By Jarrett Renshaw and Gavin Maguire
PHILADELPHIA (Reuters) - Philadelphia Energy Solutions (PES) is expected to seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex, two sources familiar with the plans said on Tuesday.
Shutting the refinery, the largest and oldest on the U.S. East Coast, would cost hundreds of jobs and squeeze gasoline supplies in the busiest, most densely populated corridor of the United States.
The refinery, which could still change its plans, is also expected to begin layoffs of the 700 union workers at the plant as early as Wednesday, the sources said. The layoffs could include about half of the union workforce, with the remaining staff staying at the site until the investigation into the blast concludes, the sources said.
PES is expected to file a notice of intent with state and federal regulators as early as Wednesday, setting in motion the process of closing the refinery, the sources said.
A spokesperson for Philadelphia Energy Solutions on Tuesday night declined to comment on the potential closure and layoffs.
The 335,000 barrel-per-day (bpd) complex, located in a densely populated area in the southern part of the city, erupted in flames in the early hours on Friday, in a series of explosions that could be heard miles away.
The cause of the fire was unknown as of Tuesday, though city fire officials said it started in a butane vat around 4 a.m. (0800 GMT). It destroyed a 30,000-bpd alkylation unit that uses hydrofluoric acid to process refined products. Had the acid caught fire, it could have resulted in a vapor cloud that can damage the skin, eyes and lungs of nearby residents.
Before the fire, the refinery had suffered from years of financial struggles, forcing it to slash worker benefits and scale back capital projects to save cash. It went through a bankruptcy process last year to reduce its debt, but its difficulties continued as its cash on hand dwindled even after emerging from bankruptcy in August.
After bankruptcy, Credit Suisse (SIX:CSGN) Asset Management and Bardin Hill became the controlling owners, with former primary owners Carlyle Group (NASDAQ:CG) and Sunoco Logistics, an Energy Transfer subsidiary, holding a minority stake.
Workers were picking up large debris out of nearby waterways on Monday, according to pictures seen by Reuters, while other pictures showed the charred remains of control rooms and burned components.
The blaze was the second in two weeks at the complex, spurring calls from Philadelphia's mayor for a task force to look into both the cause and community outreach in the wake of the incidents. A spokesperson for Mayor Jim Kenney declined to comment on the potential closure of the plant.
Investigators on the scene are dealing with unstable structures that need to be certified by engineers, slowing down the inquiry, city officials said. The investigation could ultimately take months or perhaps years, they said.
The state Department of Environmental Protection said they have concerns about the integrity of storage tanks on site, the agency said on Tuesday. The U.S. Chemical Safety Board is also investigating the incident.
U.S. gasoline futures rose as much as 5.4% on Wednesday to $1.9787 a gallon, the highest since May 23. The front month price was at $1.945 at 0551 GMT. Futures are up 8.9% since Thursday's close.
The rally in U.S. gasoline futures has pushed U.S. gasoline prices above European and Asian markets, raising the prospects for U.S. imports.
“Chances are that (the wider price spread) could open up the arbs between U.S. Gulf/Europe and PADD 1,“ said Matthew Chew, principal oil analyst at IHS Markit, referring to the Petroleum Administration for Defense District (PADD) 1, the designation the U.S. government uses for the East Coast in its weekly oil storage report.