Written by John Szozda
December 04, 2009
When you realize the economic impact of our two refineries you may find yourself saying “Refine, baby, refine.”
The Regional Growth Partnership in October studied the economic impact of one of them--the Sunoco Refinery on the Toledo-Oregon border. Blake Culver, project manager, concluded it contributes $7.8 billion to Northwest Ohio’s economy while supporting 1,602 full-time equivalent jobs and a payroll of more than $95 million.
Sunoco itself employs 500, averages 400 contractors on site and has a capacity of 170,000 barrels a day.
You could probably double this impact if you take into consideration Oregon’s BP-Husky Refinery. BP has 600 full-time employees, 600 contractors on site and a capacity of 160,000 barrels a day.
That’s more than $15 billion.
The two refineries also mean millions in tax revenue to the City of Oregon. According to city tax commissioner Pat Wast, employees at both refineries and three large contractors who worked on their sites in 2008 paid the city $3.9 million in withholding tax alone.
Neither refinery is sitting idle during these uncertain economic times. Sunoco just invested $450 million into an EPA mandated environmental upgrade to reduce sulfur dioxide and nitrous oxides emissions, according to company spokesperson Thomas Golembeski. Meanwhile, BP is “continuing in the early stages of design and engineering” for its $2.5 billion partnership with Husky Energy Inc, according to Mary Caprella, company spokesperson. The partnership will allow BP to upgrade its facility to process heavy crude oil from the Canadian oil sands reserve. BP also broke ground in October on a 23,500 square-foot quality-control lab and office building. The building will meet rigid national standards for energy efficiency through the Leadership in Energy and Environmental Design (LEED) program.
The investments are good news. It means the refineries are here to stay, at least in the short term. There had been some concern locally when Sunoco closed its Westville, New Jersey refinery and put up for sale 150 retail sites across the country, including 30 in the Toledo and Cleveland markets. However, Golembeski said the company periodically sells off company stations to independent distributors while retaining the fuel contract and market presence. He added the New Jersey refinery was shut down due to a decline in the demand for transportation fuel due to the recession.
The company has no immediate plans to sell the Toledo refinery, he also said. But, in the long run, who knows. Competition from new refineries in China, India and Brazil and the proposed Waxman-Markey cap-and-trade bill could affect the long-term viability of both refineries.
Golembeski said the Reliance Group has built a new refinery in India with a capacity of 660,000 barrels a day. It is located next to an existing refinery with a capacity of 580,000 barrels a day. Typically these new refineries are “larger and much more efficient,” Golembeski said. The new India refinery is geared to the export market and some refined oil is making its way to the east coast putting pressure on U.S. refineries to, as Golembeski said, “get better at being more competitive.”
The proposed cap-and-trade bill could present another competitive disadvantage for U.S. refineries, depending on its final version. Under the current proposal, U.S. refiners will be responsible for emissions generated at their refineries as well as emissions resulting from use of transportation fuels. This differs from the European cap-and-trade model and would put U.S. refiners at a competitive disadvantage.
Golembeski explains, in its current form, the legislation will likely increase the cost of domestic refining so much so because of higher electricity costs and the need to purchase credits that it will be cheaper to import gasoline and diesel fuel from overseas.
He added the higher costs would force some U.S. refineries to close which would mean a loss of jobs, a tighter fuel supply and higher fuel costs for consumers.
Both companies support cap-and-trade legislation that would be less onerous and allow them to compete with refineries from other countries not subject to climate change legislation.
The recession, the unstable Middle East and the emergence of large refineries in Asia and South America have also forced both companies to look at other sources of revenue. In BP’s case, it’s the $2.5 billion partnership with Husky Energy. When the agreement was signed at the start of 2008 it was expected to increase production capacity to 200,000 barrels a day and insure the life of the refinery for at least 40 years.
Sunoco is also looking for a partner to justify the investment it would take to process bitumen from the sands oil fields. While refineries in the gulf states currently have that ability, both Oregon refineries have the advantage of location which would reduce transportation costs and provide an advantage over the gulf states in the long run, he said.
Just when the processing of bitumen will become economically feasible depends on the price of gas. When it hit $4.00 a gallon in early 2008, the project was on the fast track, but now that gas prices have plummeted to $2.50, the pace has slowed.
There’s another reason to look to Canada for oil. “It’s secure and it comes from a source that is friendly to the U.S.,” Golembeski added.
Sunoco has also diversified into coke production. The Philadelphia based company operates five coke plants employing its patented technology. Golembeski calls it “the gold standard in coke making.”
He expects further investment in this field. “It’s a business that supplies a steady predictable cash flow whereas refining is very cyclical. Sometimes you do very well, sometimes you struggle.”