past week to almost $2 a gallon.
Mason Hamilton, senior petroleum markets analyst at the US Energy Information Administration, said: “If PES does shut down, you have a 335,000 barrel per day hole in your US east coast mid-Atlantic supply chain. You’ve got to figure out how to fill it.”
The shutdown and sale is the latest twist for a plant on the meanders of the Schuylkill river that dates to Pennsylvania’s 19th century oil boom.
Hit by depressed fuel demand after the financial crisis, the refinery was earmarked for closure before its sale to a joint venture of Carlyle Group, the private equity firm, and former owner Sunoco, aided by $25m in grants from the state of Pennsylvania and tax and regulatory relief.
It flourished in the early days of the US shale drilling surge as domestic crude supplies rose and a ban on exports “kept shale oil production trapped in the US and enabled refineries to get their hands on it at a very deep discount,” said Antoine Halff, senior research scholar at the Center on Global Energy Policy at Columbia University.
The ban was lifted in late-2015, however, and midstream energy built more pipeline capacity from inland shale fields to the US Gulf of Mexico coast. Refineries on the east coast were bypassed and forced to hire more expensive US-flagged vessels to carry in oil from Texas. “This competitive advantage has shrunk to nothing,” Mr Halff said.
Last week traders and producers exported a record 3.8m b/d of US crude oil, data released on Wednesday showed.
The refinery company filed for bankruptcy protection in January 2018, emerging from court in August with investors Credit Suisse Asset Management and Bardin Hill together owning a majority stake, and relieved of half of the $350m it owed on biofuels blending credits it was obliged to purchase under a US renewable fuels mandate. Executives pledged to preserve jobs and invest in the business.
However, the company’s finances continued to deteriorate. In March, its cash balance totalled $85.8m, down from $148.8m just after leaving bankruptcy, according to court filings.
Fires early last Friday began in a tank and spread to a 20,000 b/d alkylation unit, which makes petrol blendstock, Genscape reported. John Auers, executive vice-president at Turner Mason, a consultancy, said replacing such a unit could cost $200m-$300m.
Even before the fire, the refinery was “marginal in a market that is oversupplied — the Atlantic basin”, he said.
The refinery’s tank complex could be repurposed as a storage terminal or used to export crude, Mr Auers said. Another former Sunoco refinery in Marcus Hook, Pennsylvania, closed down earlier in the decade and now exports hydrocarbons from the nearby Marcellus Shale formation.
In the short term, petroleum products markets will need to adjust to a sudden loss of supply at the start of the summer holiday driving season. In addition to cargoes from Europe, petrol may flow from Texas via the massive Colonial Pipeline or from a refinery in Atlantic Canada.
Stocks of petrol blending components on the US east coast stood at 57.1m barrels in data recorded just before the refinery explosion, down from 62.3m a year before.
“It’s going to change the dynamics dramatically,” said Joe Raia, managing director for energy at futures broker RJ O’Brien.
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