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Carlyle and Sunoco to revive Philadelphia refinery

Philadelphia Refinery to rely on Marcellus shale gas

Last year Sunoco Inc (Sunoco) had  announced to close the Philadelphia refinery in Pennsylvania, USA, on summer 2012 if no buyer could be found in the meantime.

But the development of the shale gas in USA much faster than expected and in very competitive conditions offers a new perspective to develop profitable downstream activities through refining and all petrochemical specialities.

Being located in the vicinity of the largest shale play in the world, the Marcellus shale gas field, the Philadelphia refinery could become a very valuable asset if a solution could be found to involve it in this large shale gas upstreamdownstream new integrated business model.

That is where the solution proposed by The Carlyle Group LP (Carlyle) to create an energy hub in the NorthEast of USA straight on the line between one of the most sustainable source of supply and one of the largest consumer market.

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.

To support the project Carlyle and Sunoco will form Philadelphia Energy Solutions, a joint venture that will enable the historic Philadelphia refinery to continue operating.

The transaction is expected to close in the third quarter of 2012.

Under the terms of the agreement, Sunoco will contribute its Philadelphia refinery assets to the joint venture in exchange for a non-operating minority interest, while Carlyle will hold the majority interest, and run the operations of the refinery.

Actually this refinery processes 330,000 b/d of oil into various refined products but its exceptional location and infrastructure will enable the joint venture to create new business opportunities related to Marcellus Shale natural gas fields.

The joint venture Philadelphia Energy Solutions, with the economic support from the Commonwealth of Pennsylvania, will spend capital expenditures in several projects to upgrade and expand the facility.

Overall Philadelphia Energy Solutions intends to reduce carbon dioxide emissions and to adapt process to accept wider range of oil grades.

J.P. Morgan’s physical commodities division, J.P. Morgan Ventures Energy Corporation, will supply the refinery with crude and non-crude feedstocks on a just-in-time basis and will purchase refined products from the refinery for offtake.

So for this upgrading and expansion program, the joint venture is planning to:

 – Build a high-speed train unloading facility.

 – Upgrade the catalytic cracker

 – Build mild hydrocracker and hydrogen plant

With these capital expenditures, the Philadelphia refinery will:

 – Improve its reliability and operating performance

 – Provide access to greater quantities of crude oil from North America (versus imported crude), particularly high-quality, low sulfur crude from the Bakken region in North Dakota.

 – Convert the existing middle distillate hydrotreater into a mild hydrocracker to produce a more environmentally friendly mix of refined products.

The  support of The Commonwealth of Pennsylvania to this venture in conjunction with business, labor and all levels of government will preserve 850 direct jobs and thousands of jobs that rely on this refinery’s active operation in the Philadelphia region.

In parallel of the Philadelphia refinery transfer to Carlyle, Sunoco confirmed to have completed the spin off of the Marcus Hook Polypropylene (PP) to the Brazilian Braskem for $350 million.

The Marcus Hook PP plant has a capacity of 950,000 t/y of PP.

It was part of the Sunoco Chemicals assets acquired by Braskem in 2010.

Sunoco having secured the future of the Philadelphia refinery and Braskem having diversified its feedstock sourcing for its PP plant the both acquisitions have secured their foreseeable future.

The Carlyle Group in brief

The Carlyle Group is a global alternative asset manager with $159 billion of assets under management in 94 active funds and 63 fund of funds vehicles as of March 31, 2012.

Carlyle invests across four segments – Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions – in Africa, Asia, Australia, Europe, the Middle East, North America and South America.

Carlyle has developed expertise in various industries, including: aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, technology & business services, telecommunications & media and transportation.

The Carlyle Group employs more than 1,300 people in 32 offices across six continents

Sunoco in brief

Sunoco is focusing on the midstream business as a leading logistics and retail company.

Sunoco owns the general partner interest of Sunoco Logistics Partners L.P. which consists of a 2-percent ownership interest and incentive distribution rights, and owns a 32-percent interest in the Partnership’s limited partner units.

Sunoco Logistics Partners L.P. is an owner and operator of complementary pipeline, terminal and crude oil acquisition and marketing assets.

Sunoco also has a network of approximately 4,900 retail locations in 23 states.

With the Philadelphia refinery and the Marcus Hook Polypropylene plant switching from closing destiny to bright expansion, Sunoco, Carlyle and Braskem show how to use the US shale gas opportunity to develop new business models in integrating the upstream and downstream value chain.

For more information and data about oil and gas and petrochemical projects go to Project Smart Explorer

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