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Largest oil refinery on East Coast will close after Philadelphia fire; modest gas price impact seen

Written by Marc Levy and Cathy Bussewitz/Associated Press | Jun 26, 2019 11:07 AM
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Flames and smoke emerge from the Philadelphia Energy Solutions Refining Complex in Philadelphia, Friday, June 21, 2019. (AP Photo/Matt Rourke)

*This story has been updated with further details* 


The largest oil refinery on the East Coast will close after a devastating fire last week that set off explosions and damaged equipment, and consumers could see gas prices rise as summer travel hits full swing, officials and analysts said Wednesday.

Philadelphia Energy Solutions has decided to shut down the facility in the next month, affecting more than 1,000 workers, Mayor Jim Kenney said. The company appeared dead set on its decision, despite city officials' attempts to discuss options, he said.

Gasoline futures prices spiked Tuesday night after the first news of the refinery's possible closure, and prices remained high Wednesday, according to the markets research company FactSet.

Motorists in the Mid-Atlantic region will likely see modest price increases as more summer travelers hit the road, AAA spokeswoman Jana Tidwell said in a statement.

The refinery has been an important source fueling transportation in the region, far from Gulf Coast refineries, and "at least temporarily, it's going to require some logistical shifting that could come at a cost," said Kevin Book, managing director at Clearview Energy Partners.

But while the amount of gasoline that will be lost from the refinery is sizable, it can easily be made up by imports from Europe or elsewhere, said Jonathan Aronson, a research analyst at Cornerstone Macro.

"We're not expecting any major shocks to retail gasoline (prices)," Aronson said. Consumers are more likely to feel gasoline prices increase due to the price of crude oil, which has been rallying in recent days, he said.

A Philadelphia Energy Solutions spokeswoman did not respond a request for comment.

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Refinery workers watch protestors outside the PES refinery Tuesday. The Girard Point refinery is offline as the investigation into the fire continues. (Kimberly Paynter/WHYY)

Repairing the facility could be very expensive, and the cost was probably the final nail in the coffin for an already financially troubled facility, Kenney said.

"It's a sad day," Kenney said, "and I'm really worried about the safety of the facility, the safety of the environment and the workers."

The company has recently struggled financially, showing a declining cash balance in the six months through March while its long-term debt grew, according to reports the company files in U.S. Bankruptcy Court in Delaware.

The 150-year-old oil refining complex processes 335,000 barrels of crude oil daily, according to PES. The refinery turns the crude into gasoline, jet fuel, propane, home heating oil and other products.
It started as a bulk petroleum storage facility in 1866 and began refinery operations in 1870.

The company emerged from federal bankruptcy court last year after restructuring its debt, leaving its majority ownership in the hands of investment banking firms Credit Suisse Asset Management and Bardin Hill.

Friday's fire at the complex broke out early in the morning, and video showed an enormous orange blast bursting into the sky.

It set off three explosions felt miles away as the fire plowed through a tangle of pipes carrying fuel across the complex, the company has said. It happened at the Girard Point refinery, one of two at the PES complex in south Philadelphia.

The fire erupted in a tank containing a mixture of butane and propane, a fire official said.

Investigators haven't been able to go to some areas at the complex because they haven't yet been assessed by a structural engineer, the city fire commissioner's office said Wednesday.

United Steelworkers, which represents the refinery workers, is investigating whether the company had insurance coverage for a destroyed alkylation unit, Ryan O'Callaghan, the president of Local 10-1, told The Philadelphia Inquirer. It would push the company to rebuild the unit, he said.

"It appears they're cashing the check and heading for the doors," he said.

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Levy reported from Harrisburg, Pennsylvania. Bussewitz reported from New York.

An earlier story appears below. 

(Philadelphia) -- The owner of the largest oil refinery complex on the East Coast is telling officials that it will close the facility after a fire last week set off explosions and damaged equipment there.

Philadelphia Mayor Jim Kenney said in a statement Wednesday that Philadelphia Energy Solutions had informed him of its decision to shut down the facility in the next month. The more than 1,000 workers there will be impacted, the mayor said.

The amount of gasoline that will be lost from the refinery is sizable, but it can easily be made up by imports from Europe or elsewhere, said Jonathan Aronson, research analyst at Cornerstone Macro.

"We're not expecting any major shocks to retail gasoline (prices)," Aronson said. Consumers are more likely to feel gasoline prices increase due to the price of crude oil, which has been rallying in recent days, he said.

The refinery has been an important source fueling transportation in the Northeast, which is situated far from Gulf Coast refineries, and "at least temporarily, it's going to require some logistical shifting that could come at a cost," said Kevin Book, managing director at Clearview Energy Partners.

Old oil refineries on the East Coast are not always the most sophisticated or cost-competitive, so the case for their economic survival has been pretty bleak for a long time, Book said. "Refining in general is a tough business. But it's a lot tougher at one of these old, lower-complexity facilities," he added.

A Philadelphia Energy Solutions spokeswoman had not responded to a request for comment Wednesday morning. The company also has recently struggled financially.

The 150-year-old oil refining complex processes 335,000 barrels of crude oil daily, according to PES. The refinery turns the crude into gasoline, jet fuel, propane, home heating oil and other products.

It started as a bulk petroleum storage facility in 1866, and began refinery operations in 1870.

The company emerged from federal bankruptcy court last year after restructuring its debt, leaving its majority ownership in the hands of investment banking firms Credit Suisse Asset Management and Bardin Hill.

Friday's fire at the complex broke out early in the morning, and video showed an enormous orange blast bursting into the sky.

It set off three explosions, felt miles away, as the fire plowed through a tangle of pipes carrying fuel across the complex, the company has said. It happened at the Girard Point refinery, one of two at the PES complex in south Philadelphia.

The fire erupted in a tank containing a mix of butane and propane, a fire official said.

Associated Press business writer Cathy Bussewitz in New York contributed to this report.

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