Can Philadelphia’s refinery be saved?

Article originally published in the Philadelphia Business Journal on July 15, 2019

Critical decisions regarding the future of the Philadelphia Energy Solutions oil
refinery will be made in the coming months. These decisions will have a lasting
impact on the people and city of Philadelphia.

Just after 4 a.m. on June 21, a series of explosions rocked one of the two alkylation
process units at the refinery in South Philadelphia, which produce high-octane
blending components for gasoline. Three days later, PES CEO Mark Smith issued a
statement, saying, “Today, Philadelphia Energy Solutions made the difficult
decision to commence shutdown of the refinery complex. … The company will
position the … complex for sale or restart.”

Ryan O’Callaghan, the president of United Steelworkers 1-10, which represents
over 600 PES refinery workers, stated, “The impact of the closure will be a massive
blow to the local economy.”

In September 2018, Christina Simeone wrote a report for University of
Pennsylvania’s Kleinman Center for Energy Policy headlined, “Beyond bankruptcy:
The outlook for Philadelphia’s neighborhood refinery.” Simeone points out the
refinery is outdated compared with other, newer refineries, placing it at a
competitive disadvantage. Simeone also points out some of the complex issues of
remediating the site caused by over a century and a half of refining operations.

In a July 2 opinion piece, WHYY reporter Susan Phillips raises the question of
whether restarting the refinery is economically viable and if a buyer for the refinery
can be found.

The issues raised by Simeone and Phillips can only be addressed by the
marketplace. Assuming the current owners want to exit the refinery business, the
process of finding a buyer needs to move forward. The refinery declared bankruptcy
in 2018. This does not mean the refinery is not financially viable with the right
capital structure.

In a July 8 opinion piece in the Philadelphia Inquirer headlined, “Even after
Philadelphia refinery closes, the environmental damage won’t disappear,” geologist
Breana Hashman of Clean Water Action expresses the opinion that the refinery
should not be restarted, and states, “If our city values public health over corporate
profits, the future of this property should not be in the fossil fuel industry. Renewable
energy creates more jobs per money invested that fossil fuels. We can’t stop the
layoffs of hundreds of workers from the PES facility, but we can create more
employment opportunities in the future for skilled laborers like these by growing the
renewable energy market.”

What Hashman doesn’t acknowledge is that those refinery workers who are laid off
need to find employment now. She has suggested that the refinery site be converted
to a solar energy farm. This would be at least a decade or more away due to site
remediation, if in fact it’s the best place to site a solar energy farm and the private
sector is willing to make the investment. For years, the site would lie fallow and not
be a source of employment or a contributor to Philadelphia’s tax base.

I agree with Hashman that we need to continue to move away from carbon-based
energy to clean, renewable energy technology. The private sector is already driving
this, based on market demand and the opportunity to earn a return on investment.
Whether the refinery operates or not has no bearing on the move toward renewable
energy. The continued adoption of solar energy and the continued operation of the
PES refinery are not mutually exclusive.

The reality is that fossil-based fuels used to heat our homes and fuel our cars will
continue to play a significant role in our society for many years to come. We can
produce those fuels here, employ thousands of people and collect taxes to fund the
operation of our city, or import gasoline and heating oil from other U.S. refineries
or overseas, in effect exporting high-paying jobs and the tax revenues that oil
refining generates.

There are those who believe that the refinery should not be restarted because it is in
fact the largest source of emissions in the city. This is due to the massive size of the
refinery operation.

In her article, Hashman expresses concerns over the health risks posed by the
refinery. The U.S. Environmental Protection Agency calculates a Risk-Screening
Environmental Indicator (RSEI) score that measures the impact of various
environmental hazards on human health.

The RSEI score for the PES refinery in 2017 was 62 times that of the median of all
refineries in the U.S. Clearly, for the refinery to operate responsibly, a significant
reduction needs to be made in its RSEI score. This will take significant investment
by a new owner.

Emission regulations need to be enforced, so violations are not viewed by a new
refinery owner as an insignificant cost of doing business. The cost of these fines
plus the investment needed to lower the refinery’s RSEI score will lower the
amount a potential investor would be willing to pay to acquire the refinery, but does
not adversely impact the refinery’s financial viability.

The liability to remediate the refinery site falls to previous owner Sun Oil
Company, now owned by Energy Transfer Partners, so the financial burden of
remediating legacy site contamination will not be the responsibility of a new owner.
If the refinery is not restarted, 1,000 high-paying highly skilled refinery jobs will be
lost, not to mention the loss of many thousands of jobs at outside contractors,
service providers and those who support the refinery and its employees in so many
ways. In addition, Philadelphia stands to lose significant tax dollars if the refinery is
not restarted.

The people who are employed there and the ancillary businesses that depend on the
refinery are counting on its restart. Those who live within the shadow of the
refinery are hoping it is not restarted and if it is, significant investments are made to
reduce the environmental impact of the facility.

Can the PES refinery be saved? Time will tell.

Stan Silverman is founder and CEO of Silverman Leadership. He is a speaker,
advisor and nationally syndicated columnist on leadership, entrepreneurship and
corporate governance. Silverman earned a Bachelor of Science degree in chemical
engineering and an MBA degree from Drexel University. He is also an alumnus of
the Advanced Management Program at the Harvard Business School. He can be
reached at Stan@SilvermanLeadership.com. Follow Silverman on LinkedIn here
and on Twitter, @StanSilverman.