The possible permanent closure of three eastern Pennsylvania refineries would make the region more dependent on outside sources for petroleum products and force marketers to overhaul supply chains for gasoline, diesel heating oil, jet fuel and lubricants, state legislators heard on Monday.
But closure isn’t likely to have a big effect on prices or supply on the US East Coast because alternative sources such as the Gulf Coast, higher overseas imports and increased pipeline shipments from the Midwest will be found, according to a new study presented to lawmakers.
Sunoco said last September it will try to sell its Marcus Hook and South Philadelphia refineries which together can process some 500,000 barrels of crude oil a day. If no buyer can be found, the company said it will close the plants by July. The company said last year the plants lost $772 million since 2009.
The same month, ConocoPhillips said it will shutter its 185,000-barrel-a-day refinery in Trainer, Pa. within six months if it can’t find a buyer.
“The shuttering of all three refineries…would result in a historic quantum change in how energy is provided to the Commonwealth,” said John Kulik, executive vice president of the Pennsylvania Petroleum Marketers and Convenience Store Association, at a hearing of the state Senate’s Majority Policy Committee.
“Pennsylvania would go from being at the beginning of the supply pipeline to possibly relying on another pipeline – the Colonial – that crosses ten states before it comes here,” he said.
A Special Supply Shortage
The biggest regional impact of any closure is expected to be in southwest Pennsylvania which is required under federal air-quality rules to use a special brand of gasoline from refineries in the east of the state, and may face supply shortages if the refineries close.
Kulik urged lawmakers to make plans for getting more refined products from the U.S. Gulf Coast, and to work with federal agencies to repeal or suspend the federal air-quality requirement for southwest Pennsylvania.
East Coast refiners, often dependent on costly imported crude from Europe and West Africa, have been under pressure from lower-cost competitors on the Gulf Coast and Midwest.
And like refiners in other regions, they have been hit by weak demand because of slow economic growth; growing use of biofuels such as ethanol, and government mandates for higher fuel economy in cars. In Europe, 11 refineries have closed since 2009, according to a study for the marketers’ group by Kevin Lindemer, a petroleum refining expert.
Demand for refined products in the Northeast and Mid-Atlantic states fell 12 percent between 2004 and 2011, with the distillates seeing the biggest decline, according to the study.
Between 2009 and 2012, East Coast refineries, together with one in the U.S. Virgin Islands, will reduce their output by around 1 million barrels a day, Lindemer told lawmakers.
Although refined products would be available from elsewhere – including the planned expansion of the Colonial Pipeline — final closure of the three refineries would result in an “unprecedented shift in delivery logistics,” Kulik told the panel.
“Multiply the changes in the supply chain, the number of new contact relationships that need to be developed, the reliance on refineries thousands of miles away…the marketing community is experiencing great uncertainty,” he said.
While the refinery closures are being examined by a panel set up by Pennsylvania Governor Tom Corbett, lawmakers appear to have little sway in keeping them open, committee chairman Ted Erickson told Breaking Energy.
“There’s not much more that we can do,” he said.