Huge job, little effect at pump
At the beginning of June, just as California gas prices started to retreat from record-high levels and the state’s motorists started revving up for summertime travel, Chevron Corp. did the unimaginable: It launched a massive, 60-day overhaul at one of the state’s largest gasoline-making plants, drastically reducing its output.
The timing of the project, as oil analyst Tom Kloza put it, “was a little bit like closing up the ice cream and hot dog stand at Coney Island on Memorial Day weekend.”
Such moves often smell fishy to consumer groups, who say oil companies intentionally keep inadequate backup supplies and try to time major refinery maintenance projects to boost profits and the price of gasoline.
In this instance, drivers saw no jump at the pump: Retail gasoline prices in California declined over the last two months, even though nearly a quarter of the El Segundo plant’s processing equipment was idled.
Even so, San Ramon, Calif.-based Chevron knew critics would question the move. So the traditionally tight-lipped company recently took pains to describe the El Segundo shutdown and the extensive planning that preceded it.
Barring unforeseen events, the refinery is scheduled to be back to full production by midweek. When the work is completed, Chevron expects to have a slight increase in output, mostly from the small equipment improvements and replaced parts. The main purpose, however, was to tweak the refinery so it could process heavier and cheaper grades of crude oil -- a move that can significantly increase profits and widen the selection of oil from abroad.
Gary Yesavage, manager of the plant, said planning for the project began in April 2005, with the maintenance work scheduled to begin in April 2007 and be completed by the time driving season hit high gear.
But in January, a fire at Chevron’s Bay Area refinery forced that plant to stay offline through March. The El Segundo plant helped make up the lost production, but the extra downtime still cut into statewide supplies and helped push retail prices to a new record high average of $3.461 a gallon in early May. California’s 14 gasoline-producing refineries typically run at close to capacity and their output falls short of in-state demand. With supplies stretched so tightly, even a slight dip in production can trigger a surge at the pump.
Chevron suppliers were also late with some parts, so the El Segundo project ended up with the June 1 start date, Yesavage said.
By then, Chevron had stockpiled gasoline from Wales and ingredients from Korea that could be used to make gasoline in parts of the refinery that were still running. Additional imports would be staggered to arrive over 59-day planned shutdown.
“Our objective is to meet all of our customer demand over the 59-day period,” Yesavage said. “When we shut down on Friday the 1st, we were chockablock full.”
To do the maintenance, Chevron shut down equipment covering a huge swath of land inside the refinery. Up to 50 contracting firms were summoned, along with Chevron employees from around the world.
Rich Guttchen, the man Chevron put in charge of the project -- called a “turnaround” in industry parlance -- compiled a list of 30,000 to 35,000 individual tasks to be completed.
On day 14, Guttchen and Yesavage were cautiously optimistic. Nearly 3,000 of the expected 3,700 contractors were at work, helping the regular staff of 1,100 remove the innards of the massive crude oil distillation column, take apart heat exchangers and replace pumps.
“The magnitude is such that it’s larger than any undertaking we’ve had, ever,” Yesavage said. “It creates all kinds of logistical issues.... Where do these people park? How do you feed them? What about restroom facilities? Where do they stay?”
To handle the massive work group, Chevron nearly filled the local hotels and rented several floors of a nearby parking garage. Shuttles ferried workers to and from the plant for 10-hour and 12-hour shifts. Three tents were erected to handle the hordes during meal breaks and safety meetings.
Rod Spackman, spokesman for the refinery, said annual maintenance at refineries could be likened to a kind of 60,000-mile tuneup for a car. A larger-scale project, like the one underway, comes along every five or six years and is more like a reconstruction, he said.
“It would be sort of like taking your car apart and putting it back together again,” he said. “You’re getting into every piece of the vehicle. You’re taking the seats out, you’re checking all the electronics ... and you’re replacing any parts with significant wear or aging or that might limit reliability in the future.”
So far, so good. Today marks the 51st day of the project, and many pieces of equipment are already in start-up mode.
“From a trader’s point of view, it was a nonevent; we actually saw almost no effect from the turnaround on the gasoline side,” consultant Andrew Lipow said of the El Segundo shutdown. “If indeed they get up by the middle of the week, then Chevron deserves a lot of credit.”
Judy Dugan, who watches the oil industry for the Santa Monica-based Foundation for Taxpayer and Consumer Rights, was not as impressed.
“We’d be delighted that their turnaround didn’t cause a price spike,” she said Friday. “But one nonevent does not make a long-term pattern. If they are willing to put enough fuel into storage this fall to prevent a third year of price spikes, then we’ll be ready to pat them on the back.”
Chevron reports its second-quarter earnings next week. Despite the downtime at El Segundo, analysts expect the company to report robust refining profits.
elizabeth.douglass@latimes.com
-
(BEGIN TEXT OF INFOBOX)
Pumping it out
--
About the facility:
Opened: Chevron predecessor Standard Oil Co. of California built the refinery in 1911.
Size: About 1,000 acres
Processing capacity: 274,000 barrels of crude a day; normal rate is 270,000 barrels a day.
Daily production: 5.5 million gallons of gasoline; 4.4 million gallons of diesel and jet fuels (combined); 3,600 tons of petroleum coke; 155,400 gallons of liquefied petroleum gases
Employees: 1,100, plus more than 300 contractors
Little-known fact: The city of El Segundo was named after the refinery, which was dubbed “El Segundo” -- “the second” in Spanish -- because it was the company’s second refinery in California.
About the overhaul:
Duration: About two months, starting June 1
Staffing: As many as 50 outside contracting companies, including 3,700 contract workers, many of whom were brought in from the Gulf Coast
Work: Complete overhaul of about 25% of the refinery’s major processing units, including replacing major components
Fuel supply: A portion of the refinery continued to produce gasoline and other fuels, and the shortfall was made up with imports and inventories built up before the project began.
Source: Chevron
