July 1, 2012:

Not too long ago, oil refineries appeared to be falling like dominoes. Valero had planned to shut down its refinery in Delaware City. And last year, Sunoco, owner of refineries in Marcus Hook, Pa., and Philadelphia, was among firms announcing plans to close them, saying losses were too heavy. But today, some of the same forces that are driving gas prices down are brightening prospects for the U.S. refining business as a whole, observers say. Embattled refineries on the East Coast, especially in this area, now are seeing prospects for second lives. But, without some of the advantages of refineries in other areas of the country, observers say there are some special circumstances at work.  As for the overall industry, “the fundamentals have changed a little bit,” said Phil Flynn, an energy analyst for the Price Futures Group. Crude oil prices have dipped, which has allowed refineries to make a larger profit amid rising demand for their products in places like Central and South America. And crude from new middle American sources like North Dakota and Canada is making its way to Gulf Coast refineries, giving them a healthier profit margin.

A general deescalation of political pressure surrounding Iran, and indications that Western countries are more prepared to release strategic oil reserves if Iran does act aggressively, have driven global crude prices lower, said Beth Heinsohn, senior news editor at Oil Price Information Service. Some refineries in this region closed amid tough market pressure, with customers using fewer refined products, like gasoline and heating oil. East Coast refineries generally get their crude by sea from West Africa, and this crude still tends to cost more.

Because there were so many refinery closures at the end of last year, “it strengthened the positions of all the refineries who held on,” said Chris Lafakis, an economist at Moody’s Analytics. East Coast refineries, approaching permanent closure, have been sold for low prices to companies willing to take a chance, reports McQuilling Partners, Inc., a marine services company.  And the state money that helped save Delaware City – the jobs argument – is providing one more route for keeping refineries alive, Heinsohn said. Heinsohn noted that Valero CEO Bill Klesse recently told equity analysts that difficult economic times have made saving refinery jobs a message that is getting through, creating a way to save a refinery that would otherwise be closed.

“The way the refineries were saved from the scrapheap appears to have made more of an impression on refining companies than the way their production is contributing to or will contribute to Northeast fuel supply,” Heinsohn said. PBF bought the refinery in Delaware City in 2010 for the low price of $220 million, several months after Valero had shut it down. Valero had planned to raze the property after sustaining large losses on the operation of the refinery. Gov. Jack Markell pledged $45 million in state financial assistance, leading to $465 million in renovations to the plant. About 500 jobs were restored.

PBF now hopes to build an additional, $1 billion, 70,000-barrel-per-day “ultra-low sulfur” refining unit at Delaware City. Hundreds of idled workers may soon be back at work at the 185,000-barrel-per-day refinery in Trainer, Pa. which has been owned by ConocoPhillips. That company closed the plant in September. Delta announced last month that it would acquire the refinery to supply its jet fuel. The Carlyle Group and Sunoco Inc. are reportedly close to a deal that would have Carlyle acquire Sunoco’s Philadelphia refinery. The refinery, which produces 335,000 barrels a day, is one of the largest on the East Coast. Sunoco said it would close the refinery by the end of the summer if it did not find a buyer.

Local officials are holding out hope that such trends lead to a new use for the Marcus Hook facility, although few expect it to be as a refinery. It could be used as a liquefied natural gas export facility or gas-fired power station, according to a report commissioned by the Delaware County Industrial Development Authority. Lafakis pointed to numbers that he said demonstrate the overall better health of this country’s refining industry. Refineries were making an average margin of $6.44 per barrel early this year. Last week, that number was $18.67, Lafakis notes. “Refineries are clearly a lot more profitable today than they were at the beginning of the year,” Lafakis said.

By delawareonline.com