Look Into Refinery Closure
California Atty. Gen. Bill Lockyer and the Federal Trade Commission owe consumers an investigation of Shell Oil Co.’s decision to shutter a Bakersfield refinery in the midst of a costly gasoline shortage in California. The refinery, one of only 13 in the state producing California’s cleaner-burning gas, is by most accounts productive and profitable. The company’s explanation -- the closing is part of an “overall effort to optimize our portfolio and improve [Shell’s] performance” -- is straight out of an accountant-speak dictionary, using words to fill space and mean nothing.
Pump prices in California have soared to the highest weekly average since March 2003 and may go higher by summer. Motorists fear oil companies are profiting from the state’s tight gasoline market by manipulating supplies to increase prices. Shell’s convoluted explanations about the refinery’s planned Oct. 1 closing do little to quell fears. They echo the market babble that hid price manipulation in the electric power crisis of 2000 and 2001.
Shell linked the closing to the depletion of surrounding oil fields. Yet industry experts say the fields will stay productive for perhaps two more decades. While there’s a worldwide problem with shrinking and sometimes overstated oil reserves, California’s problem is one of refinery capacity.
Shell promised to continue shipping fuel to Shell stations, but no such guarantee was extended to independent gas stations that buy from Shell. It’s an important distinction because lower-priced independents make it harder for big oil to raise prices. Seven companies control 95% of the state’s refining capacity and already sell most of their products through their own retail outlets.
Though the Bakersfield refinery represents just 2% of the state’s gasoline refining capacity (and 6% of diesel), its absence in a time of already-short supply would sharply boost prices. Unfortunately, no competitor is likely to buy the refinery because Shell, Chevron and others own rights to the nearby oil fields, which would not be part of a sale.
Other Western states can’t dismiss the Bakersfield controversy as a California problem because this state ships nearly 100% of Nevada’s transportation fuels, two-thirds of what Arizona burns and a third of the gasoline and diesel fuel sold in Oregon. Sen. Ron Wyden (D-Ore.) demanded the FTC investigation out of fears that Shell would start relying on its Washington refineries (which also supply Oregon) to feed California’s petroleum habit.
Last spring, a similar gasoline price spike prompted the California Energy Commission to worry whether the oil industry could meet future demand. The commission cautioned that, unless the industry could produce a plan on how it would meet soaring demand, the state should “take aggressive steps to safeguard consumers and the California economy.” One look at gasoline prices says the time for state action has come.
