Sunoco-Carlyle's Philly refinery deal puts U.S. shale boom to work. News of private-equity investor The Carlyle Group LP's deal with Sunoco Inc. brings the Northeast U.S.' high-priced oil-feedstock market into new, lower-priced, U.S. oil supply. Tudor, Pickering, Holt & Co. Securities Inc. analysts sum it up: "Cheap domestic supply versus expensive, light-oil imports equals action." Sunoco's Philadelphia refinery had been slated for closing next month, while it and its already-closed Marcus Hook each depended on higher-priced, seaborne oil supply as feedstock in making refined products, such as gasoline. The TPH analysts name the Philadelphia plant as the largest refinery in the PADD 1, or U.S. East Coast region, processing 330,000 barrels of oil per day. Plans are for railing Bakken-shale-play oil from North Dakota to the plant, giving it access to a lower-cost feedstock than Brent-priced oil. Upgrades to the plant will also utilize U.S. hydrocarbon producers' new gas and gas-liquids supply from the Marcellus shale play that is in western Pennsylvania. The TPH analysts note that some 50% of East Coast refining capacity had been targeted for closing. "But Trainer (the ConocoPhillips refinery Delta Air Lines bought this year and that processes 187,000 barrels of oil per day) and (Sunoco's) Philadelphia escaped." Western Refining's Yorktown plant, which processed 60,000 barrels per day, is closed, along with Sunoco's Marcus Hook, which processed 180,000 per day. Paul Sankey, global energy analyst for Deutsche Bank, says in his report "Diamond Age: Refining and the U.S. Manufacturing Export Renaissance" on Monday before the Carlyle-Sunoco news, "We believe the U.S. unconventional oil and gas boom is a secular long-term play that is unique to the U.S., providing oil, natural gas liquids and natural gas at far below global prices for at least a decade to come." Stock investors are wrong if thinking the U.S. hydrocarbon-supply boom doesn't create profit opportunity for U.S. refiners, he adds. "The equity market maintains an irrational belief in the cyclicality of this business, despite the secular shift. It refuses to pay for the export growth. It disregards the lack of new capacity addition and growth in exports. It ignores the improved, safety, returns, and management execution and strategy." Carlyle and Sunoco report in a joint press release that the continued operation of the Philadelphia plant-the oldest on the East Coast in continuous operation-will "save 850 jobs, secure the region's fuel supply by continuing the daily flow of 10 million gallons of various fuels, and create 100 to 200 new, permanent jobs, as well as thousands of construction jobs." Brian MacDonald, Sunoco chairman and chief executive, says, "This partnership is a great example of what can happen when motivated people think creatively to solve pressing problems. The private sector, government and labor all played important roles in getting this done. This is the best possible outcome for everyone involved: Existing jobs will be saved, new jobs will be created and new business opportunities will be given the chance to develop." Carlyle managing director Rodney Cohen says, "Together we've re-imagined the Philadelphia refinery and its role as a critical energy hub in the Northeast. This joint venture will keep one of the region's most important economic engines up and running. The refinery will be a reliable and critical supplier of fuels to the regional market through its new business structure and improved crude oil sourcing. "In addition, the refinery's exceptional location and infrastructure will enable the joint venture to create new business opportunities related to Marcellus shale natural gas fields...." Leo Gerard, international president for employees' rep United Steelworkers, says, "Not only will good paying manufacturing jobs be saved, but new ones will be created as this vital facility is improved and expanded." -Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com. Contact Nissa at firstname.lastname@example.org.
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