Troubled waters if refineries close

The Sunoco refinery in Marcus Hook is one of three at risk. The closings and related impacts "would decimate the communities of Marcus Hook and Trainer," said economist Tom Jackson.
The Sunoco refinery in Marcus Hook is one of three at risk. The closings and related impacts "would decimate the communities of Marcus Hook and Trainer," said economist Tom Jackson. (DAVID SWANSON / Staff Photographer)
Posted: October 02, 2011

With three area oil refineries potentially shutting down by next July, the fallout on commerce on the Delaware River will be staggering.

Recent decisions by Sunoco Inc. to sell or close its South Philadelphia and Marcus Hook refineries and by ConocoPhillips to shut down, if it can't sell, its Trainer, Delaware County, refinery have given fresh fodder to opponents of deepening the Delaware River navigation channel.

Delaware Riverkeeper Maya van Rossum fired off a letter Thursday to the Army Corps of Engineers in Philadelphia, demanding a redo of the cost-benefit calculation of the $300 million channel dredging. Before committing to deepening the entire channel from 40 to 45 feet, she argued, take into account that half the oil refineries on the river may close.

"The Army Corps has identified the oil facilities as the largest group benefiting from the deepening," van Rossum wrote Lt. Col. Philip Secrist. "How will you be reconsidering the economics of the project?"

But regardless of the 103-mile channel deepening - which is under way and proponents say will allow bigger ships to do business here - the economic effect of closing three refineries will be dramatic.

"It would decimate the communities of Marcus Hook and Trainer," said Tom Jackson, senior economist with IHS Global Insight Inc. in Eddystone. "It's important to remember, this has broader impacts."

At stake are not only 2,000 well-paying refinery jobs but also work for contractors, river pilots who guide the vessels, ship agents and chandlers, tugboats, and "lightering" companies that unload oil from large vessels to smaller ones in the bay so that ships can navigate the 40-foot main channel.

Add to that the suppliers, engineers, repair and maintenance, and "launch" firms that ferry food, people, and parts to service the tankers. There are restaurants, retail shops, and neighborhood taprooms where refinery workers at Sunoco and ConocoPhillips eat, drink, and spend their money.

"It impacts the regional economy in a lot of different ways," said Dennis Rochford, president of the Maritime Exchange for the Delaware River and Bay. "If you lose the refining capacity that produces the gasoline, home heating oil, and jet fuel used in this marketplace and beyond, then you've got to bring it in from elsewhere, and there is a cost associated with that."

Jim Savage, president of United Steelworkers Local 10-1, whose members work in Sunoco's South Philadelphia refinery, said his "back-of-the-envelope calculation" is Sunoco manufactures 20 percent of the home heating oil used in the Northeast. "If there is less of it, the price is going to go up. Even if you can get it from somewhere else, you are going to have transportation costs added in."

Of 2,206 cargo ships arriving in the Delaware River last year, 392 - or 18 percent - were oil tankers delivering crude to ConocoPhillips and Sunoco piers, said the Maritime Exchange director of operations, Paul Myhre. So far this year, 14 percent of the 1,775 vessel arrivals have been oil tankers.

"We estimate that there are typically one million barrels of oil transported on the Delaware River each day," said Coast Guard spokesman Lt. Andrew Madjeska in Philadelphia. "Philadelphia is now third in refining and third in barrels of oil imported behind Houston and New Orleans."

Capt. James Roche, president of the Pilots' Association for the Bay and Delaware River, said the "entire Delaware River port community" would be hurt if three of six refineries were gone.

Launch services that carry food, parts, and material to the tankers in the lower Delaware Bay will be "dramatically affected," as would ship-lightering operations, Roche said. "We pilots will be affected. It's a very serious situation on the waterfront right now."

Tugboat captain Joseph Benton, general manager of McAllister Towing of Philadelphia, said Marcus Hook and Chester were the "mecca" of tanker arrivals. "It would be a significant impact to our business."

Said Wilmington Tug Inc. vice president of operations Chris Rowland: "We're hopeful that, one way or another, those refineries find a way to continue operating."

In November 2009, Valero Energy Corp. idled its Delaware City, Del. oil refinery. Gov. Jack Markell worked tirelessly to find a buyer. At stake were 550 jobs.

"These were probably the highest blue-collar wages in the state of Delaware," said Delaware's head of economic development, Alan Levin. "The average salary was over $100,000 a year."

"We went out actively, the governor and I, talking to anybody and everybody in the petroleum industry around the world," Levin said.

In April 2010, Valero announced it had found a buyer: PBF Energy Co. L.L.C., headed by veteran refining executive Thomas O'Malley, who had operated the Delaware refinery before, when he worked for Premcor Inc.

"It fell in place, but not without a lot of pressure on Valero," Levin recalled. "There was no desire on Valero's part to sell. They viewed that there was too much refining capacity. The governor persevered."

The Delaware City refinery reopened this year and is about 50 percent operational, and still being phased in, Levin said. PBF later bought Valero's Paulsboro refinery, and now operates two oil refineries on the Delaware River.

Refinery shutdowns, including Sunoco's Eagle Point refinery in West Deptford, N.J., in 2009, come as U.S. refining-industry profits continue to suffer because of lower fuel demand.

U.S. gasoline demand has steadily declined since its peak in 2007, said Aaron Brady, expert in the global oil market with IHS Cambridge Energy Research Associates.

"East Coast refineries have been particularly vulnerable because their margins, which is their profitability, have been pretty lousy," Brady said. East Coast refineries have "very high costs" relative to their peers around the world. "They run on light sweet crude from West Africa, North Sea. And those are the highest-cost barrels of crude oil in the world."

"So they are buying crude at very high prices, but they have to sell gasoline in a very competitive market, which is shrinking," he said. A potential buyer could convert the Sunoco and Conoco refineries into plants that "run heavier, cheaper crudes. That's possible, but expensive to do."

Maritime consultant Susan Howland, of the Howland Group Inc., of Trevose, said the refinery closings posed a greater challenge than the closing of the Philadelphia Naval Shipyard in the 1990s.

"The core of the port has always been the energy business - that is now on the line," Howland said.

"I don't think you're going to be able to fight Sun and Conoco, but is there a way to collaborate with them to find a new way forward, to come up with a plan?"

"If petroleum was the fuel of the 20th century, natural gas is the fuel of the 21st century," Howland said. "This is an energy port, the largest petrochemical-refining center on the East Coast. The lives of so many people and communities are on the line here."


Oil on the Water

In 2010, nearly one in five shipping vessels to the region were carrying petroleum for ConocoPhillips or Sunoco - which may close their refineries here.

                                 2010            2011*

Total ship arrivals               2,206               1,775

ConocoPhillips                116 or 5%**      74 or 4%

Sunoco (Marcus Hook)         125 or 6%          76 or 4%

Sunoco (Phila.)               151 or 7%          96 or 5%

Nustar Paulsboro             63 or 4%          38 or 2%

PBF Paulsboro                86 or 4%          79 or 5%

PBF Delaware City             11 or 0.5%       35 or 2%

Total Conoco/Sunoco         392 or 18%       246 or 14%

*To date

**Percent of total ships

SOURCE: Maritime Exchange for the Delaware River and Bay


Contact staff writer Linda Loyd at 215-854-2831 or lloyd@phillynews.com.

 

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