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Analysis & Projections

Potential Impacts of Reductions in Refinery Activity on Northeast Petroleum Product Markets

Release date: February 27, 2012       Jones Act Addendum: May 11, 2012

Executive Summary

This report updates and expands upon a December 2011 U.S. Energy Information Administration (EIA) report, Reductions in Northeast Refining Activity: Potential Implications for Petroleum Product Markets.1 Since September 2011, two refineries in the Philadelphia area (ConocoPhillips Trainer refinery and Sunoco's Marcus Hook refinery) and one major Caribbean export refinery supplying the East Coast (HOVENSA's U.S. Virgin Islands refinery) have closed. In addition, Sunoco has announced plans to idle its remaining Philadelphia-area refinery (Sunoco Philadelphia) in July 2012 if no buyer is found. The three Philadelphia-area refineries (Trainer, Marcus Hook, and Philadelphia) taken together represented 50% of total East Coast refining capacity as of August 2011.

To date, the market transition following the closing of two Philadelphia-area refineries in September and December 2011 has been relatively smooth, but the situation could change. Those closures have been partially offset by the startup of PBF Energy's Delaware City refinery in October 2011, which had been shut down in late 2009 by Valero before its sale to PBF Energy. However, if Sunoco's Philadelphia refinery, which alone accounted for nearly a quarter of refinery capacity on the East Coast in 2011, were to shut down in July 2012, petroleum product markets in the Northeast could be significantly impacted.

Refining capacity is available outside of the East Coast to replace products historically supplied by the capacity that has been or may be idled, including potential production losses from the Sunoco Philadelphia refinery, but transportation constraints may hinder the delivery of products to the Northeast in the short term. Ultra-low-sulfur diesel fuel (ULSD) will be the most challenging product to replace as there are few alternative supply sources outside of the U.S. Gulf Coast. Transportation constraints may also hamper the movement of all replacement products through Pennsylvania and into western New York, areas currently supplied by pipelines originating in the Philadelphia area refinery complex. The industry may not be able to overcome all of the logistical challenges in the Northeast for a year or more, as infrastructure changes will be necessary to accommodate the changing product flows.

If the Sunoco Philadelphia refinery closes, price impacts are highly uncertain. If areas cannot be adequately supplied in the short term, prices can spike. In the longer run, higher prices and possibly higher price volatility can result from longer supply chains. The potential loss of the Sunoco Philadelphia refinery presents a complex supply challenge, and no single solution has been identified by industry participants that will address all of the logistical hurdles that must be overcome. The industry will have a financial incentive to serve all markets in the Northeast, and companies are currently investigating options. However, companies are not likely to make significant investments in new logistical arrangements until the status of Sunoco's Philadelphia refinery is known. EIA will continue to monitor this situation as it evolves.



See full report       See Jones Act addendum


Technical information concerning the content of the report may be obtained from Mindi Farber-DeAnda at 202/586-6419 (email, mindi.farber-deanda@eia.gov), Tim Hess at 202/586-4212 (email: timothy.hess@eia.gov), and Joanne Shore at 202/586-4677 (email, joanne.shore@hq.doe.gov).