Embattled East Coast refiners including Philadelphia
Energy Solutions “are performing better than expected this year,” a financial
analyst reported Monday, buttressing the arguments of PES refinery workers who
have threatened to strike unless cuts to health and pension benefits are
restored.
A report by investment-research firm Morningstar says PES, Monroe
Energy in Trainer, Delaware County, and the Bayway Refinery in Linden, N.J., have
unexpectedly rebounded from the loss of cheap domestic crude delivered by rail
from North Dakota, which revived the refineries’ fortunes before oil prices
crashed in 2015.
The outlook for East Coast refiners that process light
sweet crude oil represents a change in fortunes for the plants, which more recently have been
disadvantaged compared with refiners that process heavy crudes.
“These market developments are certainly positive news
today for refineries like PES, Monroe, and Bayway,” wrote Sandy Fielden,
director of oil and products research at Morningstar. “We believe they will
continue to benefit light sweet crude processing margins for some time.”
The report could not be better timed for the leaders of
United Steelworkers Local 10-1, which represents 750 unionized workers at PES,
the 335-barrel-a-day refinery owned by a joint venture between Carlyle Group
and Energy Transfer Partners. Last week, the union warned PES that it planned
two emergency meetings this week ahead of a strike-authorization vote.
As its fortunes swooned last year, PES forced employees
to pay more for their health plans and suspended pension contributions. The
local union has contested the cuts, saying they were imposed in mid-contract.
The issue is in arbitration.
PES blamed the erosion of its profits on the inflated
prices it had to pay for ethanol credits, called renewable identification
numbers, or RINs. Merchant refiners such as PES say they are at a disadvantage
because they have to buy the ethanol credits on the market from fuel blenders.
Ryan O’Callaghan, president of United Steelworkers Union
Local 10-1, says he believes that the impact of ethanol credits is overstated.
“We have information that the RINs might not be impacting them as stated,” he told the Daily Times in
Delaware County.
On Monday, PES declined to comment on the union’s claims,
said Cherice Corley, the company spokeswoman.
Strike talk represents a dramatic deterioration of labor
relations at PES, where union leaders worked cooperatively with the Carlyle
Group to acquire the refinery, the largest on the East Coast, from Sunoco in
2012. Refinery workers later recognized Phil Rinaldi, the refinery’s chief
executive, and Carlyle managing director David Marchick with “Solidarity and
Appreciation” awards.
After Carlyle stepped in, the refinery’s profits got a
big lift from the development of shale-oil fields in North Dakota. The Bakken
shale produced an abundance of light sweet crude oil that was priced at a discount
to world oil prices, which then surpassed $100 a barrel. The discount more than
covered the cost to deliver the oil cross-country by rail.
But when oil prices crashed in 2015, North Dakota crude
no longer was sufficiently below world market prices to make it profitable for
refiners like PES, which returned to buying their raw material by ship from
overseas. The short-lived competitive advantage East Coast refiners enjoyed
disappeared.
Oil prices and refinery margins are notoriously cyclical,
however, and Fielden, the Morningstar analyst, said in his report Monday that
two recent international trends have worked to the advantage of East Coast
refiners that depend on light sweet crude.
A “booming demand” for refined products in Latin America
has increased shipments of gasoline and diesel from U.S. Gulf Coast refiners.
“In effect, Latin American demand is pulling surplus refined product supply
from the Atlantic Basin and keeping prices higher than usual on the East
Coast,” Fielden said.
In addition, Fielden wrote, OPEC’s decision in January to
cut output to prop up world oil prices has largely affected producers of sour
crude, such as Saudi Arabia. Producers of light sweet crude, such as Nigeria
and Libya, have not been affected. The spread between the cost of light crude
and heavy crude has narrowed, to the advantage of light-crude refiners such as
PES.
Source: Philly.com
No comments:
Post a Comment