A University of Pennsylvania report warns that the troubled South Philadelphia refinery complex may be shut down in the next few years and that the city should prepare to deal with a 1,300-acre industrial property fouled by more than a century of fuel production.
The report released Thursday by Penn's Kleinman Center for Energy Policy says the Philadelphia Energy Solutions (PES) complex, which emerged from bankruptcy this year, remains so uncompetitive and debt-burdened that it is "likely" to face bankruptcy again by 2022.
If the 335,000-barrel-per-day complex closes, environmental remediation plans now in place may not be sufficient, said the study's author, Christina E. Simeone, the center's director of policy and external affairs.
"Will the site be ready? Will more remediation be needed? Who pays for this?" Simeone asked in an email.
The report contends that cleanup plans are further complicated because Sunoco Inc., the refinery's previous owner, still responsible for legacy environmental liabilities, failed to adequately involve the public in devising the plans. Simeone said the lack of public involvement "raises serious legal questions" about the validity of the approvals granted by state and federal regulators. The site is divided into 11 areas, with plans reviewed and approved for eight of the areas over the last decade. Approvals are pending for the remaining three.
The head of the Clean Air Council, an environmental advocacy organization, said his nonprofit was disturbed about the lack of public notification of Sunoco's cleanup plans.
"We are going to make a big deal of this," Joseph Otis Minott, the council's executive director, said Thursday. He said "everybody dropped the ball on this," including city and state regulators.
"We believe the plans were approved illegally, without the proper protocols," Minott said.
Christine Knapp, director of Philadelphia's Office of Sustainability, said the city had not fully reviewed Penn's report but said the questions about public input "would be an area we'd like to explore further."
The refinery complex, the largest fuel-production facility on the East Coast and one of the region's biggest economic engines, has a strong constituency of labor, business, and political leaders who have rallied in the past to overcome financial and regulatory challenges.
But that support may be insufficient to overcome some of the economic challenges that remain unchanged after bankruptcy — the refinery's "simple" design, configured to use higher-cost crude oil, and strong competition from lower-cost refiners in the Midwest and overseas.
"It is possible that PES could navigate these challenges and maintain viable refinery operations," the report says. "It is also conceivable the facility could function as a fuel-storage terminal and logistic facility, even if refining operations cease."
PES said in a statement that it emerged from bankruptcy last month with a new capital structure.
"PES has a strong financial foundation to support our operations, enabling us to continue to be a critical provider of energy for the Northeast U.S. and employer to over 1,100 hardworking people," it said. "We will continue to invest in the refining complex, and we are excited about the future."
The PES complex is actually two refineries, whose environmental problems largely predate Sunoco's ownership — the Atlantic Refining Co. opened in 1870 at Point Breeze and Gulf Oil Corp. opened an adjacent facility at Girard Point in 1926. Sunoco acquired the plants in 1988 and 1994.
Contamination has migrated underground far off the refinery property and has been litigated for decades — the installation of a South Philadelphia sewer in 1962 triggered a gasoline explosion that killed four construction workers. Sunoco in 2006 entered the complex into Pennsylvania's Act 2 Land Recycling Program to voluntarily clean it up.
When Sunoco exited refining in 2012, and transferred ownership of the refinery complex to the newly formed PES, it retained responsibility for pre-2012 environmental liabilities. A subsidiary called Evergreen Resources Management Operations took over the company's legacy environmental liabilities.
Energy Transfer Partners LP, which bought Sunoco in October 2012, assumed responsibility for the environmental liabilities. ETP retains a minority interest in the refinery, but not operational control.
Sunoco set up a mechanism to finance environmental remediation at all its former properties, an insurance plan valued at $207 million at the end of 2017, according to the Penn report. It said the estimated cost of completing investigations and implementing a cleanup is $17.4 million, which suggests there are sufficient funds for remediation.
But Simeone said Sunoco's plans to remediate the site assume it continues to operate as a refinery. "If it is no longer going to be a refinery, one has to wonder if the cleanup standards remain appropriate," she said.
The complex is the largest single source of toxic air pollutants and greenhouse gas emissions in Philadelphia, and its closure would present the city with an "opportunity," the report said.
"Closure of the refinery will result in significant reduction of air pollution that is harmful to human health and the environment," it said. A reduction in air emissions may ease permitting for new or existing industries, it said, potentially creating economic development in other sectors.
The 63-page report grew out of a four-part blog post the Kleinman Center published in February that examined the refinery's troubled financial past that led to its bankruptcy filing.