Immediate prospects for Philadelphia's oil refineries are dim

The sun is setting on Philadelphia as an oil-refining center. Unless Sunoco Inc. and ConocoPhillips can find buyers for three plants on the Delaware River, more than half the region's refining capacity will be shut down by summer.

Why is this happening now? With gasoline prices creeping upward, how can refiners lose money making fuel?

"There may be the point where we've reached peak demand in the United States," said James J. Balaschak, an energy specialist with Deloitte Services L.P.'s Philadelphia office. "There's just an overcapacity."

Analysts say there are no signs that demand for motor fuel will go anywhere but down, as biofuels such as ethanol displace petroleum and federal mandates for fuel-economy standards double in the next 13 years to 54.5 miles per gallon. More hybrid vehicles and electric vehicles mean less demand for fuel.

Despite public officials' efforts to help find buyers for the refineries, a growing chorus of experts says it believes that Sunoco's Marcus Hook refinery and ConocoPhillips' plant in Trainer will not reopen and Sunoco's Philadelphia plant will shut down this year.

Merrill Lynch analyst Doug Leggate told clients Wednesday that it appears unlikely that Marcus Hook and Trainer will open and that Sunoco's Philadelphia refinery "is likely shuttered in our view by midyear."

Tom Kloza, chief analyst for the Oil Price Information Service, said that Marathon Petroleum was rumored to be interested in the ConocoPhillips refinery until Marathon reported this week a disappointing earnings outlook.

"There is interest in Sun's Philadelphia refinery, which remains in operation, but there is little chance that a buyer for the Marcus Hook refinery can be found," Kloza wrote to his clients last week.

The Energy Information Administration last month said the closure of 700,000 barrels per day of refining capacity could provoke shortages of low-sulphur diesel fuel, gasoline, and jet fuel.

"If these three refineries are idled, there will be significant changes to U.S. East Coast supply patterns," Susan W. Grissom, an analyst with Stillwater Associates L.L.C., of Irvine, Calif., wrote to clients last week.

The United Steelworkers Union, which represents refinery workers across the country, tried last week to prod the government to intervene by raising alarms about regional fuel shortages and price spikes.