ConocoPhillips (COP.N) will sell or shutter its 185,000 barrels-per-day Trainer, Pennsylvania, refinery, the latest struggling East Coast plant to fall victim to poor margins.
The company, which has moved to get rid of what it considers unprofitable operations, has already begun to idle the refinery and will close it permanently within six months if a buyer is not found.
A permanent shutdown will likely leave the East Coast, which has seen two other refineries come up for sale or closure in September alone, even more reliant on fuel imports from Europe and Eastern Canada.
The news helped push up gasoline prices both on the physical and futures markets, with RBOB gasoline futuresjumping nearly 5 percent on the New York Mercantile Exchange. <O/R>
East Coast plants, typically heavily reliant on costly crude imports from the North Sea and West Africa, have seen profits squeezed by rising prices for those grades in recent years.
Sunoco Inc. (SUN.N) put over 500,000 bpd of refining capacity on the block this month, announcing it would shut its Marcus Hook and Philadelphia refineries in Pennsylvania if it could not find a buyer.
Analysts say the poor economics for the region mean finding a buyer may not be easy.
"I think it certainly is going to be a challenging thing for them to do," said Ann Kohler, analyst at CRT Capital Group. "Certainly the pool of buyers today is vastly diminished from what we saw in the '90s."
The plant could possibly draw interest from an international company like India's Reliance Industries (RELI.NS), but it will be a tough sell, she said.
With East Coast refineries such as Trainer buying oil tied to the price of international benchmark Brent crude futures, the plants must pay more for their feedstock than refiners in the Midwest that run crude priced against U.S. benchmarked West Texas Intermediate.
U.S. crude futures used to trade at a premium to Brent, but are currently trading at $23 discount to the international benchmark due to a supply glut at the delivery point for WTI in the Midcontinent.
"The market for refineries on the East Coast is pretty poor," said oil analyst Brian Youngberg with Edward Jones in St. Louis. "Several refineries have already shut down. They are just not as competitive. Conoco may find a buyer but it's going to be tough."
Youngberg said Conoco's 285,000 bpd Bayway refinery in Linden, New Jersey was also a likely target for sale or closure.
Conoco, which plans to make its refining unit a separate company next year, has repeatedly said publicly that it may sell less sophisticated refining assets and other oil and gas properties it considers obsolete.
"We are very disappointed to hear the news that ConocoPhillips will permanently close its Trainer, Pa. refinery in six months if a buyer is not found," said United Steelworkers Union International Vice President Gary Beevers in a release. USW represents 215 workers at Trainer.
Over the last year, Sunoco has shut down its 145,000 bpd Eagle Point, New Jersey, refinery and PBF Energy has bought Valero Energy's (VLO.N) Paulsboro, New Jersey and Delaware City, Delaware, refineries.
Additionally, Hovensa LLC in the U.S. Virgin Islands, reduced the input capacity of its St. Croix refinery by 150,000 bpd. Western refining shut down its 66,300 bpd Yorktown, Virginia, refinery.
ConocoPhillips says it expects to recognize a non-cash charge of approximately $300 million after taxes in Q3 2011 for this action.
ConocoPhillips had earlier delayed scheduled October/November maintenance on the Trainer refinery, according to a source familiar with its operations.
(Reporting by Janet McGurty and Jeffrey Kerr in New York and Anna Driver in Houston; Editing by Alden Bentley and David Gregorio)