Philadelphia Energy Solutions Seeks to Shutter Oil Refinery

Philadelphia Energy Solutions (PES) will seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex, the mayor confirmed on Tuesday after two sources told Reuters about the plans.

“I spoke with the CEO and leadership of Philadelphia Energy Solutions this morning and can confirm that PES intends to shut down the refinery within the next month,” Philadelphia Mayor Jim Kenney said in a statement.

“I’m extremely disappointed for the more than one thousand workers who will be immediately impacted by this closure, as well as other businesses that are dependent on the refinery operations,” Kenney said.

Shutting the refinery, the largest and oldest on the U.S. East Coast, would cost hundreds of jobs and squeeze gasoline supplies in the busiest, most densely populated corridor of the United States.

The refinery is expected to begin layoffs of the 700 union workers as early as Wednesday, according to two sources familiar with the plans. They said employees have been instructed to immediately begin the process of mothballing units, shutting them indefinitely.

The 335,000 barrel-per-day (bpd) complex, located in a densely populated area in the southern part of the city, erupted in flames in the early hours on Friday, in a series of explosions that could be heard miles away.

PES is expected to file a notice of intent with state and federal regulators as early as Wednesday, the sources said, which would start the closure process. A spokesperson for Philadelphia Energy Solutions on Tuesday night declined to comment.

“The impact of the closure will be a massive blow to the local economy,” said Ryan O’Callaghan, head of the refinery’s union, estimating that it would cost tens of thousands of jobs when contractors and other businesses that rely on the plant are included.

The cause of the fire was unknown as of Tuesday, though city fire officials said it started in a butane vat around 4 a.m. (0800 GMT). It destroyed a 30,000-bpd alkylation unit that uses hydrofluoric acid to process refined products. Had the acid caught fire, it could have resulted in a vapor cloud that can damage the skin, eyes and lungs of nearby residents.

Before the fire, the refinery had struggled financially for years, forced to slash worker benefits and scale back capital projects to save cash. It went through a bankruptcy process last year to reduce debt, but cash on hand dwindled even after it emerged from bankruptcy in August.

After bankruptcy, Credit Suisse Asset Management and Bardin Hill became the controlling owners, with former primary owners Carlyle Group and Sunoco Logistics, an Energy Transfer subsidiary, holding a minority stake.

Workers were picking up large debris out of nearby waterways on Monday, according to pictures seen by Reuters, while other pictures showed the charred remains of control rooms and burned components.

The blaze was the second in two weeks at the complex, spurring the mayor to call for a task force to look into the cause and community outreach in the wake of the incidents. That task force will now be retooled to focus on helping the company transition the site of the refinery and supporting employees affected, Kenney said in his statement.

Investigators on the scene are dealing with unstable structures that need to be certified by engineers, slowing down the inquiry, city officials said. The investigation could ultimately take months or perhaps years, they said.

The state Department of Environmental Protection said on Tuesday it was concerned about the integrity of storage tanks on site. The U.S. Chemical Safety Board is also investigating the incident.

U.S. gasoline futures rose as much as 5.4% on Wednesday to $1.9787 a gallon, the highest since May 23. The front month price was at $1.9719, up 5%, on Wednesday.