Could Philadelphia be the next Houston? The oil industry hopes so

Philadelphia’s City Council will hold hearings this month to explore opportunities to help establish the city as an energy hub — a boon for an increasingly influential coalition of public and private players who want to transform it into the Houston of the Northeast.

“Philly has the best ports, the best workforce, the best transportation and roads, great educational institutions and two very healthy refineries,” said Michael Krancer, a former secretary of the Pennsylvania Department of Environmental Protection, now a lawyer working with some of the energy companies involved in pushing for the city to become an energy center.

“To put it mildly, eastern Pennsylvania is where the opportunity is to valorize our shale industry,” he said.

Krancer and others want to make Philadelphia a hub for processing and distributing the massive amounts of energy flowing through the state, thanks to the Marcellus Shale hydraulic fracturing boom.

Their plan would see much of the energy being produced through hydraulic fracturing, or fracking, in the western part of the state piped to Philadelphia, where some refinery infrastructure already exists. If the proponents of this plan are successful, the second phase would be to build more infrastructure to turn that fuel into value-added products like plastics and chemicals, all at refineries and factories in the Philadelphia area.

There’s not much standing in the way economically. Several companies have long been pushing to build different parts of the framework. The biggest challenge may be convincing the public and local environmentalists that the plan won’t harm Philadelphia neighborhoods, some of which are already packed with oil and gas infrastructure, and the Delaware River, which runs right next to where much of the development has been proposed.

“If you've only got people talking about the benefits and others only talking about the costs — i.e., environmentalists — you’re not going to get a deal,” said Mark Alan Hughes, the director of the Kleinman Center on Energy and Policy at the University of Pennsylvania. “The big challenge is, can we overcome this political divide?”

Much of the plan hinges on a facility southeast of Philadelphia, Marcus Hook, where Sunoco Logistics Partners is converting a refinery that used to handle oil into one that can handle natural gas. The conversion will take place regardless of whether other parts of the project go through as Sunoco tries to take advantage of cheap natural gas prices in the state. Once the plant is converted, it could be the first in a string of other development plans around Philadelphia.

A second component is adding capacity for natural gas to two oil refineries, the longest-running ones on the East Coast, owned by Philadelphia Energy Solutions.

The third and perhaps most crucial aspect of the project is building a pipeline that can handle several times more natural gas liquids than the ones currently running from the Marcellus to Philadelphia. Sunoco Logistics Partners officially announced on Nov. 7 that it will be building that pipeline, the Mariner East 2, which will carry four times as much natural gas as its current Mariner East pipeline. The Mariner East 2 will take two years to build. Natural gas pipelines usually aren’t subject to local regulations and are overseen by a presidentially appointed panel, the Federal Energy Regulatory Commission. But pipeline projects are notoriously contentious, and smaller pipelines to Philadelphia, including the first Mariner East, have run into community opposition.

“We consider it to be a totally wrong approach to the region,” said Tracy Carluccio, the deputy director of environmental group the Delaware Riverkeeper Network. “We need to develop renewable energy and not fossil fuels. The Mariner East does not do that. We’ll be following it very closely and participating in any and all opportunities to weigh in against it.”

There have been rumblings about a fourth, even bigger pipeline that could transport natural gas under the Delaware River bed. That pipeline has gained support of Philadelphia Energy Solutions CEO Phil Rinaldi, but so far no companies have stepped forward to propose building it.

However, the Philadelphia City Council indicated late last month that it is approaching new development with caution. Councilmembers killed a deal on Oct. 27 that would have allowed the city to put the municipally owned Philadelphia Gas Works up for sale to private bidders.

Supporters of the idea said the sale of Philadelphia Gas Works would have allowed private companies to update the city’s aging system so that it could better suit the needs of existing and future oil and gas refineries.

But the following week, the council announced in a press release that it would begin holding hearings on oil and gas development opportunities.

When the Sunoco refinery was producing oil, it was listed as one of the refineries most potentially harmful to human health by nonprofit organization the Environmental Integrity Project. The potential economic and environmental effects of turning Philadelphia into an energy hub is unknown, but Philadelphians don’t doubt the impact could be significant.

“It’s literally a less-than-a-once-in-a-lifetime opportunity to transform Philadelphia and bring jobs for people like me,” said Jim Savage, the president of the United Steelworkers Union Local 10-1 in Philadelphia.

But even backers of the project acknowledge that environmental damage to the surrounding area is a concern for any plan that adds capacity to industrial areas of the city, where residents, pipelines, oil train routes and refineries already co-exist in close proximity.

“The biggest risk is that this community absorbs the safety and environmental risk but the benefit goes out of the city,” Savage said.

Those risks are particularly acute for people in South Philadelphia, where much of the city’s energy infrastructure is.

Environmentalists and local community activists point to a train derailment last January to highlight their concerns about using Pennsylvania’s decades-old energy infrastructure for shale gas development.

On Jan. 20, a train carrying crude oil from North Dakota to one of Philadelphia’s refineries derailed on an old bridge that activists say greatly needs repair. The bridge is in a densely populated area in the south of the city. The derailment left six cars filled with explosive oil dangling over the edge of the bridge for days. Crisis was averted, but activists say they fear a repeat of the 2013 oil train explosion in Lac-Megantic, Canada, that killed 43 people.

“This infrastructure is right up against neighborhoods and right up against the Delaware and Schuylkill rivers,” said Carluccio. “We dodged a bullet, but it doesn't mean we want it to happen again.”