Dodged Bullet: Convert the Refinery Process

In 2012, a number of events had to occur for Northeast Fuel prices to rise above $4.50 for gasoline and $5.00 for diesel. But not all the bad that could have happened did happen. This article is part four in a series that examines the questions that influence pricing:

  • What happens if refineries close?
  • What happens to the price of crude?
  • Where does the crude come from?
  • What kind of crude does the refinery need?
  • What happens to demand?

What Kind of Crude Does the Refinery Need?
Change the Oil the Refinery Needs

Refining crude oil into finished petroleum products involves a complex series of steps — the refinery personnel use distillation towers to distill, and they use hydro crackers and cat crackers to convert crude into useful petroleum molecules. These are chemical processes designed for specific crude chemistries.

We have included some audio-visual aids in this article:  two films that those of the baby boomer generation may remember.

First, there's The Inside Story of Modern Gasoline. This film was made right after World War II. Watch this film before scoffing that the technology has changed.

The second film, More Power to You,  stars the old Sun Oil Company assets, the wells in Texas, tankers built in the Sun Shipyards in Chester, PA, and the Marcus Hook Refinery.

This film is a fitting tribute to the change at hand, as the remnants of the Sun Oil Company ceased production over a decade ago. And they ceased refining in 2012, when Sunoco CEO Brian MacDonald handed the keys of the 146-year-old South Philadelphia refinery to Phillip Rinaldi, CEO of Philadelphia Energy Solutions (PES).

Carlyle Group purchased the refinery from Sunoco in the summer of 2012, forming PES. Sunoco remained one third of the partnership, as the main buyer of the fuel the refinery makes. PES was responsible for operating the facility, which is the largest refinery on the East Coast.

PES "re-imagined" the plant as a regional energy hub that would rely on growing production of Marcellus Shale natural gas to produce motor fuels, electricity, and chemicals.

The refinery's transfer to Carlyle marked the end of more than a century of fuel manufacturing for Sunoco, which began refining in 1894. Sunoco created the 330,000-barrel-per-day Philadelphia plant out of two refineries it acquired over twenty years ago from Chevron and Atlantic.

The new Philadelphia Energy Solutions operation is an example of a business being reconfigured to take advantage of new natural gas supplies. CEO Rinaldi said the refinery would be a "major consumer" of shale gas to enhance fuel production, allowing the plant to extract more gallons of gasoline, jet fuel, and diesel from each barrel of crude oil. The operation used shale gas to produce steam and electricity at a new co-generation plant, potentially producing liquid fuels and urea ammonium nitrate fertilizer from natural gas.

As Energy Transfer Partners L.P. of Dallas took possession of the rest of Sunoco in 2012, the company converted the shuttered Marcus Hook refinery into a facility processing Marcellus Shale natural gas products. Sunoco's pipeline subsidiary, Sunoco Logistics Partners L.P., moved forward with a plan to transport high-value propane and ethane by pipeline from Western Pennsylvania to Marcus Hook, fueling new construction and traffic through the Delaware River port.

Sunoco Logistics and its partner, MarkWest Energy Partners L.P., reversed the pipeline flow to move natural gas liquids from the "wet" gas produced in Western Pennsylvania. The Mariner East project provided a conduit for the movement of ethane and propane from Marcus Hook by sea to petrochemical plants overseas or along the Gulf Coast that value natural gas liquids as a raw material for plastics.

Natural gas liquids are in demand by plastics plants worldwide. Range Resources Corp., the major Marcellus liquids producer in Southwestern Pennsylvania, signed a fifteen-year agreement with Sunoco Logistics as the anchor shipper, committing 40,000 barrels of the project's 70,000-barrel-per-day capacity. Range lined up a customer for its ethane in a fifteen-year agreement with affiliates of INEOS A.G. A Swiss petrochemical producer took delivery of the ethane at the Marcus Hook docks for delivery to plants in Europe, the Americas, and Asia.

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