New joint venture to keep Philadelphia refinery in operation

By OGJ editors

A once-doomed 330,000-b/d refinery in Philadelphia will remain in service and receive an upgrade helped financially by the government of Pennsylvania.

Sunoco Inc.’s refinery will become the second Philadelphia-area refinery to be rescued from planned closure recently by innovative ownership structure, easing concern about product supply on the East Coast.

Sunoco, which earlier said it would close the refinery if it couldn’t find a buyer by this month, has formed a joint venture with the Carlyle Group to keep the facility in business.

Sunoco will contribute the 140-year-old property in exchange for a nonoperating minority interest in the venture, Philadelphia Energy Solutions. The Carlyle Group, a privately held alternative asset manager, will make an investment of undisclosed size through Carlyle Equity Opportunity Fund and Carlyle Energy Mezzanine Opportunities Fund to fund capital projects, upgrades, and enhancements to working capital. JP Morgan Chase will provide working-capital financing for intermediate products owned by the refinery.

Carlyle Group will hold majority interest in Philadelphia Energy Solutions, chief executive officer of which will be Phil Rinaldi.

Unconventional resource link

Carlyle Managing Director Rodney Cohen linked his company’s interest in the refinery to development of unconventional resources in the region.

“The refinery’s exceptional location and infrastructure will enable the joint venture to create new business opportunities related to Marcellus shale natural gas fields,” he said.

In addition, the upgrade project will include construction of a high-speed train-unloading facility linking the refinery with North American crude supplies, “particularly high-quality, low-sulfur crude from the Bakken region in North Dakota,” according to a press statement.

The government of Pennsylvania will provide grants, reported to be worth $25 million, to help finance the rail facility and refinery upgrade.

The joint venture plans to upgrade and refurbish the fluid catalytic cracker. According to OGJ’s annual Worldwide Report, the refinery has 113,500 b/cd of FCC capacity (OGJ, Dec. 5, 2011, p. 30).

It also plans to convert a middle-distillate hydrotreater into a mild hydrocracker fed by a hydrogen plant based on natural gas.

It is exploring creation of “businesses based on the availability and abundant levels of natural gas from the Marcellus shale,” according to the press statement.

Refining changes

Disposal of the Philadelphia facility will complete Sunoco’s exit from the refining business.

Sunoco earlier shuttered its 178,000-b/d refinery at Marcus Hook, Pa., also in the Philadelphia area, in one of a series of announced closures that raised concern about product supply on the East Coast (OGJ Online, Feb. 28, 2012).

Sunoco’s two Philadelphia-area refineries and the nearby 185,000-b/d Trainer refinery, which ConocoPhillips was shutting down, accounted for half of East Coast refining capacity last August, according to the Energy Information Administration.

But the Trainer facility received new life late in April when Delta Air Lines announced plans to purchase it from Phillips 66 for $180 million. The airline sees the purchase as a way to ensure supply of jet fuel for its eastern US operations (OGJ Online, May 1, 2012).

Another troubled East Coast refinery was revived when PBF Holding Co. LLC bought a 190,000-b/d facility in Delaware City, Del., from Valery Energy Corp. in June 2010 and restarted it last October. Valero had idled the refinery in 2009.

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