Refinery Closures Could Affect Northeast Diesel Supplies, Prices

Supplies of ultra-low-sulfur diesel fuel in the Northeast could be greatly impacted if Sunoco Inc. follows through with plans to shut down its Philidelphia refinery in July if no buyer is found.

That's the warning this week in a report from the U.S. Energy Information Administration.

The refinery produces 335,000 barrels a day, making up 24% of the refining capacity on the East Coast as of August, the EIA says.

Last week saw the closure of Hovensa SA, a 350,000-barrel-a-day joint venture refinery operated by Hess Corp. and Venezuela's state-owned Petroleos de Venezuela.

"Ultra-low-sulfur diesel fuel will be the most challenging product to replace, as there are few alternative supply sources outside of the U.S. Gulf Coast," the EIA says. "Transportation constraints may also hamper the movement of all replacement products through Pennsylvania and into western New York, areas currently supplied by pipelines originating in the Philadelphia area refinery complex. The industry may not be able to overcome all of the logistical challenges in the Northeast for a year or more, as infrastructure changes will be necessary to accommodate the changing product flows."

The EIA says price impacts are "highly uncertain" in the event that the Philidelphia refinery closes.

"If areas cannot be adequately supplied in the short term, prices can spike," the EIA says. "In the longer run, higher prices and possibly higher price volatility can result from longer supply chains. The potential loss of the Sunoco Philadelphia refinery presents a complex supply challenge, and no single solution has been identified by industry participants that will address all of the logistical hurdles that must be overcome."

In 1988, Sunoco acquired the refinery in South Philadelphia as part of its purchase of Atlantic Refining and Marketing Company and, in 1994, purchased the adjacent refinery from Chevron. Integrating the two refineries into one facility with two operating areas, Sunoco created the Philadelphia Refinery, the oldest continuously operating petroleum facility in the world with origins dating back to the 1860's when the petroleum industry was in its infancy.

The Energy Department holds 1 million barrels of ULSD in the Northeast heating oil emergency reserve in Connecticut and Massachusetts.