Shutdown of U.S. refineries spells trouble among oil consumers

The impending closure of oil refining plants in Philadelphia and in the northeastern states could trigger a surge in prices of gas and heating oil.

Operations of Sunoco’s Marcus Hook refinery have been suspended since December 2011, while its other refinery in Philadelphia may soon face closure if the company fails to arrange a buy-out. The move is part of Sunoco’s investment strategy to divert its resources on pipeline operations. Another company, ConocoPhilipps had also shut down its oil refining plant at the Delaware River.

Recently, testimonies about the adverse effects of refinery shutdowns in the area were delivered before the United States Joint Economic Committee. Director of downstream activity for API, Bob Greco stated that government regulations aimed at protecting the environment have been jeopardizing existing and potential refinery production. This has constrained some refinery owners to suspend operations and focus on how to invest resources on other oil ventures less influenced by environmental laws.

“We need a course correction to tell the markets that America is serious about providing the fuel it needs and we call on the administration to show leadership on energy,” Greco stated.

If all three refining plants are finally closed down, a combined refinery capacity of 658,000 barrels will be lost each day. According to Sunoco and ConocoPhilipps, it is no longer feasible to continue plant operations since doing so would cost millions of cash. Investments could easily go down the drain if the decision to close is still prolonged.

Chairman of the Senatorial Committee, Senator Bob Casey commented that shutting down the refineries will redound to consumers as well. Closures may lead to gluts in oil supply in the U.S. northeast region. Consequently, prices of diesel, gas, and heating oil could also go up.

“An early or prolonged cold spell next winter could send home heating prices skyrocketing — hitting consumers hard,” according to Sen. Casey.

By: Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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