Philadelphia Energy Solutions seeks to permanently shut oil refinery - sources

(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 lay off half of its 640 union workers and 130 salaried employees Wednesday, said a person familiar with the plans.

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.

PES officials will meet with Ryan O’Callaghan, president of USW Local 10-1 at noon local time, he said in an interview Wednesday. O’Callaghan, who represents 640 USW workers at the refinery, 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.

Biggest Complex

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 14% 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 of those barrels were 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 nearby 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 both Girard Point and the Point Breeze section “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.

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It was probably headed for bankruptcy (again) even before this happened. While those of us in the industry hate to see our colleagues laid off, it is ultimately better for the refiners left standing. There are jobs available for them in the industry but they'd probably have to relocate, something that's hard for many to do if you've lived in one place your whole life. 

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5 minutes ago, Refman said:

It was probably headed for bankruptcy (again) even before this happened. While those of us in the industry hate to see our colleagues laid off, it is ultimately better for the refiners left standing. There are jobs available for them in the industry but they'd probably have to relocate, something that's hard for many to do if you've lived in one place your whole life. 

Lot of new jobs in the refining sector and petchem sector are available and coming up in TX and along the USGC, thanks to the shale. hundreds of billions of $ invested and being invested from LNG facilities, petchems, new refineries , and expansion of existing refineries. But yes as you saw relocation, you have to uproot your entire family and start all over but probably better paying jobs.

New petchem and related facilities going up within the Marcellus regions thanks again to shale, would be an option closer for some people, but then again if you are uprooting your lives to move 250 miles , then not much of a difference to move another several hundred miles.

 

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(edited)

I agree - but some folks would rather remain in place and complain, than relocate for a good job.

Edited by Refman
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8 minutes ago, Refman said:

I agree - but some folks would rather remain in place and complain, than relocate for a good job.

Yes true, unless you get to the point where you dont have to relocate and dont have to whine about relocating.

But it is a sad situation overall for the employees and related contractors.

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(edited)

You can bet that the hardware inside that Philly refinery was seriously antique.  And that is the problem with a high-CAPEX plant and low product margins.  My guess is that all the potential profit is eaten by the shipping costs of US tankers or the sur-charges on those unit train shipments.  Were those to reflect competitive pricing then that refinery would start to develop decent returns.  

With the lack of returns, there is no incentive to  spend the seriously big bucks needed to rebuild.  Why rebuild old machinery when the end product is not making you any money?  It would be silly to do so. 

What these guys need is cheap feedstock, CIF Destination.  And they cannot get that.  Too bad the Canadians are not on top of their game.  Philly would be a great destination for upgraded WCS, and right now, Alberta cannot give the stuff away.  

Edited by Jan van Eck

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2 minutes ago, Jan van Eck said:

You can bet that the hardware inside that Philly refinery was seriously antique.  And that is the problem with a high-CAPEX plant and low product margins.  My guess is that all the potential profit is eaten by the shipping costs of US tankers or the sur-charges on those unit train shipments.  Were those to reflect competitive pricing then that refinery would start to develop decent returns.  

With the lack of returns, there is no incentive to  spend the seriously big bucks needed to rebuild.  Why rebuild old machinery when the end product is not making you any money?  It would be silly to do so. 

What these guys need is cheap feedstock, CIF Destination.  And they cannot get that.  Too bad the Canadians are not on top of their game.  Philly would be a great destination for upgraded WCS, and right now, Alberta cannot give the stuff away.  

The had a bulk of the feedstock of domestic shale crude that would be cheaper in cost coming out of the Bakken by rail, than CIF from WA and or NWE. Their debt was an issue as well as logistical issues among other factors. It was expected to go bankrupt again in 2022.

https://www.reuters.com/article/us-pes-reorg-exclusive/exclusive-philadelphia-energy-solutions-executives-depart-amid-financial-woes-idUSKCN1R12IR

 

https://ethanol.org/4-Part Blog Series on PES Bankruptcy.pdf

 

https://kleinmanenergy.upenn.edu/sites/default/files/proceedingsreports/Beyond-Bankruptcy_0.pdf

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4 hours ago, ceo_energemsier said:

Their debt was an issue

But let us remember that the "debt" was created by the owner, the Carlyle Group  (a hedge fund of speculators and other hot cash), which previously  pulled some $600 million out of the refinery with their "special distribution."  So Carlyle buys the refinery by issuing debt, takes the refinery cash reserves and earnings and pays that to itself, and then walks away leaving the smoking rubble and a pile of debt behind.  Not exactly a high-class operation, that Carlyle Group, now is it?

Carlyle likes to brag that they are "value creators."  They are not.  They are a glorified bottom-feeder hedge fund that specializes in the rape of established business enterprises, leaving the place pillaged.  What those guys fail to understand is that they leave behind a sea of misery, the wrecked local economy and the unemployed.  At some point, I predict that the managers and Directors of Carlyle will find themselves hunted down and shot.  There are far too many guns loose in the USA for the ex-employees of those businesses not to seek revenge for being looted.  If I were Carlyle, I would be looking over my shoulder. 

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17 hours ago, Jan van Eck said:

 

 

What these guys need is cheap feedstock, CIF Destination.  And they cannot get that.  Too bad the Canadians are not on top of their game.  Philly would be a great destination for upgraded WCS, and right now, Alberta cannot give the stuff away.  

Le sigh.... 

We are producing bitumen at a break even of $20 a barrel. 

Every pipeline in north America that even remotely connects alberta to new markets is ferociously attacked. 

Enbridge line 3 will connect alberta to superior Wisconsin, which has been delayed again. Its currently the farthest along of all the lines.

And keystone XL over a decade later is still mired in beurocratic muck. If a neighboring country did this to say Saudi Arabia or Iran there would be boots on the ground clearing a path for the pipeline and protestors gunned down and used as backfill in the trench.

 

Also as far as upgraded crude.....well the best stuff we got is syncrude light sweet and the Edmonton refinery buys it for $150 a barrel. (Canadian)  The stuff is so close to finished product you could damn near run an old diesel tractor on it the way it is. 

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3 minutes ago, Keith boyd said:

Le sigh.... 

We are producing bitumen at a break even of $20 a barrel. 

Every pipeline in north America that even remotely connects alberta to new markets is ferociously attacked. 

Enbridge line 3 will connect alberta to superior Wisconsin, which has been delayed again. Its currently the farthest along of all the lines.

And keystone XL over a decade later is still mired in beurocratic muck. If a neighboring country did this to say Saudi Arabia or Iran there would be boots on the ground clearing a path for the pipeline and protestors gunned down and used as backfill in the trench.

 

Also as far as upgraded crude.....well the best stuff we got is syncrude light sweet and the Edmonton refinery buys it for $150 a barrel. (Canadian)  The stuff is so close to finished product you could damn near run an old diesel tractor on it the way it is. 

Get me all the barrels you can!!! well atleast 500,000bpd STAT! ehhhh LOL!

Sure hope they build that pipeline.

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12 hours ago, Jan van Eck said:

But let us remember that the "debt" was created by the owner, the Carlyle Group  (a hedge fund of speculators and other hot cash), which previously  pulled some $600 million out of the refinery with their "special distribution."  So Carlyle buys the refinery by issuing debt, takes the refinery cash reserves and earnings and pays that to itself, and then walks away leaving the smoking rubble and a pile of debt behind.  Not exactly a high-class operation, that Carlyle Group, now is it?

Carlyle likes to brag that they are "value creators."  They are not.  They are a glorified bottom-feeder hedge fund that specializes in the rape of established business enterprises, leaving the place pillaged.  What those guys fail to understand is that they leave behind a sea of misery, the wrecked local economy and the unemployed.  At some point, I predict that the managers and Directors of Carlyle will find themselves hunted down and shot.  There are far too many guns loose in the USA for the ex-employees of those businesses not to seek revenge for being looted.  If I were Carlyle, I would be looking over my shoulder. 

I know the Carlyle group pretty well and I am sure their officers are not "criminals" and "value destroying" marauding army ants that destroy everything in their path. The Carlyle group has raised and invested billions of $$$ in a wide variety of industries across the world and a  lot of it in oil and gas and energy related.

The refinery had a host of problems, perhaps Carlyle played a part in its final demise.

I have seen a lot of companies "touched" by Carlyle and their funds that are extremely successful. Refining is a very tough game to be in. These refineries were basically slated for shut down a long time ago but were given the second life line. Very surprised they lasted this long.

Again , there are plenty of jobs for the experienced employees of the shuttered refinery if they were interested in relocation. Probably will get paid better too.

I have had the experience of having worked with this refinery over the decades as a supplier of crude oil from different parts of the globe , sad to see it permanently shut down.

 

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9 minutes ago, ceo_energemsier said:

I know the Carlyle group pretty well and I am sure their officers are not "criminals" and "value destroying" marauding army ants that destroy everything in their path.

Please point out to me where in my post I used the word "criminals."  Please point out to me in my post where I called them "value destroying."  

I don't mind a bit that you disagree with my contentions, but it would be appreciated if you avoid inserting adjectives that I never used. For which I do thank you. 

Carlyle likes to think of themselves as, and like to tout themselves as "value creators."   The employees at the Philadelphia refinery would disagree.  You do not deny or defend that Carlyle took out $600 million in cash out of a strapped enterprise, leaving it to fail.  If the refinery had not had the fire, it would have folded soon enough from the debt burdens ans cash shortages - both imposed by Carlyle.  Please do not tell us that Carlyle is such a great outfit.  They bought it, and then deliberately crafted the conditions for it to fail. But Carlyle was sure to take out the cash first.  Just lovely.

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22 minutes ago, Jan van Eck said:

Please point out to me where in my post I used the word "criminals."  Please point out to me in my post where I called them "value destroying."  

I don't mind a bit that you disagree with my contentions, but it would be appreciated if you avoid inserting adjectives that I never used. For which I do thank you. 

Carlyle likes to think of themselves as, and like to tout themselves as "value creators."   The employees at the Philadelphia refinery would disagree.  You do not deny or defend that Carlyle took out $600 million in cash out of a strapped enterprise, leaving it to fail.  If the refinery had not had the fire, it would have folded soon enough from the debt burdens ans cash shortages - both imposed by Carlyle.  Please do not tell us that Carlyle is such a great outfit.  They bought it, and then deliberately crafted the conditions for it to fail. But Carlyle was sure to take out the cash first.  Just lovely.

I did not quote you nor did I say you called them "criminals" and "value destroyers". I heard those words from a person on a conference call earlier in regards to the refinery shutting down permanently and contractors/suppliers losing a value outlet for goods and services.

Perhaps, Carlyle wanted to preserve and recover whatever value for their investors specifically for this refinery investment they made , when they withdrew the 600mil$. As you said Carlyle bought it, and took the cash out, so they do have a right to recover as much of their funds as possible.

It was long known that the refinery would last too much longer, so I would say that would have been a good move to protect share holder value of their investors, after all they do manage the fund and that is their first goal.

Not that it makes it right to shut down a business and have people lose jobs, but if an enterprise is failing and was deemed to fail, why prolong it. A few other refineries in that general area have shut down as well because of logistics and operational problems and the amount of investment required would not be worth it.

Carlyle has billions of $$$ invested in many industries across the globe, and they make money for the investors and the companies and the jobs that are created and maintained. A failure such as this does not deem an entire array of their work to be failures.

 

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Getting past the rationalizations that have been posted here on behalf of Carlyle, there is yet another aspect to consider:

[From Lehigh Valley News:]

image.png.8fbff5a6854d0251aab2a80155be1c7b.png

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3 hours ago, ceo_energemsier said:

Get me all the barrels you can!!! well atleast 500,000bpd STAT! ehhhh LOL!

Sure hope they build that pipeline.

There is an indigenous group in canada proposing to build the eagle spirit pipeline which would pipe upgraded bitumen direct from fort mcmurray to prince rupert BC and export from arguably the best natural deep water port in canada. There could.possibly also be a natural gas line, power lines, and rail tracks using the same right of way.  Calvin helin the architect of the plan asked the big 5 oil sands players "hypothetically if we gotthis built how much upgraded product can you send down the line? The answer he got was EVERYTHING THAT WILL FIT IN THE PIPE.

so he said no really....how much? So we know what size pipe.

They replied ok realistically....2 million barrels a day. 

Calvin replied well then, we better build quad pipes! 

(Events portrayed are paraphrased and may be slightly embellished) 

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4 minutes ago, Jan van Eck said:

Getting past the rationalizations that have been posted here on behalf of Carlyle, there is yet another aspect to consider:

[From Lehigh Valley News:]

image.png.8fbff5a6854d0251aab2a80155be1c7b.png

The statements I posted were not on behalf of Carlyle in any way shape of form whatsoever.. Those were based on my opinions and experience.

What I am stating now would also be based on my opinion and my experience and as an owner and investor in a refinery (refineries), I would certainly say that if the entire refinery on a whole platform of operating for profit was not going to be profitable and required lot more investments going forward and yielding only marginal returns on the crack spread , then the owner/investor's decision is based on their future returns and profitability. In this case , if Carlyle as the owner wants to cash out then its their decision and their right to do so, whether it is fair or not to others is another question. Since when do we start to tell businesses whether they have a right to shut down and move along or sell and cash out?

I doubt how a business specially a refinery business can operate without having proper and atleast the basic minimum insurance for the entire refinery and the refinery equipment being used on a daily basis.

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(edited)

The question one should ask is why are 100+ year old refineries in operation at all? Would you want to drive a 100 year old car, at 100 mph? 

The answer, sadly is that our fine environmental protection agency is squarely to blame. I personally know a gentleman advising a group, who are fully funded to build a refinery. They found the site, they have the plans, they have the money. What they Do Not have is the EPA approval. Getting the permits to "pollute" the air, as any refinery will is virtually impossible, even with Trump valiantly bringing in his sword to cut down red tape. 

I wish I could track down the article, which I believe was in Hydrocarbon Processing or Chemical Engineering magazine where an executive bemoaned the difficulty in getting approvals. That's the value in old refineries, it's called getting grandfathered in. So a Whiting refinery (built in 1889) isn't building anything "new", they're just "adding capacity" to existing delayed cokers. That 102k daily capacity (2nd largest in world when installed) has allowed them to capitalize on that dirty cheap Canadian bitumen since 2014 when it came online. Of course that capacity came at a price, some $4 billion or so. 

It's undoubtedly cheaper, more effective and less polluting to start with a brand new design. The deep state bunglecrats won't ever make that determination, they're just too married to their tried and true levels of incompetence and petty power games. 

Edited by Ward Smith
Auto correct strikes again
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I'm interested to see if the Union claims that the refinery had insurance to cover this event. I know a lot of refiners do not, being essentially self insured. I am also skeptical of the union claims that the damage could be fixed for a mere $40 million.

 

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30 minutes ago, Ward Smith said:

It's undoubtedly cheaper, more effective and less polluting to start with a brand new design. The deep state bunglecrats won't ever make that determination, they're just too married to their tried and true levels of incompetence and petty power games. 

You have succinctly identified the problem.  And the solution is mass firings of these bureaucrats that focus on personal empire-building.  

Unless you have someone in charge who is tough enough to actually fire the bureaucrats by the thousands, nothing will change, and the USA will stay mired in decrepitude.  [Would I fire bureaucrats if placed in charge of any Federal Department?  You bet I would!]. 

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29 minutes ago, Refman said:

I'm interested to see if the Union claims that the refinery had insurance to cover this event. I know a lot of refiners do not, being essentially self insured. I am also skeptical of the union claims that the damage could be fixed for a mere $40 million.

 

The Union is claiming that.  However, let's remember that Carlyle pulled $600 million out of that refinery cash in order to enrich themselves.  The damage could assuredly be repaired for less than that $600 million. 

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21 minutes ago, Ward Smith said:

The question one should ask is why are 100+ year old refineries in operation at all? Would you want to drive a 100 year old car, at 100 mph? 

The answer, sadly is that our fine environmental protection agency is squarely to blame. I personally know a gentleman advising a group, who are fully funded to build a refinery. They found the site, they have the plans, they have the money. What they Do Not have is the EPA approval. Getting the permits to "pollute" the air, as any refinery will is virtually impossible, even with Trump valiantly bringing in his sword to cut down red tape. 

I wish I could track down the article, which I believe was in Hydrocarbon Processing or Chemical Engineering magazine where an executive bemoaned the difficulty in getting approvals. That's the value in old refineries, it's called getting grandfathered in. So a Whiting refinery (built in 1889) isn't building anything "new", they're just "adding capacity" to existing delayed cokers. That 102k daily capacity (2nd largest in world when installed) has allowed them to capitalize on that dirty cheap Canadian bitumen since 2014 when it came online. Of course that capacity came at a price, some $4 billion or so. 

It's undoubtedly cheaper, more effective and less polluting to start with a brand new design. The deep state bunglecrats won't ever make that determination, they're just too married to their tried and true levels of incompetence and petty power games. 

The permitting process is very tedious and difficult, very expensive and time consuming. One of the refineries I have been working on, for a long long time, has taken over 7 years and 3Xtens of millions of $$$ in getting things together to get EPA and State EPA air permits.

This PES refinery wasnt 100 yrs old as it  was operating in recent decades, wouldnt be possible to run 100 year old refining equipment. The equipment was yes aging and older.

Modern day refineries do not have to "pollute" the air and or the land. They can and are designed to run on a closed loop system with emissions capturing features, capturing heat and reusing it, CO2 capture and reuse, water recycling among other environmental control features, power gen., recycling and co processing of used cooking oils, used oils etc.

So all the negative connotations with "pollution" by a stationary source ie the refinery can be eliminated and the refinery can and will produce "ultra" clean fuels , yet the anti's will keep on harping about it and keep standing in the of new "greener-cleaner" refineries to be built and waste time and money.

We will be building 2 fairly good sized refineries and 2 smaller regional refineries.

 

 

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34 minutes ago, Ward Smith said:

The question one should ask is why are 100+ year old refineries in operation at all? Would you want to drive a 100 year old car, at 100 mph? 

I would suggest that the only part of the refinery that is actually 100 years old is the soil underneath it. 

The various components would be continually replaced over time.  Nothing of the original steel would remain at this point. 

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