A federal report released on Monday expresses concern that Delaware City will be able to fill the supply gap left by the possible closing of a Philadelphia refinery. Refinery closings have led to predictions that area motorists could be caught in a vise of soaring crude oil prices and tight supplies. On Sunday, AAA Mid-Atlantic reported gas prices could rise to $4.25 a gallon in the region later in April. The U.S. Department of Energy report noted that since September 2011, two refineries in the Philadelphia area (ConocoPhillips Trainer refinery and Sunoco's Marcus Hook refinery).

In addition, major Caribbean export refinery supplying the East Coast in the U.S. Virgin Islands refinery) have closed. Refineries were closed due to soft demand for their products as motorists drive fewer miles and businesses and individuals buy more fuel-efficient vehicles. Demand is expected to remain on the sluggish side, despite signs of an economic recovery. Sunoco has announced plans to idle its remaining Philadelphia refinery in July 2012 if no buyer is found. The three Philadelphia-area refineries represented half of total East Coast refining capacity as of August 2011.

The Department of Energy report indicate the market transition following the closing of the Sunoco and ConocoPhillips Delaware Valley refineries has been relatively smooth. The impact of the closings was partially offset by the start up of PBF Energy's Delaware City refinery in October 2011, which had been shut down in late 2009 by Valero before its sale to PBF Energy, according to the report.

A financial package that included state assistance helped reopen the site. The 500-employee refinery is about 12 miles east of Elkton and has provided employment opportunities for Cecil County residents. Delaware City also provides opportunities for skilled construction workers, since refining requires regular refitting and maintenance work. The refinery reopened after a major renovation and refitting project that lowered its operating costs. The refinery, like the ones that are now closed, had been piling up losses under Valero's ownership. PBF also operates a refinery in Paulsboro, N.J. The report indicated the tipping point could come if Sunoco's Philadelphia refinery, which, by itself, accounted for nearly a quarter of refinery capacity on the East Coast in 2011, were to shut down in July 2012, “petroleum product markets in the Northeast could be significantly impacted.” Refining capacity is available outside of the East Coast, but transportation constraints may hinder the delivery of products to the Northeast in the short term, the report indicted. Ultra-low-sulfur diesel fuel, viewed as a key tool in cleaning up the region's air, will be the most challenging product to replace as there are few alternative supply sources outside of the U.S. Gulf Coast.

Transportation constraints may also hamper the movement of all replacement products through Pennsylvania and into western New York, areas currently supplied by pipelines originating in the Philadelphia area refinery complex, according to the report. The industry may not be able to overcome all of the logistical challenges in the Northeast for a year or more, the report noted. If the Sunoco Philadelphia refinery closes, price impacts are highly uncertain, according to the report. If areas cannot be adequately supplied in the short term, prices can spike. In the longer run, higher prices and possibly higher price volatility can result from longer supply chains. “The potential loss of the Sunoco Philadelphia refinery presents a complex supply challenge, and no single solution has been identified by industry participants that will address all of the logistical hurdles that must be overcome. The industry will have a financial incentive to serve all markets in the Northeast, and companies are currently investigating options. However, companies are not likely to make significant investments in new logistical arrangements until the status of Sunoco's Philadelphia refinery is known,” the report stated.