This piece was first published in Forbes on June 26, 2020. It is reprinted with their permission.
The city of Philadelphia has undergone a tumultuous few weeks as a focal point in nationwide protests over racial injustice. Almost forgotten amid the unrest has been the fate of the city’s oil refinery, which abruptly closed last July following a catastrophic explosion that rocked largely African-American neighborhoods of south Philadelphia yet, by sheer miracle, resulted in no deaths.
On Thursday, the Philadelphia Energy Solutions refinery and its creditors finalized the sale of the 1,300 acre site to Chicago-based Hilco Redevelopment Partners for $225.5 million, $26.5 million less than the parties had agreed to in February. In recent weeks Hilco, which intends to redevelop the site as a logistics hub, had demanded a lower price as the cost of environmental remediation for the toxic site escalated, and as the economic outlook dimmed due to the coronavirus pandemic. The revised deal includes the transfer of emissions reduction credits owned by the refinery to Hilco.
The drama surrounding the sale was heighted by the place the refinery has long occupied in the city as a flash point for environmental justice. Philadelphia Energy Solutions was the largest refinery on the East Coast, and Philadelphia’s largest single source of particulate air pollution and other toxics. City records show that residents of the densely populated neighborhoods surrounding the refinery have suffered disproportionately high rates of asthma, cancer, and other diseases.
As Hilco and PES’s creditors squabbled over the refinery’s final sale price, concern grew that the sale would falter. Simultaneously, hopes that the site would be remediated and repurposed, as Hilco has promised, turned uncertain.
The history of the 335,000 barrel-per-day Philadelphia Energy Solution’s refinery complex dates to the 1860s, when the nation’s first oil refinery was established at the confluence of the Delaware and Schuylkill rivers to process crude from early commercial oil wells in western Pennsylvania. Up to that time, the landscape had been pristine tidal marshland.
In the years since, two vast refinery complexes were built that would ultimately become a single business, PES. In the modern era of strict environmental regulation it can be hard to imagine a past when such protections did not exit. Yet the PES site operated largely free from environmental oversight for a century until the 1970s, by which time the soil had become laden with heavy metals which, despite ongoing cleanup efforts, will prevent the site from being redeveloped for residential purposes.
Over the past decade the refinery has repeatedly flirted with financial ruin, as its aging infrastructure failed to keep pace with modern refineries on the Gulf Coast. In 2012 a previous owner, Sunoco, sold majority ownership of the complex to the Carlyle Group. For a few short years thereafter the operation enjoyed a renaissance as it bought crude on the cheap from North Dakota’s booming Bakken shale formation, and churned out gasoline and other fuels at a cost competitive with more efficient producers.
Yet when the Dakota Access pipeline opened in 2017 and provided a way to transport Bakken crude to the Gulf Coast, the supply of cheap crude was diverted and PES was forced to turn to more expensive imported feedstock. In 2018 PES declared bankruptcy. The company restructured successfully yet, by the time the refinery blew up in the summer of 2019, it was again on a trajectory toward insolvency.
What remains today is hope that the new owner, Hilco, will make good on its promise to repurpose the site as a logistics hub, which is a natural fit given the extensive highway, rail and riverine transportation infrastructure already in place. The site will also likely include a biofuels plant that was planned while the refinery was still operating. Hilco set high expectations when it announced that the site will eventually employ 10,000 in permanent jobs, far surpassing the 1,000 employees who worked at the refinery and saw their jobs disappear last summer.
Should Hilco’s vision come to pass, it would end a legacy of polluting that has disproportionately harmed minority communities. Hilco itself has a reputation for buying heavy industrial sites and repurposing them for cleaner purposes, although the company’s actual record is somewhat checkered.
In Baltimore, Hilco bought a bankrupt steel mill site that was subsequently converted into a warehouse distribution hub that includes Amazon and FedEx. Yet, as the Philadelphia Inquirer has reported, much of the actual site development was carried out by a separate company, Redwood Capital Investments LLC, with Hilco taking a smaller part in the transition.
In Ohio, Hilco and a partner took control of a retired General Motors plant with the promise of converting it into a business park that would employ more than one thousand workers. The project never materialized, though Hilco profited from the sale of scrap materials from the plant. And just this spring Hilco was criticized for the demolition of the smokestack of a former coal-fired powerplant that sent a cloud of dust over the surrounding low-income Chicago neighborhood.
In Philadelphia, Hilco will have its hands full remediating the toxic PES complex, some of which remains the responsibility of Sunoco, PES’ owner prior to the 2012 sale to Carlyle.
Hopefully Hilco’s current effort will succeed. If it does, a more sustainable, and environmentally equitable future awaits the city.