Philadelphia refinery explosion sets up east coast refinery bottleneck, EPA to release annual blending levels before July 4

Source: By John Siliciano and Josh Siegel, The Washington Examiner • Posted: Thursday, June 27, 2019

A new energy bottleneck is forming on the East Coast as the largest refinery in the region is not expected to be up and running for months, after suffering a big explosion Friday.

The massive explosion at the Philadelphia Energy Solutions refinery sent gasoline future prices soaring. A sustained closure of the facility could mean a longer fuel shortage, and with it higher prices.

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“Gasoline inventories are already low and this will put additional pressure on the system,” said Mark Broadbent, principal analyst for North America refining at WoodMackenzie.

The loss in gasoline production comes as fuel consumption has reached a decade-high this summer ahead of the July 4 holiday next week.

Now that the fire has been extinguished, the magnitude of the impact on prices will be based on how quickly the refinery can recover, and the ability of other refiners to up production to fill in the lost supply, Broadbent added. The federal government’s analysis of diesel and gasoline prices, since the explosion, will be out on Wednesday.

Damage assessment: The explosion began in the part of the facility used to make high-octane gasoline. After the debris was removed on Monday, it became obvious that the entire gasoline-making complex was destroyed.

Reuters reported that the extent of the damage would mean gasoline production would be curtailed for an extended, undetermined period, as federal agencies launched an investigation to determine the cause of the explosion.

Refinery politics: The refinery is well-known, politically, for blaming the federally-mandated use of corn ethanol for the plant’s previous financial stress. It said it was forced to file for bankruptcy protection two years ago due to the high price of ethanol credits it is required to purchase to meet the mandate. It came out of bankruptcy proceedings late last summer.

Refiners like Philadelphia Energy Solutions are required to blend billions of gallons of ethanol into gasoline to meet the requirements of the Environmental Protection Agency’s Renewable Fuel Standard.

Because most U.S. refiners, however, can’t blend ethanol themselves, they are forced to buy ethanol credits from larger multinational companies like Exxon and Shell that have the blending facilities. The Philadelphia refinery said it spent hundreds of millions of dollars in 2017 to buy the credits.

Meanwhile, the ethanol industry is lobbying the Trump administration to curtail the use of special waivers that free refiners from having to blend ethanol under the Renewable Fuel Standard.

The Trump administration is reportedly reviewing the use of the refinery ethanol exemptions after President Trump visited Iowa earlier this month.

Refinery advocates say it would be a mistake to curtail the entire refinery waiver program, especially going into the presidential election season.

The Trump EPA is expected to propose the new annual renewable fuel blending targets for 2020 ahead of the July 4 recess. Renewable fuel groups are hoping to see a sizable boost in the amount of ethanol refiners are expected to blend to make up for previous refinery exemptions.