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Oil Refinery Going Out with a Bang, Not a Whimper?

  • 1.  Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 06-26-2019 19:26
    According to this article, PES - the owner of the largest oil refinery on the US east coast - has informed the Mayor of Philadelphia that the refinery will be closed.  This follows the spectacular fire and explosion which took place there recently.
    https://www.businessbreakingnews.net/2019/06/largest-oil-refinery-on-east-coast-will-close-after-fire/

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    Richard Rosera BSChemE,MSChemE,MBA
    Board Member and Executive Advisor
    EHS GRADES International
    White Rock NM
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  • 2.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 06-27-2019 09:27
    That refinery was two refineries side by side. One was owned by ARCO, the other by Chevron. ARCO sold one refinery to SUNOCO in, I think, the 1980s. The two refineries shared pipelines; they complemented each other. SUNOCO acquired the Chevron refinery, I think, sometime in the 1990s and the behemoth was born. I think, it accounts for 25% of the refining capacity on the east coast.

    The problem with that refinery is it can only process light sweet crude. SUNOCO was liquidating assests as it was preparing to go out of business and couldn't find a buyer for that facility and was going to shut it down.  Because of the size of that refinery and it's importance on the east coast, the state and federal government stepped in, provided incentives, and found the current buyer. It wouldn't be surprising if that happened again or they provided assistance to keep the current owner in place.

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    John Braccili
    Wallingford, PA
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  • 3.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 06-27-2019 19:10
    John, you could be right that PES is simply aiming to get out while they can.  According to this article, the Philadelphia refinery is going to be shut down in preparation for a sale & restart:
    The CEO said he is committed to winding down operations, preparing it to be sold and then restarted. "As part of the winddown, the company will position the refinery complex for a sale and restart," he said.
    https://www.washingtonexaminer.com/policy/energy/philadelphia-refinery-that-suffered-huge-explosion-will-shut-down

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    Richard Rosera BSChemE,MSChemE,MBA
    Board Member and Executive Advisor
    EHS GRADES International
    White Rock NM
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  • 4.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 06-28-2019 18:18

    That's fundamentally the comments printed in the 27 June issue of the Philadelphia Inquirer. The problem becomes: who buys and restarts? Mobil (now ExxonMobil) used to have one refinery in the immediate area (Paulsboro, NJ), which has been sold. That refinery dates from 1916, and having unloaded a century-old plant, I doubt they'd be interested in acquiring one approximately as old. Sunoco is out of the refining business entirely. Valero tried ownership of the Delaware City (DE) refinery, about 45 miles away, which wound up as a brief tenure at best. Perhaps either Husky or Shell might be interested, but I expect that there would be significant capital investments required to yield some flexibility in incoming crude: at the moment, that refinery is set up to handle primarily sweet crude, as opposed to more heavy / sulfur-laden stocks.

     

    In any event, the Philadelphia area economy will suffer a hit in the near future, the length of which remains to be seen. Ideally the new owner won't be a group that's looking to come in, squeeze out every last nickel in a short period, do little or no maintenance, and shutter it again to sell it off.

     

    John Barry

     






  • 5.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 06-30-2019 19:59
    From what has been written about the relative importance of this refinery to east coast supply, it would sound like gas prices on the upper east coast will go up.

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    Don [McConnell PE, CEM, CEMI
    Principal Consultant, Energy Engineering
    DuPont/DuPont Engineering & Research Technology
    Charlotte North Carolina
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  • 6.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-02-2019 06:32
    It's been stated that the Philadelphia Refining Complex is configured and operated as a light, sweet crude refinery, and that this configuration works to its detriment in today's supply environment.  This puzzles me...

    Isn't the vast majority of incremental production in this country now (and forevermore, if you believe the pundits) coming from the Permian and Bakken shale formations, and isn't all of that shale oil essentially light, sweet crude oil?  If both these facts are in fact, facts (sorry, couldn't resist), then there is a ready domestic supply of the very crude slate that this refinery needs to operate, and presumably be profitable.  Perhaps I'm missing something, but all the talk of processing inflexibility may actually be an advantage, assuming of course that these high value crude streams can reach Philadelphia.  And, of course, since no resource body will last forever (despite the above referenced pundits), plans should be undertaken by whomever acquires and operates this facility to increase its processing flexibility, when warranted.

    I recognize that this is a simplistic analysis, but if I've missed something significant, I'd appreciate getting a heads-up from the audience.  (Running off to sharpen my economic analysis pencil and to count mine and my wife's 401k accounts to see if we have enough money to leverage a buyout of this resource...  Kidding...maybe not?  Anybody else in?  After all, we are engineers!  If anyone can do this, we can!)

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    Lawrence Rentkiewicz PE,CSSA,GICSP
    Senior Lead Chemical Engineer
    Booz Allen Hamilton
    Annapolis Junction MD
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  • 7.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-02-2019 08:18
    I’m not an oil buyer or refinery engineer, but it seems to me that while the incremental production might be domestic light sweet crude, that doesn’t mean everything that this refinery could buy is light sweet crude oil. You have lots of other people competing for that oil. So if they can’t fill out their production capacity with that quality of oil and they can’t process other inferior types they are at a disadvantage. So if someone is going to buy it it would seem that they will at some point have to budget for flexibility upgrades as well as repairs and infrastructure upgrades. Be great to have an oil expert weigh in!

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    Don [McConnell PE, CEM, CEMI
    Principal Consultant, Energy Engineering
    DuPont/DuPont Engineering & Research Technology
    Charlotte North Carolina
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  • 8.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-02-2019 09:01
    >> Be great to have an oil expert weigh in! <<

    Um, at least one of those would actually be me, Don.  <grin>

    The overall analysis of the value of the Philadelphia Refining Complex is way more complicated than my earlier thumbnail sketch and anything that follows here, but in short there can be real operating and cost advantages associated with the simplicity of a light, sweet refinery that could support the higher prices that such crude feeds command today.  In the early days of the refining industry, all plants were light, sweet (so-called topping) refineries, because that was the majority of available crude in that time frame.  Once we 'depleted' (actually never did, especially now that we know about shale oil and gas) the light, sweet feeds, we had to build in treating and upgrading processes to utilize more readily available heavier, sour crude blends.  (Plants with more of these intense treating and upgrading processes have a higher Nelson Complexity Index than topping plants with fewer operating processes.)

    My point in my earlier posting, which I was perhaps a little too subtle about, is that domestically, the majority of crude oil availability is going to shift back to the light, sweet quality from these shale oil deposits, and that as their availability increases to dominate the domestic marketplace, pricing differentials may well narrow.  That could make facilities like Philadelphia potentially more profitable than the more 'Nelson complex' refineries, which would have to idle a substantial portion of their asset base to process light, sweet crudes.  Not something you want to do if you are depreciating and maintaining those idle assets...

    In the end, considerations for Philadelphia will boil down to two major ones in my view:  is the base infrastructure of a quality worth preserving and refurbishing such that the advantages of processing light, sweet crude can be realized?  And, will the rate of production of these desirable light, sweet shale oils dominate soon enough to be of economic value to the plant?  From what I've read, neither condition is likely to prevail, given the age and state of repair (fireball notwithstanding) of the overall complex, and the current pace of shale oil production.

    Thanks for the chance to expand my thinking, and thanks to AIChE for this forum and the chance to express my thoughts.

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    Lawrence Rentkiewicz PE,CSSA,GICSP
    Senior Lead Chemical Engineer
    Booz Allen Hamilton
    Annapolis Junction MD
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  • 9.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-02-2019 10:45
    Problems with using Light Sweet Crude, specifically Bakken crude, as  a refinery's only source:

    1. Refinery margins are thin. If a refinery can't process heavy crudes, its crude traders are limited. The refinery could make money when lighter crudes are cheaper, but lose money when they aren't. They usually wind up losing money in the long run.

    2. Crude oils are not uniform. Refineries are different. They make different product slates and different quantities of products in line with demand. They use a blend of crude oils to meet demand for product and to lower costs. Using one type of crude is not feasible.

    3. Bakken crude is shipped by rail to the east coast. For a refinery the size of the Philadelphia refinery, it's probably not feasible to use Bakken crude as a major source.

    I know the Philadelphia refinery was experimenting with using Bakken crude, I don't know if they ever committed to it or how much of it they used.

    As for buying a refinery as an investment -- don't. The margins are too thin. You're just as likely to lose money as to make it;

    As for someone buying the Philadelphia refinery and upgrading it to handle heavy crudes, that's not going to happen. For the Philadelphia refinery, the investment required would be prohibitive. In the 1980s refiners were looking to upgrade refineries to handle heavy crudes. There were called  "bottom of the barrel" projects. It was done in TX, but I don't think there was a refinery on the east coast that upgraded its operation. I know that Sunoco had a project to put in a flexicoker at its Marcus Hook Refinery in 1980. The cost was about $600MM. The project was shelved because the company decided to buy oil reserves from Seagrams. -- yes, the distiller. The way that purchase turned out, they should have built the flexicoker. That's a story for another day.The flexicoker project was never resurrected.

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    John Braccili
    Wallingford, PA
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  • 10.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-02-2019 11:19
    Typo - The cost of the flexicoker should be $60MM — not $600MM.

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    John Braccili
    Wallingford, PA
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  • 11.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-03-2019 00:39
    Just an observation from Texas (with sons in the oil business, specifically the Permian basin at this time) -

    Doesn't the Jones Act functionally prohibit (high transportation costs) any east coast domestic refinery from economically sourcing light Permian/Eagleford crude?  I doubt there are any significant US flagged oil tankers left in existence.  The pipelines to the Gulf Coast are a major constraint even inside Texas and railroad supplied refineries are going to have a heck of a time competing with globally supplied (deep sea) crude based operations in Europe despite the Brent spread.

    I presume there is no significant capacity available from Cushing up to Philadelphia.

    The same problem exists on the west coast of course.

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    Ed Kronenberger MS
    Missouri City TX
    EdwardEdwardEdward
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  • 12.  RE: Oil Refinery Going Out with a Bang, Not a Whimper?

    SENIOR MEMBER
    Posted 07-09-2019 12:11
    Here's an opinion piece by Dr. Daniel Horowitz (formerly Managing Director of the CSB) in yesterday's online NY Times concerning the use of hydrogen fluoride at 48 oil refineries in the US. It includes a map of where they are located.  He ties it to the recent explosion at the PES refinery, one of those that used hydrogen fluoride.
    https://www.nytimes.com/2019/07/08/opinion/philadelphia-chemical-refinery-blast.html?em_pos=small&auth=forgot-password&referring_pv_id=i26G8ITnhrwDP1i9afqHBEf8

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    Richard Rosera BSChemE,MSChemE,MBA
    Board Member and Executive Advisor
    EHS GRADES International
    White Rock NM
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