"With the recent shale developments and the abundance of cheap natural gas, the U.S. now has a feedstock cost advantage over most other regions of the world for producing certain petrochemical products, such as ethylene or propylene"
According to a new study from IHS (NYSE: IHS), the leading global source of information and analytics, the phenomenal growth of shale oil and gas plays in the U.S. makes possible several reuse options that otherwise wouldn’t exist for the Sunoco Marcus Hook Industrial Complex, a former oil refinery located south of Philadelphia on the banks of the Delaware River that was shutdown in December 2011.
When operational, the refinery, which sat on a 780-acre site, processed 175,000 barrels per day of crude oil into a wide range of petroleum and petrochemical products and was responsible for nearly 500 direct jobs in Delaware County, Pa. One of the nation’s oldest refineries, it had been in operation since 1902, and had employed several generations of workers from the region.
“We identified several possible reuse options for the Marcus Hook facility, and what is interesting is that most of these opportunities are possible only as a result of the recent, phenomenal growth of the U.S. shale oil and gas plays,” said Brendan O’Neil, managing director for IHS Consulting. “Without these plays, the options available to Marcus Hook would be more limited, and if pursued, could potentially provide an economic ‘second life’ to the complex, which has been a part of the Delaware County community since 1902.”
IHS was commissioned to conduct the independent study by the Delaware County Council, which appropriated funds and directed the Industrial Development Authority to undertake the study. The purpose of the study is to identify potential future redevelopment concepts that can best utilize the site’s assets to maintain employment levels and perpetuate a sustainable local economy in Delaware County and the East Coast region.
Said O’Neil: “Despite the fact that they don’t own the site, the Delaware Council was very proactive in seeking an independent assessment for reuse of this facility, which may serve as a model for other communities who are likely to face similar industrial shutdowns in the future — it shows a willingness to bring industry and community together to solve problems and to create economically sustainable development.”
To prepare the study, IHS called on its experts from across the organization — economic analysis from IHS Global Insight, chemical insight from IHS Chemical —including expertise from recently-acquired Purvin & Gertz, and energy perspective from its experts at IHS CERA. In compiling its assessment, IHS first conducted an economic profile of the region and then followed with a supply/demand analysis of the markets for potential alternative uses based on two broad categories: energy products storage and Marcellus shale-based downstream chemical production.
IHS examined seven potential reuse options for the Marcus Hook facility. Five energy-based options: 1) Natural gas liquids processing and fractionation facility; 2) Gas-to-liquids production and storage facility; 3) Liquid natural gas liquefaction and export terminal; 4) Refined petroleum products import terminal; 5) Natural gas driven power generation, as well as two Marcellus shale chemical-based options: 1) Ethane cracking and derivatives; and 2) Propane dehydrogenation.
According to the IHS study, while a market analysis of the seven reuse options all showed promise, some options had greater viability than others. The East Coast is advantaged, the report noted, in that it lays adjacent to the Marcellus shale development, a large geologic formation, despite the fact that production from this region contains only minor crude oil and condensate production. A summary of the market potential of each option, as well as their job-creation potential and estimated capital costs, are shown in the chart below.
Proposed Reuse Options
$300 to $400
50 to 75
Existing polypropylene plant at site (Braskem) is ready buyer of output from this reuse
Natural Gas Liquids Processing Facility
$300 to $400
75 to 100
Synergies exist with existing plant infrastructure, lowering overall investment costs
Refined Petroleum Products Storage
$50 to $100
45 to 55
Minor modifications required for reuse; increasing local demand for petroleum products
Natural Gas Power Generation
$650 to $750
75 to 100
Facility well positioned in mid-Atlantic markets; dwindling number of coal-burning plants
Ethane Cracking and Derivatives
$2,500 to $3,000
150 to 200
High demand for polyethylene resins; site has competitive logistical advantages
Liquified Natural Gas Export Terminal
$2,000 to $2,500
150 to 200
Strong overseas market; several LNG plants already have applied for permission to export
$4,000 to $6,000
300 to 400
Diesel markets especially attractive on the East Coast
Source: IHS—Sunoco Marcus Hook Industrial Complex Economic Opportunity Reuse Study
While the IHS study notes that deeper analysis is needed to fully discern the potential rate of return on capital of repurposing options, the reuse of Marcus Hook for shale-based chemical processing, natural-gas liquids processing, and refined petroleum storage suggest the greatest market potential. However, the IHS study authors cautioned that job creation related to any of the reuses will not fully offset the jobs lost to refinery closure.
“This refinery is the primary economic engine that has supported the region for decades, so the future of this community is dependent upon our ability to identify and facilitate new, economically sustainable uses for the site,” said Tom McGarrigle, chairman of the Delaware County Council. “However, the complexity of the issues involved required that we enlist a respected research firm who could take a multi-dimensional look at the situation. Only IHS had the depth and breadth to assess the economics, the regional and global market trends, as well other issues relative to energy and chemical markets and industries. We are pleased with the findings of the study, because they offer some viable, positive paths forward for the Marcus Hook complex and for our communities in Delaware County.”
“With the recent shale developments and the abundance of cheap natural gas, the U.S. now has a feedstock cost advantage over most other regions of the world for producing certain petrochemical products, such as ethylene or propylene,” said Anthony Palmer, managing director, IHS Chemical. “Both of these are possible products that the Marcus Hook complex could deliver with modifications. Another reuse option for Marcus Hook is for storage of refined petroleum products, which could leverage the site’s five underground granite caverns for liquids. There are some infrastructure issues that would need to be addressed for each of the proposed uses studied, and a more in-depth assessment would certainly need to follow, but these options are viable.”
And according to Palmer, this study also may offer hope to other communities that are home to aging refineries like the Marcus Hook complex, which are also facing closure due to a host of factors that have impacted demand and profitability for refined petroleum products.
The main contributing factors to these proposed shutdowns, he said, include fuel substitution driven by U.S. legislation mandating that more biofuels be injected into the U.S. transportation fuel pool; stagnant domestic demand for petroleum products driven by the economic recession of 2008 to 2009; a highly competitive U.S. refining landscape that favors larger, more sophisticated Gulf Coast refineries, and logistical isolation. “Unfortunately,” Palmer said, “many East Coast refineries are located too far from key sources of feedstock production to be cost competitive.”
According to the IHS study, of 11 East Coast refineries only six are currently operating, and one of those six, the Sunoco Philadelphia facility, is for sale. Unless a buyer is found soon for the refinery, it will be shutdown mid-year 2012. The ConocoPhillips Trainer refinery in Pennsylvania also was shutdown in 2011, but is scheduled to restart at the end of 2012 by new owner Monroe Energy. Combined, these three Delaware River corridor refineries produce nearly 700,000 barrels per day of refined products, or 50 percent of the total East Coast region’s refining capacity, which includes facilities from Maine to Florida.
About IHS (www.ihs.com) IHS (NYSE: IHS) is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. Businesses and governments in more than 165 countries around the globe rely on the comprehensive content, expert independent analysis and flexible delivery methods of IHS to make high-impact decisions and develop strategies with speed and confidence. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS employs more than 6,000 people in more than 30 countries around the world.