Economic Recession Forces Older Refineries to Permanently Shut Down

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Researched by Industrial Info Resources (Sugar Land, Texas)--Petroleum companies have decided to indefinitely idle three refineries with combined capacities of 358,000 barrels per day (BBL/d) because of poor market conditions. With U.S. refineries operating at 80% capacity and the continued presence of large stockpiles of refined products, the closure of the three refineries will have little short-term impact on the currently oversupplied refining market. Gasoline stockpiles are 5% more than they were at this time last year, while distillate stockpiles are at a 26-year high. However, with U.S. imports of refined products down this year and the economy gradually pulling out of recession, a reduction of these stockpiles should start to occur. In the broader scope of the Refining Industry, the closure of these refineries could help bring some future stability to the market. Two of the refineries ceased operations in the fourth quarter of this year, while the third will reluctantly close its doors by the end of the first quarter of 2010.

Sunoco Incorporated (NYSE:SUN) (Philadelphia, Pennsylvania) indefinitely idled the company's Eagle Point refinery in Westville, New Jersey, because of poor product demand in October. This was the first major refinery in the United States to shut down because of the economic slowdown. The Eagle Point refinery, which began operating in 1950, will transfer production activity to the Marcus Hook and Philadelphia refineries. Including Eagle Point, Sunoco has a combined capacity of 825,000 BBL/d. The closure will cause substantial layoffs and job cutbacks for the facility's 400 employees. A total of $110 million in capital expenditures had been planned for the refinery for several years, including a major crude expansion, but these never came to fruition. More than $22 million had been planned for maintenance turnarounds at the refinery in 2011.

Valero Energy Corporation (NYSE:VLO) (San Antonio, Texas), shut down the 190,000-BBL/d refinery in Delaware City, Delaware, in November and will continue shutting down remaining units through the end of November, affecting an estimated 640 employees. The refinery came online in 1957, expanding throughout the years to comply with current standards and competition. With immense investments planned, the refinery had shown no signs of slowing down. Future capital expenditures were estimated at $487 million, including a $250 million hydrocracker unit addition that was planned to kick off in spring 2010. The 2009 calendar year also seemed promising, with major maintenance projects planned and a turnaround budget of more than $33 million. However, with current market conditions and a lack of crude demand, the Delaware City refinery was losing more than $1million a day in 2009, so closing the facility's doors was inevitable. The closure of the refinery reduces Valero's throughput capacity from about 2 million BBL/d to about 1.8 million BBL/d.

Western Refining Incorporated (NYSE:WNR) (El Paso, Texas) has made strategic plans to idle the 18,000-BBL/d Bloomfield refinery by the end of the first quarter of 2010. The refinery has been in operation since 1957. Operations will be consolidated with the company's 26,000-BBL/d Gallup, New Mexico, location, which will produce up to 40,000 BBL/d. Other options are being evaluated for the Bloomfield site, including the production of biofuels. Also under consideration is whether to relocate the estimated 100 employees at Bloomfield to the Gallup refinery. The main objective behind Western Refining's choice to close and consolidate its New Mexico refining operations was a company savings of $25 million a year.

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