June 26, 2019 / 5:03 PM / a month ago

Before fire, Philadelphia refinery scaled back big maintenance project: sources

(Reuters) - Philadelphia Energy Solutions dramatically scaled back a large maintenance project in January in the same section of the refinery complex where a massive explosion occurred last week, according to three sources familiar with the plant’s operations.

FILE PHOTO: A massive fire burns at Philadelphia Energy Solutions Inc's oil refinery in this still image from video in Philadelphia, Pennsylvania, U.S. June 21, 2019. WCAU-TV/NBC via REUTERS/File Photo

The $130 million capital project, once hailed as one of the largest in the history of the plant, was slated for the Girard Point section of the 335,000 barrel-per-day refinery complex and scaled back due to lack of money, the sources said.

Late Tuesday, sources familiar with the company’s plans said the refinery, the largest and oldest on the U.S. East Coast, would be shut indefinitely. Philadelphia Mayor Jim Kenney confirmed that on Wednesday.

The cause of the explosion remains unknown, but officials expect investigators to look at the decision to scale back the maintenance project and see whether it played a role.

“It is definitely a concern and I would expect investigators to look into it,” Philadelphia Mayor James Kenney said in a brief interview on Tuesday that followed a news conference on the explosion.

Planned capital projects, called turnarounds, are a core part of the refining business and help prevent against unexpected shutdowns and accidents. The work includes replacing valves, cleaning out units, replacing catalysts and other work that is typically scheduled and planned years in advance.

PES did not respond to requests for comment. The company is seeking to close the refinery permanently, after years of financial struggles that forced benefit cuts and layoffs.

Friday’s blaze resulted in a series of explosions that sent a fireball into the sky and completely destroyed an alkylation unit that uses hydrofluoric acid in the refining process, a chemical that can harm or kill people with too much exposure.

In mid-January, Philadelphia Energy Solutions manager of capital projects, Jim Demes, convened heads of the city’s building trades unions for lunch at a South Philadelphia eatery to tell them the $130 million plan, expected to start less than a week later, needed to be scaled back significantly.

He told the union leaders at that session that the unions should send home workers brought in from out of town for the project that had been slated to be the largest in the refinery’s history.

The reason, Demes told the group, was the company was running out of money, according to two sources familiar with the discussions.

“Projects get scaled back. That’s not uncommon. But to do it just days before it was about to begin never happens. These things get planned years in advance, so I think investigators are going to look at the decision-making process,” said one building trade source.

Ultimately, the refinery did shut its 200,000-bpd crude unit at the Girard Point section for maintenance in January, but the scope of the work was narrowed. It restarted its crude unit in late February, and later restarted a gasoline-making unit in March.

The Philadelphia refinery is the largest refinery by capacity on the East Coast, crucial to the U.S. Northeast’s gasoline supply.

Pictures on Tuesday showed workers recovering charred sections of the refinery, and the blast threw pieces of tanks and other material onto nearby highways.

Editing by David Gaffen and David Gregorio

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