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Latest state grant goes to Sunoco refinery

By   /   July 3, 2012  /   No Comments

By Melissa Daniels | PA Independent

HARRISBURG — Pennsylvania well may return to its previous glory days when the state had a strangle-hold on the nation’s oil industry.

New investments in the East Coast’s oldest and largest refinery are poised to fuel Pennsylvania’s economic engine, saving jobs and securing the future of an industry.

It’s the latest instance of taxpayer-funded support to the energy industry, and possibly not the last.

On Monday, Sunoco and The Carlyle Group, a D.C.-based asset management firm, announced the formation of Philadelphia Energy Solutions at the site of Sunoco’s refinery in south Philadelphia.

The grants to Philadelphia Energy Solutions is the third instance of state support for the energy industry in the past two months.

First, there was a $30 million grant to Delta Airlines for its purchase of the ConocoPhillips refinery in Trainer.

Then, the Corbett administration touted a new tax credit introduced in this year’s budget, created in conjunction with the development of an ethane cracker in Beaver County from Shell Oil. The tax break would be $1.65 billion over a period of years. Administration officials projected job numbers as high as 20,000.

This time around, $15 million of the grant comes from Redevelopment Assistance Capital Program (RACP) funds, awards that are given only after construction is completed.

The other $10 million is a grant from PENNDOT to specifically help fund the construction of the high speed rail unloading facility. Its central purpose will be receiving high-quality, low-sulfur crude from the booming Bakken region in North Dakota.

The refinery was on its way to closing its doors for good until The Carlyle Group stepped in. Now, it will continue to process around 330,000 barrels of oil a day, saving an estimated 850 jobs, and potentially create at least 100 more.

Comprising two grants, $25 million in taxpayer subsidies are slated to contribute to the venture.

Also pending is a 10-year tax abatement from a Keystone Opportunity Zone. The program exempts a property from state, local and school taxes.

Gov. Tom Corbett called the announcement “a testament to what can be accomplished when the public and private sectors work together toward a common goal.”

In addition to retaining refining capabilities, Sunoco and Carlyle officials say they plan to refurbish and expand the site. A press release announcing the project said planned improvements “will help the environment through reduced waste and emission, and reduce reliance on foreign oil supplies.”

Senate Majority Leader Dominic Pileggi, R-Delaware, said the return on such investments is dramatic, when considering job retention and creation.

“It’s really not a question, in my view, as to whether to not government should be involve d in helping to maintain those companies in a way they can continue to employ Pennsylvanians and increase employment,” Pileggi said. “It’s just a matter of what is the right mix of government cooperation and incentive.”

Steve Kratz, spokesman for the state’s Department of Community and Economic Development, said Philadelphia Energy Solutions is investing at least $140 million in private funds to improve the site.

It’s estimated the venture will retain 850 jobs, and add at least 100 to 200 more in the new sectors. More than 1,000 construction jobs, Kratz said, will be required to repurpose the site.

Pennsylvania needs those jobs: According to the U.S. Bureau of Labor Statistics, the state ranks 44th for employment growth. From December 2011 to May 2012, total employment changed a mere .01 percent, hovering around 5.78 billion employed residents.

But keeping the refinery up and running was something of a close call. Just this winter, federal officials were projecting challenges if the refinery shut down for good this summer.

A February report from the federal U.S. Energy Information Association examined the industry of affects of potential closures of the three Philadelphia-area refineries: the ConocoPhillips refinery in Trainer, and Sunoco’s refineries in Philadelphia and Marcus Hook.

The potential loss of the Philadelphia refinery alone would present “a complex supply challenge,” it said, as it accounted for nearly a quarter of refinery capacity on the east coast in 2011.

If the refinery closed this summer, “petroleum product markets in the Northeast could be significantly impacted,” the energy group said. Authors deduced short-term price spikes and long-term market volatility.

Pileggi said supporting the refineries, both Trainer and Philadelphia, is about keeping the industry from going the way of coal and steel, which left industrial skeletons in ghost towns throughout the state.

“If those two refineries were not maintained and allowed to continue to be productive, than the entire industry would disappear from Pennsylvania and literally thousands and thousands of jobs would be impacted,” he said.

The fate of the Marcus Hook refinery is still open-ended. A recent report from consulting firm IHS, contracted to study the 780-acre site along the Delaware River, analyzed seven different potential uses for the site. The most promising were related to fuel and natural gas processing and storage.

Officials have not announced any steps to intervene.

However, Pileggi says he doesn’t expect to see the refinery come back as an independent refinery, but a multi-purpose site, given its river access and industrial infrastructure.

“I think the focus has shifted from trying to find another refinery operation to, how do we maximize employment opportunities on that site given the advantages of the site?” he said.