A state-hired consultant finds that a Bakersfield site the company plans to shut down still is ‘economically feasible.’
The Los Angeles Times
Shell Oil Co.’s Bakersfield refinery is financially sound and an attractive asset for potential buyers, and the company’s decision to close it “flies in the face of common sense,” a consultant hired by the state said Friday.
Industry expert Malcolm Turner, retained by Atty. Gen. Bill Lockyer to provide an objective opinion on the refinery’s outlook, said his consulting firm disagreed with Shell‘s reasons for planning to shut down the facility Oct. 1.
The proposed closure of the refinery has generated outrage among politicians and consumers, who have endured gasoline prices that have hovered above $2 a gallon for more than four months.
California’s fuel supply and demand are so delicately balanced that any reduction in refining capacity could cause prices to rise further. Shell‘s plan is being scrutinized by, among others, the Federal Trade Commission, which is investigating whether shuttering the refinery would violate antitrust laws.
Turner, in an interview, said other companies were interested in buying the facility and “would be successful operating it as an independent refinery.” Turner, who has worked for Shell in the past, is also helping to identify buyers for the refinery but declined to identify potential purchasers.
“We do conclude, unlike Shell, that the Bakersfield refinery is commercially and economically feasible,” Turner said.
Turner stressed that his conclusions were preliminary. But he said they were unlikely to change before his firm, Houston-based Turner, Mason & Co., submitted its report to the state at the end of July.
Shell spokesman Stan Mays said the company hadn’t heard about Turner’s findings. But he said, “We continue to stand by our conclusion that the small, inefficient, landlocked Bakersfield refinery can no longer compete and is economically unviable going forward.”
The company has said it will consider any credible offers for the refinery.
The consultant’s opinion is not binding on Shell. Still, it is encouraging news for a bevy of government officials and consumer advocates who have been openly skeptical of Shell‘s assertions that the facility can’t be run profitably and lacks an adequate supply of crude oil.
Lockyer spokesman Tom Dresslar said the attorney general would comment on Turner’s report when it was completed. He said Lockyer “remains hopeful that a way can be found to keep open this crucial source of gasoline ‘ so that consumers are spared the inevitable higher prices that a closure will bring.”
Market experts consistently cite California refineries’ inability to keep up with demand as a key factor in the state’s chronically lofty fuel prices, which on Monday averaged $2.186 for a gallon of self-serve regular gasoline, according to the latest Energy Department survey.
Shell‘s Bakersfield facility is relatively small, producing 2% of the state’s gasoline supply and about 6% of its diesel fuel. But there is little doubt that its dismantling would further squeeze supplies and inflate pump prices for motorists.
Critics believe that Shell wants to close its Bakersfield plant to boost profits at its two other California refineries, based in Wilmington and Martinez in the Bay Area.
Shell announced its decision to close the refinery in November and, in the intervening months, has put forth a variety of explanations.
Initially, Shell said there was not enough San Joaquin Valley heavy crude to keep the Bakersfield refinery running. After state officials countered that nearby oil fields remain productive, the company said that Shell‘s existing oil contracts could no longer feed both the Bakersfield and Martinez refineries, and that Shell would rather use the remaining crude at its Martinez site.
Shell‘s rationale has been questioned by experts who point out that the oil company could easily import crude oil for its Martinez plant, which is close to the coastline and already uses some imported blends.
The company’s stance was also undermined by a surge in California fuel prices, which made the nation’s most lucrative fuel market even more so this year.
Internal documents show that Shell‘s Bakersfield refinery earned almost $25 million in the first five months of 2004, compared with a profit of about $5 million for all of 2003. Profit at Martinez exceeded $91 million from January to May, more than double company projections.
Said Turner, “We’ve heard their point of view, and they’ve given us the information they based their decision on ‘ and the information, the arguments and the reasons they used are not persuasive.”
Turner’s opinion could be hard for Shell to dismiss, given that his firm has decades of experience appraising refineries on behalf of oil companies, including the U.S. division of Royal Dutch/Shell Group. For its part, Shell continues to provide information to several interested bidders, spokesman Mays said.
“We’re open to the possibility of a sale, and, barring that, we continue to plan for a safe and orderly closure,” he said.