The Utica Shale and the Northeast Refineries

Yesterday, Conoco Phillips announced that it was selling or closing a refinery in Trainer, Pennsylvania along the Delaware river south of Philadelphia. This is the third large refinery in this area to suffer that fate in the last few months. Two even larger Sunoco refineries are on the block as well. There are also refineries in New Jersey that are in the same category.

Almost at the same time as the announcement about the latest refinery, Chesapeake Energy announced its initial drilling results from test wells in the Utica Shale. The Utica Shale is an enormous formation that underlies much of Pennsylvania, Ohio, West Virginia and the surrounding states. It is actually located below the Marcellus Shale, a huge natural gas reservoir. The Chesapeake announcement disclosed that the Utica in the area where the company drilled has a large amount of natural gas liquids along with huge natural gas flow. Chesapeake said that within a year, it expects to increase its net liquids production to 150,000 barrels per day from the current 95,000, and it also expects to hit 250,000 barrels per day in three years. This is news of enormous importance and great irony.

Think of it this way: we are witnessing the opening of a massive field for the production of natural gas and natural gas liquids. It is certainly possible that we may see production of something like a million barrels of natural gas liquids within a few years from Ohio and Pennsylvania. Who knows; the number could be much higher than that! At the same time, the refineries that could process the liquids are being forced on the market with likely result that most will be closed. Instead of having operating refineries that can process the liquids from the new energy source, will we instead have excess production that will need to be shipped overseas to find an available refinery? It is totally crazy for the existing refineries to be forced to close due to the need to upgrade their facilities to comply with the latest regulations. Sure, the regulations are not the only problem the refineries face, but they are an important one. If the USA is ever to regain its energy independence, these refineries need to be kept open. Maybe, instead of campaigning for a jobs bill that cannot and will not pass Congress, president Obama could look into this situation and take action that could preserve the refineries and the tens of thousands of jobs that go with them.