FocusConocoPhillips Pennsylvania refinery may be a hard sell

28 September 2011 00:09  [Source: ICIS news]

By Sheena Martin

HOUSTON (ICIS)--The trend of refining companies moving out of the US east coast continues as ConocoPhillips announced it was looking to sell its Pennsylvania refinery, industry observers and traders said on Tuesday.

ConocoPhillips’ senior vice president of refining, marketing, transportation and commercial Willie Chiang said, “US east coast refining has been under severe market pressure for several years. Product imports, weakness in motor fuel demand, and costly regulatory requirements are key factors in creating this very difficult environment.”

ConocoPhillips said it has begun to idle the 185,000 bbl/day refinery and will permanently close it in six months if no buyer is found. The move to sell the refinery is part of the company’s strategy to decrease risk in its refining portfolio.

An east coast spot market trader said, “You lose money by refining on the east coast using Brent,” adding, “The east coast refining cracks are based on Brent crude prices which are some $20/bbl over [West Texas Intermediate (WTI) crude], midcontinent crude, and sizable amount over [Louisiana Light crude], Gulf coast crude.”

Gasoline futures settled at $2.6955/gal on Tuesday, or $113.21/bbl, and Brent crude was at $107.14/bbl. East coast refiners were making $6.07/bbl on gasoline from Brent crude, while mid-continent refiners were making $28.76/bbl.

WTI settled at $84.45/bbl on Tuesday.

During first week of September, Sunoco announced it would leave the refining business by putting its 335,000 bbl/day Philadelphia and 178,000 bbl/day Marcus Hook refineries in Pennsylvania up for sale.

Valero completed the sale of its 160,000 bbl/day Paulsboro refinery in New Jersey to PBF Holding in mid-December 2010. PBF Holding earlier purchased Valero’s 182,200 bbl/day Delaware City refinery in Delaware in April 2010.

But there are few if any obvious buyers for ConocoPhillips' refinery. As with Sunoco’s refineries, there is much maintenance required for the refinery to be competitive and meet environmental and safety regulations.

Petral Worldwide analyst Dan Lippe said, “The obvious answer is operating companies have invested very little capital into expanding coking [the fluid catalytic cracking unit], and hydrocracker capacity in the east coast refineries,” said Lippe.

PFGBest analyst Phil Flynn said, “Nobody wants to be in this business.”

Flynn added, “The public has this perception that if you’re able to refine oil then you’re able to print money... But a lot of these companies are saying this is too much of a headache and not worth the money.”

The US Gulf coast transfers more than 70% of the total gasoline supply for the east coast market, and the region relies on imports for much of the remaining last 30%, Lippe said.   

“The east coast markets will see increased imports, probably from Europe and South America, and an increase in transfers from the Gulf coast refineries via the existing pipelines,” Lippe. “So, if the refineries are permanently shut down, imports and transfers will be a bit higher – no big deal.”

An east coast distillates spot trader said the Trainer refinery in Pennsylvania produces a lot of ultra-low sulphur diesel (ULSD). Prices on the spot market for ULSD could jump in the short term on news of the shutdown, but the price hike will be temporary.

By: Sheena Martin
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