Philadelphia Energy Solutions plans to close refinery that caught fire, report says

Jun. 26--Reuters is reporting that Philadelphia Energy Solutions (PES) plans to permanently close its oil refinery complex in South Philadelphia after last week's explosions and resulting fire, citing two anonymous sources.

Closing the refinery would have a huge impact on the Philadelphia economy and on regional fuel markets. The 335,000-barrel-day refinery, the largest on the East Coast, employs a thousand people directly and thousands more indirectly. It has long been a thorn in the side of environmentalists and neighbors who argue it contributes to asthma and other pollution issues in the city.

Reuters also reported that PES could still change its plans. As of now, it is expected to announce layoffs of the 700 union workers at the plant as early as Wednesday, the news organization's sources said.

A spokeswoman for PES did not respond to the report.

City Hall has received no notification about the possible closure of one of the city's largest employers, said Kelly Cofrancisco, a spokeswoman for Mayor Jim Kenney. "The mayor is not commenting on this matter until he receives confirmation from PES about its plans," she said.

Ryan O'Callaghan, the president of the United Steelworkers Local 10-1 representing the refinery workers, said the company had not notified him about any plans for closure or layoffs. He said he is scheduled to meet the company's human resources director today. The union's contract requires a 60-day notice on layoffs.

"USW is going to fight for every job there," he said. The union is investigating whether the company had insurance coverage for the destroyed alkylation unit, and would push it to rebuild the unit.

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

O'Callaghan lamented the loss of jobs that would come from a closure, which would extend far beyond the refinery's 1,000 employees. Refineries typically hire many specialized contract workers, such as pipefitters and steamfitters, to work on the complex processing units.

He was especially irked that a story about the refinery's possible closure would leak to the news media before the union was notified.

"It's a disgrace," he said. He said the refinery's emergency workers and operators worked through the blasts and fires early Friday bring the fire under control and to shut down the unaffected processing units. "This is what they do to us after we safely shut down the plant while fighting a fire."

Other workers said a closure or a reduction was not surprising. The mood was glum at the refinery in the aftermath of the accident, and some supervisors were telling staff they should consider buffing up their resumes.

The Inquirer has reported that the cost of repairing damage from Friday's devastating fire at the refinery in could push the cash-strapped owner closer to the financial brink, just a year after emerging from bankruptcy.

As federal investigators began this week to examine what triggered the fire, which injured five refinery workers and took more than a day to extinguish, the cost and the extent of the damage remained unclear.

What is clear is that PES was on shaky financial ground before the explosions reverberated across the city.

The refinery's cash balance has declined over the last six months, according to quarterly reports that its parent company, PES Holdings LLC, files with U.S. Bankruptcy Court in Delaware. Its long-term debt increased 7.5 percent during the first quarter of this year, to $755 million. The value of the owner's stake declined 43 percent in the first quarter, to $82 million at the end of March.

The owner may not have the resources to finance the cost of replacing the equipment that was destroyed in Friday's fire, an alkylation unit that produced a high-octane additive required for making premium gasoline. The cost of replacing the equipment could easily top $100 million, say industry experts.

"I would be really skeptical they're going to be able to raise the money to retool," said Christina E. Simeone, an energy analyst who wrote a report for the University of Pennsylvania's Kleinman Center for Energy Policy last fall that suggested the refinery is so uncompetitive and debt-burdened that it is "likely" to face bankruptcy again by 2022.

The company this year has shuffled its management team, frozen employee bonuses, and told employees it was deferring matching payments to their retirement accounts until 2020. The company has sought to reopen contract negotiations and asked for concessions ahead of the September contract expiration.

The refinery's cash balance has declined over the last six months, according to quarterly reports that its parent company, PES Holdings LLC, files with U.S. Bankruptcy Court in Delaware. Its long-term debt increased 7.5 percent during the first quarter of this year, to $755 million. The value of the owner's stake declined 43 percent in the first quarter, to $82 million at the end of March.

The plant's permanent closure would have sweeping implications for the city.

The PES complex, at 1,400 acres, is the largest refining complex on the eastern seaboard, according to the company. It usually processes about 335,000 barrels of crude oil per day. Its two refineries, Girard Point and Point Breeze, are next to each other with easy access to highways, pipelines, rails and docks.

The complex produces gasoline, low-sulfur diesel fuel, jet fuel, kerosene, butane, propane, home heating oil, and the petrochemical cumene, PES says.

If it closes, the refinery could lead to profound environmental issues for the city, state Department of Environmental Protection and likely the U.S. Environmental Protection Agency.

Refining fossil fuels is a chemically complex process, and the facility is just off the Schuylkill River.

The PES complex his a long history as a refining site that began as two separate facilities. The Atlantic Refining Co. first opened for business in 1870 at Point Breeze. The Gulf Oil Corp. opened the second site at Girard Point in 1926. Sunoco, then under different ownership, acquired both plants in 1988 and 1994.

Sunoco formed a joint venture in 2012 with the private-equity Carlyle Group. The joint venture declared bankruptcy in January 2018, and completed the $635 million financial restructuring Aug. 7.

The EPA has already overseen a cleanup of the site when it was still owned by Sunoco.

The federal agency issued a plan for cleanup in November 2011 and it took until 2018 to finish the process. It took "corrective action" at several locations at the site including a lead tank bottom treatment area, and a stormwater pond that drained the tank area and discharged into the Schuylkill.

In addition, the current refining system used an alkylation unit that converts crude oil into fuels and other products. The unit uses hydrofluoric acid as a catalyst, one of the most toxic materials handled in the refinery. In its gaseous state -- hydrogen fluoride -- it can drift beyond the refinery fence line and imperil the public.

Officials said there was no release of HF during last week's fire. But the process poses risk. In a worst-case scenario, according to the refinery's risk management plan filed with federal regulators, an HF gas cloud could travel seven miles in 10 minutes, involving 1.1 million residents in Pennsylvania and New Jersey. The toxin causes skin and respiratory irritation at low exposures. In large doses, it is fatal.

David Masur, executive director of PennEnvironment, said nonprofit environmental groups such as his have been clamoring for the facility's closure for years. He said he understands that the loss of jobs would be painful and hopes another productive use can be found -- such as a conversion to a renewable energy facility.

"Certainly, this is the right step," Masur said. "We understand there are hard decisions to make. But you need to rip off the band aid and start the transition process."

"I've heard recent conversations about whether the facility could be turned into a clean energy site," Masur said. "You can still tap into it to create jobs using 21st Century energy production instead of using 19th Century energy production."

Masur conceded he is not an expert in what it would take to convert the plant or its potential uses. But he said some in the environmental community have wondered whether its possible to turn it into a solar farm that would provide good jobs.

This story will be updated.

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