Closure of the Philadelphia Energy Solutions refinery will raise prices for the US Atlantic Coast gasoline during this summer's driving season, with European refiners the likely candidates to fill the supply gap left by the shutdown of the 335,000 b/d refinery, analysts said Wednesday.
Two fires at the refinery over the last month made the decision to shut it easy, said sources familiar with operations. The refinery had been running at reduced rates since Friday's fire in an alkylation unit in its Girard Point section. S&P Global Platts Analytics, in a note Wednesday, estimated the plant has already been recently running at 270,000 b/d.
The 150,000 b/d of CBOB, alkylate and RBOB the refinery produced, however, will need to replaced for drivers this summer.
"Overall, we estimate that East Coast market [structurally short gasoline] will see the loss of about 150,000 b/d of gasoline/components, 75,000 b/d of diesel/gasoil, 25,000 b/d of jet fuel and 25,000 b/d of LSFO," according to Platts Analytics, which expects a wider arbitrage incentives to bring RBOB, CBIB, ULSD, jet and LSFO to the USAC as cracks strengthen.
Platts Analytics notes that New York Harbor RBOB cracks have moved up around $5/b since last Friday's fire, currently at $23.37/b based on the NYMEX crude futures and RBOB price.
BATTLE OF THE ATLANTIC BASIN
While Northwest European refiners are the natural winners with the closure of PES, upping their exports of gasoline components to the USAC, Reliance Industries' massive Indian refineries are also contenders for increased market share of the USAC, Platts Analytics said. .
"Europe has the bandwidth," said Sandy Fielden, director of Oil and Products Research with Morningstar, about the source of summer grade gasoline for USAC drivers.
There was no room on the Colonial Pipeline to bring more gasoline from the US Gulf Coast and the expense of Jones Act Tankers makes adds cost to move waterborne cargoes from the USGC to the USAC, Fielden said.
The 320,000 b/d Saint John, New Brunswick, refinery operated by Irving Oil, Canada's largest, is already a major supplier of refined products to the northern USAC states of Massachusetts, Maine, New Hampshire and Vermont.
Irving's proximity to the USAC and ability to use cheaper non-Jones Act tankers to transport gasoline and diesel south makes the supply gap left by the closure of PES "low-hanging" fruit, but how much more they send is based on "their ability to ramp up," Fielden said.
The shutdown of the Philadelphia refinery raises the possibility that Buckeye Partners would reopen its appeal to move gasoline and diesel east from price-advantaged Midwestern refineries to the USAC via the Laurel Pipeline, which currently runs west from Philadelphia to Pittsburgh.
A Buckeye spokesman was not immediately available for comment on that possibility.
IT AIN'T OVER TILL IT'S OVER
Platts Analytics added a cautionary tone about refinery closures on the USAC, harking back to 2012 when several refineries were closed only to be resurrected under new owners.
Monroe Energy's 190,000 b/d Trainer, Pennsylvania, refinery was shut by ConocoPhillips only to reopen a few months later owned by Delta Air Lines.
However, several shut down permanently - Sunoco's Marcus Hook, Pennsylvania, and Eagle Point, New Jersey, refineries ceased operating and now serve as terminals.
"In reality, East Coast refiners have structural difficulties to run economically," Platts Analytics said. These refiners do not have pipeline access to domestic crude, so the alternatives are more expensive, such as: rail, cost-prohibitive Jones Act vessels or foreign medium and light sweet crudes.
Back in 2014, PES used to take as much as 200 rail cars daily of Bakken crude. However, Bakken crude was diverted to Midwestern and USGC refiners with the build-out of pipeline takeaway capacity between those regions and North Dakota. Recently, PES has been bringing in North Sea and Canadian crudes.
