Beacon Oil Co. has built a business running a small refinery near Fresno and selling the gasoline it produces at its network of service stations throughout Central and Northern California.
But in recent months, company President David Bacigalupo says the company's profits have been squeezed by the same challenge that other American industries have faced--cheaper imports. Bacigalupo said Beacon cannot buy crude oil and refine it cheaply enough to compete with gasoline being imported from China, Indonesia and other areas.
"Their price is lower than our own costs," Bacigalupo said. "To protect ourselves, we at times have bought from the importers. We can be accused of playing the game, but we'd like to see it stopped."
He is not alone. The nation's independent refiners have banded together to plead for government restrictions on imports of gasoline and other products in what they see as a struggle for survival. More than 100 U.S. oil refineries have shut down in the past four years, many of them in California, in part because they couldn't produce oil products as cheaply as overseas refineries.
Foreign competition isn't the only factor contributing to the current depressed state of the nation's oil refining business, but analysts say imports are having a more pronounced effect now than in past years because the industry has been weakened by the prolonged downturn.
And U.S. companies say the opening soon of new oil-processing facilities in Saudi Arabia and in other member nations of the Organization of Petroleum Exporting Countries will make the problem even more acute. The refining capacity of Persian Gulf nations is expected to nearly double in the next two years, with most of the new product destined for Europe, North America and other foreign markets.
The opening of so many huge, new refineries, at a time when the industry is already operating with surplus capacity, will put a new strain on such giants as Exxon Corp. and Chevron Corp. as well as the independent refiners that don't have their own oil production fields.
"Those refiners that are still around are hanging on because of a market niche or because they are the most efficient," said Mark Newgard, president of Long Beach-based Edgington Oil Co., a small refinery that primarily produces asphalt. "There is still too much refining capacity in the United States and throughout the world. We haven't seen the end of this yet."
Several Refineries Shut
An oil refinery is the "factory" of the oil business. It produces gasoline, diesel fuel, heating oil and other products from the crude oil that is pumped out of the ground.
The energy conservation efforts of the past decade, combined with a boom in refinery construction and remodeling, has resulted in too much refining capacity for the current level of demand. The nation's refineries currently operate at an average of about 75% of their capacity, despite a 15% decline in total capacity over the past four years due to plant closings and bankruptcies. In Southern California alone, 15 independent refineries have shut down since 1980.
In 1984, Energy Department figures show that U.S. production of gasoline increased only 2% over the prior year, while gasoline imports were up 17.4%. Imports of fuel oil increased 57%, while production was up only 9%.
Analysts say Saudi Arabia and the other Persian Gulf oil producers, seeing their crude oil exports decline steadily since 1980, have now adopted strategies of refining the oil themselves. This both adds value to their exports and provides industrial jobs for their workers.
Indonesia and China are already well along in their export efforts, and a major market for their products has been the West Coast of the United States.
Oil refineries in California and other Western states have been hurt in part because this market is isolated from the rest of the nation. No major pipelines connect the Western United States with the East. As a result, the oil products sold in California and other Western states must either be refined from crude oil at area refineries or imported. And imports coming here cannot be easily shipped to states further east.
China Boosts Exports
Analysts say imports of Chinese gasoline have been increasing steadily for three years. China has little domestic demand for gasoline because the nation has few automobiles, but it does need fuel oil to run its industrial plants. Refining a 42-gallon barrel of crude oil will typically yield about 18 gallons of gasoline, with the remainder being fuel oil and other "heavy" products. The Chinese must then find an export market for their gasoline, and selling it in the United States gives them access to the foreign exchange they need to purchase American-made products.
Robert Coleberd, an economist with his own consulting company, Pacific West Oil Data in Panorama City, calculates that the Chinese are selling gasoline to U.S. companies for about 1 to 2 cents a gallon less than California refiners can produce it, lending credence to the often-heard charges that the Chinese are "dumping" gasoline on the market here.
"The policy of the Chinese seems to be to sell at whatever cost," said Coleberd. "That's tantamount to dumping."
Until recently, Los Angeles-based Atlantic Richfield Co. was a major importer of Chinese gasoline. However, Jessica Korzenecki, manager of product planning and analysis at Arco, said the company stopped importing gasoline from China in January. She declined to comment on why Arco halted its purchases from China.
Arco has been emphasizing its marketing and service station operations, and Korzenecki said the company needed the gasoline from China because its own West Coast refineries could not meet the demand of its service station network.
Market Share Shrinking
Charles P. Eddy, director of government relations at Tosco Corp., a Los Angeles-based refiner, said imports of Chinese gasoline have now reached about 50,000 barrels per day, equivalent to two medium-size oil refineries and about 5% of the total Western gasoline market. He said Tosco's market share has fallen from about 8% two years ago to less than 6% now, and he blames imports for part of that decline.
Tosco, the state's largest independent refiner, is a leading force behind the new Independent Refiners Coalition, which is seeking congressional action to control petroleum product imports. The group has hired the high-powered Washington lobbying firm of Charls E. Walker Associates to plead its case.
"America is rapidly replacing its dependence on imported crude oil with a dependence upon foreign gasoline," Walker said. "When our domestic refineries are closed, foreign refiners will be free to dictate product prices to American consumers, knowing that we then will lack the ability to meet U.S. demand for gasoline."
Walker said refining capacity of the OPEC nations will be equivalent to 15% of U.S. capacity by 1988.
Juan Forster, president of Huntway Refining Co. in Wilmington, said he worries that the foreign, government-subsidized refineries will be able to sell petroleum products for less than the operating costs of domestic plants.
"This country is going to be inundated with gasoline and other products," Forster said. "And we're going to be the first victims because independent refiners are the weakest link in the chain."