PADD 1 After the PES Fire: A Look Back at the Past Six Months

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On June 21, 2019, a massive fire and explosion ripped through the Girard Point section of the Philadelphia Energy Solutions (PES) refinery, destroying the largest alkylation unit on the East Coast. Unable to recover from such a devastating blow, cash-strapped PES made the fateful decision to permanently close the refinery. In doing so, PADD 1 lost nearly 27% of its atmospheric distillation capacity, 31% of its alkylation capacity (including the smaller Point Breeze unit), and 32% of its reforming capacity.

In simulations of PES refinery operations using our proprietary Optiflo-Crude model, Enverus estimates the facility produced around 152 MBbl/d of finished gasoline (roughly 5% of total East Coast production) before it was forced to shut down. Without the alkylation unit, the refinery would not be able to produce alkylate, which increases the octane rating of finished gasoline and reduces the Reid vapor pressure. A simulation that removes the alkylation unit shows finished gasoline output declining from above 152 MBbl/d to 132 MBbl/d at full utilization. Furthermore, without the alkylate, the octane rating of the produced gasoline would have fallen by more than one, reducing premium gasoline output by 50% and significantly lowering expected revenue. If the refinery continued to run, it would also have to find a market for its isobutane, normal butane, and butylene produced by the fluid catalytic cracking unit. Other product output, including diesel, remained unchanged in the simulation. PES produced over 100 MBbl/d of middle distillates, representing a significant amount of the region’s production. Between July and October, PADD 1 refiner distillate production has dropped by 78 MBbl/d (24%) year over year, according to the EIA. With local refiners producing just 20% of PADD 1 distillate demand, this event failed to produce significant price spikes.

Despite the loss of capacity, the impact on East Coast refined product markets has been notably muted. ICE New York Harbor RBOB gasoline futures initially rose from $1.78/gallon on the day before the fire to a peak of $2.01/gallon several weeks later, but prices quickly returned to pre-fire levels by early August. The gasoline shortfall was easily met by imports, namely from Europe, where supplies had been ample. According to the EIA, gasoline imports into the East Coast in August averaged 139 MBbl/d, the highest monthly average in over a decade. Total weekly imports surpassed 1 MMBbl early that month for the first time since 2011. Shipments of gasoline blending components from PADD 3 to PADD 1 also set an all-time high, at over 2,083 MBbl/d, during the same month. The ICE New York ULSD futures rose from $1.88/gallon on the day before the fire to a peak of $1.99 several weeks later, only to decline below $1.80 in early August. While PADD 1 distillate stocks declined slightly from the week before the fire to the week after, the shortfall was made up the following week, and stocks proceeded to increase through August.

Although the decrease in East Coast propane production could have had an impact on the local market, record-breaking propane flows from PADD 2 starting in September dwarfed this effect of the PES closure as well. One additional effect of the closure was a reduced isobutane shortage for East Coast refiners. East Coast refiner purchases of isobutane, as represented by net production less net input from EIA, fell to an all-time low of 8 MBbl/d between July and October, compared to the previous five-year range of 10 to 14 MBbl/d during the same time period. PADD 1 refiners still remain net short on isobutane, although they may experience better pricing with this drop in demand.

Despite this refinery closure, East Coast refiners continue to struggle due to a lack of pipeline access to domestic crude and competition from other refining areas, namely PADD 3. Furthermore, this event may have factored into to regulators’ decision to approve the Laurel pipeline reversal, which carries refined products from Philadelphia to Pittsburgh and Ohio and can now carry products in the opposite direction, adding more competition for PADD 1 refiners. Although the Pennsylvania PUC decision included a ban on expanding bidirectional service for five years, this moratorium can expire as early as July 2022 if the Philadelphia refinery remains shut.

Refinery modeling on a macro scale

DrillingInfo OptiFlo-Crude is a nonlinear programming model that considers the entire US refining network on a macro scale, linking production (upstream) to refining demand and exports (downstream) via all the transportation paths (midstream) across the country. By understanding the demand for specific barrels by specific refineries based on the crude oil composition and refinery operations, we can predict how crude will flow, what price a certain barrel will command in the market, what pipelines and routes will be under- or overutilized, where additional infrastructure is needed, where bottlenecks will emerge, and what slate of refined products will be produced in the US.

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Vitaliy Krasko

Vitaliy is a manager of quantitative analysis and optimization at DrillingInfo, specializing in mathematical modeling, operations research, and energy economics. He leads quantitative research efforts for the Market Intelligence team including the OptiFlo-Gas, OptiFlo-Crude, natural gas demand modeling, and general analytics support. Vitaliy holds a PhD in Operations Research with Engineering, and a Master of Science in Mineral and Energy Economics from Colorado School of Mines.