WASHINGTON — A consumer rights group, citing internal Royal Dutch/Shell documents, says the Anglo Dutch major is set to close the 70,000 barrels per day Bakersfield, California, refinery, even though the plant has proven to be one of the company’s most profitable.
The Santa Monica, California-based Foundation for Taxpayer and Consumer Rights (FTCR) on Tuesday said Shell‘s plan to shut the refinery down in October is designed to boost refining margins in California, where gasoline prices and refining margins are typically higher than in any other region of the US.
“Only an oil company that wants to short the market and artificially drive up the price of gasoline would demolish a highly profitable refinery rather than sell it,” said Jamie Court, president of FTCR. “Shell has deceived the public about Bakersfield and must be forced to keep this refinery open or sell it to a competitor.”
As retail gasoline prices touch record highs nationwide, Court added that the Bakersfield evidence should also spur a national moratorium on all further domestic refinery closures.
The internal document from Shell Oil Products cited by FTCR is dated Apr. 5 and shows the Bakersfield refining margin at $23.01 per barrel on Apr. 2. The comment “Wow” is stated under the category of refining margins in the document.
But the document also shows that margins at Shell‘s other California refineries, at Los Angeles and Martinez — in Northern California — were not far behind Bakersfield, at $22.93/bbl and $21.82/bbl, respectively. Indeed, strong demand and tight product inventories stemming from high crude oil prices have led to robust margins on the West Coast.
Nevertheless, FTCR sent a letter Tuesday to California Attorney General Bill Lockyer to file suit under the state’s Unfair Business Competition Law to force Shell either to sell the refinery or keep it running, adding it could seek legal relief itself should Lockyer’s office not act.
FTCR also cites an end-2003 memo from Shell manager Jeff Krafve to fellow refinery employees that says Bakersfield was “the most reliable US Shell refinery in 2003″ and “one of the few Shell US refineries to turn a profit.”
Shell counters by saying the planned closure of Bakersfield is a long-term decision, based on the well-documented decline of San Joaquin Valley heavy crude oil — the primary feedstock for the plant. San Joaquin Valley heavy crude output averaged about 450,000 b/d in 2000 but is expected to fall sharply to around 300,000 b/d by 2010, according to Energy Analysts, Inc.
Shell says this drastic decline makes the continued operation of Bakersfield beyond October “no longer economically viable.”
It has also said that a sale of the refinery is not an option.
“Any new owner would face the same issues Shell is facing; there is simply a lack of crude supply to operate the refinery in the future,” the company said in a recent statement.
The company also says there is no economically viable import solution to the feedstock problem.
Bakersfield produces around 20,000 b/d of gasoline and 15,000 b/d of diesel,and the company does not have plans to expand capacity at its other California refineries.
Instead, it will continue to supply branded customers in Bakersfield and the Central Valley through its other plants, and it will convert the products distribution terminal at Bakersfield to receive products from sources other than the refinery.
Still, the closure will no doubt have an impact on the fast-growing California market, as Bakersfield supplies 2% of California’s gasoline demand.
The Department of Energy estimates that gasoline demand growth has averaged 2.21% per year on the West Coast between 1997 and 2003, compared to an average of 1.83% for the rest of the country. And California gasoline demand is estimated to be up 5% year-to-date despite high prices at the pump.
Wall Street analysts have long criticized Shell for its weak profits from its US refining and marketing operations. The closure of Bakersfield reflects the company’s response as it strives to upgrade its portfolio and improve financial returns to make it more competitive with the likes of Exxon Mobil, BP and ConocoPhillips in the US downstream.
With gasoline prices soaring in California, the timing could not be worse from a consumer standpoint, however. Sen. Ron Wyden, (D-Ore.) recently asked the Federal Trade Commission to investigate the closure of Bakersfield, which the agency agreed to consider.