CSX: Explosion Shuts Philadelphia CBR Refinery For Good

Huge Explosion at Phila. Energy Solutions (PES) is Last Straw for East Coast's Largest Refinery. Permanent Shutdown Eliminates 23% of Eastern Refining Capacity. $130 Million 280,000bbl/day CBR Unloading Facility a Major Blunder.

21 June, Philadelphia PA – City fire officials believe the fire started in a butane vat around 4 a.m. EDT. The flames and explosions destroyed a 30,000-bpd alkylation unit that uses hydrofluoric acid to process refined products. The acid was saved from the fire, preventing a potential acid vapor cloud enveloping the densely-populated neighborhoods bordering the 1300-acre refinery complex. The fire was the second this month, and the latest in a decades-long history of operational mishaps and financial problems {Jarret Renshaw, Reuters, 23.June.2019}.

In 1866, Atlantic Petroleum Company established its operations at Point Breeze (PB) along the Schuylkill River below Passyunk Ave. Four warehouses stored 50,000 barrels (2.1 million gallons) of refined oil product, mostly kerosene lamp oil distilled from Pennsylvania crude. The 1859 strike in Titusville made Pennsylvania the primary source for American crude oil until the 1920s. The first refining units were built in in 1870, and the site was renamed Atlantic Refining Company, becoming Philadelphia’s largest employer. Atlantic introduced the first fractionating tower, a major innovation in refining. In 1920, Gulf Oil built its first terminal at Girard Point (GP), adjacent to Point Breeze. By 1927, Girard Point was refining up to 31,000 barrels (1.3 million gallons) a day of gasoline and other products at its recently built facility. By World War II, both refineries were processing 69,000 barrels a day (2.9 million gallons). In 1966, Atlantic Refining Co. and Richfield Oil Co. in California merged to become ARCO (PB). In 1982, Gulf (GP) was bought out by Chevron. In 1985, Dutch oil trader John Deuss bought PB from ARCO, along with 1,000 retail outlets and miles of inland pipeline. Sunoco purchased PB from Deuss in 1988 and GP from Chevron in 1994, consolidating the two facilities into one operation. In 2012, Philadelphia Energy Solutions (PES) was formed as a partnership between The private equity investor Carlyle Group and Sunoco as a subsidiary of Energy Transfer Partners, L.P. {image: Philadelphia Enquirer; caption source: PES website}.

PES has been a center of petroleum-based activity since opening as a crude oil storage site in 1866. The surrounding neighborhoods grew up with the refinery to house workers and their families. PES, backed by the Carlyle Group, purchased controlling interest in the sprawling facility from Sunoco in 2012, placing a huge bet on then-cheap Bakken production.

Quadruple-down on CBR

PES built-out the massive $130 million North Yard rail terminal to receive four 120-car unit trains per day off the CSX Philadelphia Subdivision. The major components of the North Yard terminal include 6.4 miles of track, 1.0 mile of additional track with rights-of-way on adjacent land, two 4,000 foot, 24-inch underground pipeline manifolds, a 20,000 barrel per hour pumping station, 1,500 feet of 24-inch pipeline and a custody transfer meter station. Processing of domestic crude peaked at 235,000 barrels per day in December, 2014 {PES Logistics IPO Prospectus 17.Feb.2015}.

Philadelphia, PA

PES North Yard Logistics rail operation was the highest-volume destination for Bakken Crude when it went into service in October 2013. Upon full build-out in October 2014, unloading volume was 210,000 bbl/day, seven days a week {Openrailwaysmaps, annotated by ANRP }.
Exploded view of pumping station that pulled 20,000 bbl/hour {Google Earth}

In early 2015, the company launched an IPO for the spun-off North Yard Logistics operation, and a few other non-core assets. Soon after, the Obama administration lifted the 1977 crude oil export ban, opening global markets for Bakken crude to be loaded on ships at Great Lakes ports. Global crude prices tumbled around then, mitigating PES’s domestic sourcing advantage. The IPO was withdrawn. In 2017, The Dakota Access Pipeline went into service, eliminating the value of the railhead. In January 2018, PES filed for Chapter 11 bankruptcy. The terms of the reorganization limited the facility’s maintenance and upgrade budget.

Major source of East Coast fuel products

PES produced unbranded gasoline (87, 89 and 93 octane), jet fuel, petrochemicals, liquefied petroleum gas and sulfur. PES also produced a variety of diesels, including ultra-low-sulfur diesel, non-road, heating oil, locomotive/marine and non-jet kerosene. Products are additized and available in winter blends. {PES website}

Despite its size, fuel markets did not react strongly to the explosion, or management’s decision to permanently shut the facility. It was a poor performer among the nation’s refinery fleet, with a complexity factor1 rating of 9.0, below the 10.56 national average, and a conversion ratio2 of 39.92, below the national average of 43.93. Compared to more complex refineries, PES is limited to catalytic cracking, and does not apply catalytic hydrocracking or thermal cracking technologies that enhance a plant’s ability to convert low-value feedstock into high quality product, leaving PES reliant on high-quality/ high-cost feedstock.

1 The complexity or sophistication of a refinery is based on its secondary conversion capacity, or plant equipment that enables production of high value products from lower value inputs. PES is relatively simple compared to its competitors {UPenn Kleinman Center for Energy Policy}.
2 Conversion capacity is the ratio of a refinery’s conversion units to its atmospheric distillation capacity. Conversion capacity is calculated by summing catalytic cracking, catalytic hydrocracking, and thermal conversion capacity and dividing by atmospheric distillation capacity { ibid. }.