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Sunoco refineries could be closed

Saturday, Sept. 17, 2011

If Sunoco Inc. idles its two crude oil refineries in the Philadelphia area next summer, there could be some short-term gasoline supply disruptions, and price spikes, in Western Pennsylvania, a local expert says.

Philadelphia-based Sunoco said earlier this month that it will exit the refinery business and attempt to sell the last of its refineries, in Philadelphia and Marcus Hook. The refineries have a combined capacity to process more than a half million barrels of oil a day.

If Sunoco can't sell -- and some in the industry think the company may have trouble finding a buyer -- the refineries will be shuttered in July.

"If they shut down that will have an impact," said Don Bowers, manager of petroleum and transportation for Superior Petroleum Co., a wholesale distributor in Ross. "If they shut down, there's going to be disruptions in supply."

While companies will find other sources for gasoline, it may takes months for supplies and prices to stabilize, Bowers said.

Sunoco, which has 150 gas stations in the Pittsburgh region, is dropping its refinery business because it's been losing money since 2009, spokesman Thomas Golembeski said.

"Our refineries have lost money in eight out of the last 10 quarters," totaling $772 million, Golembeski said.

If the refineries are sold and continue to refine crude oil, then supply won't change, he said. And if they're idled, he said, Sunoco will purchase gasoline from other sources, which it already does in other markets around the country. Sunoco has 4,900 gas stations in 24 states.

"We don't expect this will have any impact on supply to Sunoco's retail network," he said.

In December, Sunoco reached a deal to sell a refinery in Toledo, Ohio, for $400 million to PBF Energy Co. LLC. Golembeski said the sale has not affected Sunoco retail stations in the Midwest.

Some in the industry have speculated that PBF Energy, formed by two private equity firms to acquire refineries, might purchase the Philadelphia and Marcus Hook facilities.

But East Coast refineries, which have struggled to turn a profit because of the higher prices they pay for crude, could be less attractive to buyers, Skip York, vice president for downstream oil in Houston for consultancy Wood Mackenzie, said last week.

Crude oil coming into the gulf region of the United States has been less expensive than the crude shipped to the East Coast, said John Felmy, chief economist for the American Petroleum Institute in Washington.

Felmy cautioned that there's still plenty of time for a buyer to strike a deal to keep Sunoco's refineries in Philadelphia running. But, if not, losing capacity of more than 500,000 barrels a day could cause problems in the supply chain.

"Clearly it's one of those things where refinery capacity could be a concern," he said. "But at this point it's too soon to tell."

Sunoco also owns about 30 percent of Sunoco Logistics Partners LP, a company it spun off in 2002 to own and operate its system of pipelines and storage terminals. There are several terminals in the Pittsburgh region and a pipeline that runs from Philadelphia to Pittsburgh.

Rating agency Standard & Poor's put Sunoco Logistics on "credit watch" last week following Sunoco's announcement that it was exiting the refining business.

But Golembeski said product from Sunoco refineries is only a small part of Sunoco Logistics' business.

"That volume would be likely filled by someone else," he said.

Sunoco has said the decision to get out of refining will cost the company up to $2.2 billion in the third quarter. It could pay $500 million more over the next 12 months in costs related to contract terminations, employee severance payments and other expenses.

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