550 to lose jobs as Valero Energy shuts Delaware refinery

Oil-refinery workers on the Delaware River yesterday received their second big blow in six weeks, when Valero Energy Corp. said it would close its operation in Delaware City, Del., casting 550 out of work.

When workers heard the news, "it was like a time bomb went off," said Matt Edler, who has worked for 10 years at the refinery that rises out of the lowlands near the Delaware River in southern New Castle County.

"My grandfather worked there, my father, and I worked there," said Edler, who yesterday afternoon joined other shocked refinery workers at Red Lion Inn in Bear, Del. "We were all doing the best we could to keep the place alive. That's our life."

The loss of Valero as a provider of high-wage industrial jobs adds to the economic woes in Delaware caused by the recent loss of 2,000 auto-industry jobs at General Motors and Chrysler plants.

Coupled with Sunoco Inc.'s idling of its Eagle Point refinery in West Deptford, Valero's decision shows the refining industry is under intense pressure, not just from the worst economic downturn since the 1930s, but also from expectations that U.S. gasoline demand will never return to the highs of 2007.

The Delaware City refinery, which Valero bought in 2005, when the industry's biggest problem was lack of capacity to keep up with soaring demand, was losing an unsustainable $1 million a day this year, the company said.

"The decision to permanently close the Delaware City refinery was a very difficult one," Valero chairman and chief executive Bill Klesse said in a statement. "We spent the last year diligently trying to avoid this situation."

In September, San Antonio-based Valero closed a portion of the Delaware refinery, which can process 182,200 barrels of crude oil a day into gasoline, diesel, and other fuels, and laid off 150 employees and 100 contract workers, hoping to make the plant more profitable. It did not do enough.

Like all refiners, Valero, the nation's largest refiner, is facing pressure from more efficient cars, inroads by renewable fuels, and the aging of the population in industrialized countries.

Those factors, along with last year's experience of paying $4 a gallon for gasoline, appear to have changed the upward trajectory of demand growth for gasoline and other petroleum-based fuels.

Paul Cheng, a refining analyst at Barclays Capital, expects more shutdowns. "We believe nearly 2 million [barrels a day] of global refining capacity could be permanently closed between now and 2011," he said in a research note for clients.

Valero said it would maintain its gas stations in the Northeast and would increase production at other refineries it owns to make up for the loss of Delaware City. But it is not clear what that means for the company's Paulsboro operation, which is being idled for three weeks at the end of this year.

Paulsboro Mayor John Burzichelli, who has closely watched the refining industry for decades, said he had never heard of a plant shutting down completely and then restarting. Normally, maintenance shutdowns are only partial. "It causes a great deal of concern," he said.

In Delaware City, worries are no longer theoretical. Al Miller, 58, who has lived in Delaware City all his life, strolled down the main street yesterday, frequently stopping to chat with passersby about the refinery closing.

"Delaware City will be hurting. Valero was good to the city - that's why the taxes stayed low and the fire department got all kinds of good things. Everybody here lives pretty good because they had some good-paying jobs. . . . And Valero paid for Delaware City Day," he said, referring to an annual summer celebration with a parade, fireworks, and outdoor activities.

Not everyone was bemoaning the loss of the refinery yesterday. "From the standpoint of the environment and public health, this is very good news, not just for Delaware, but also for South Jersey," said Alan J. Muller, executive director of Green Delaware, an environmental group that keeps tabs on industry in the state.

"This facility has been one of the worst polluters in the region of air, water, groundwater, and soil since it opened in 1957, and has a truly horrendous record under a sequence of owners," said Muller, though he acknowledged that Valero had spent huge amounts on pollution-control equipment.

The refinery was the site of a gruesome accident in 2001, when a Bucks County contractor was killed in the explosion of a tank of sulfuric acid.

Yesterday, about 35 state troopers were at the plant to keep order after the workers were told of the closure, which was to begin immediately, said Frank Pennington, of Dover, who has worked there for five years. "At 9:30 a.m., they gathered us all together and told us to grab your stuff and leave. We had to be out by 10 a.m."

The impact goes beyond the refinery, affecting industries along the Delaware River.

When a tanker of oil from Africa or South America arrives in the Delaware Bay, it is often too heavy to maneuver up the river. The tankers are "lightered," which means that some of their oil is transferred to barges. The lightered tankers and the barges make their way upriver to the refineries, guided by tugboats, which help them dock.

Hickman Rowland estimates that his 42-employee company, Wilmington Tug Inc., handles 70 percent of Valero's Delaware City work. Wilmington Tug provides five workers for every oil tanker - two crew members on each of two tugboats and a docking pilot. In 2008, that would have been 135 out of 193 vessels. In addition to providing tugboats for other barges bound for Valero's Delaware City facility, Rowland also runs a 10-employee water taxi service that ferries crew and supplies to the tankers.

"It's not a happy day for us," he said. "It will certainly reduce our revenues." Rowland does not expect to lay off workers, "but it will certainly preclude us from growth."

"If you would have told me a year ago that two refineries out of seven on the river will shut down - I would have said no way," he said.