06-04-07 by dugan
Wow. A refiner makes a business decision that also benefits consumers. Pop the Champagne! The LA Times reports today on the decision by Tesoro Corp., a Texas-based refining company, to modernize and expand its newly acquired Southern California refinery by 20%.
In purchasing the giant Wilmington refinery from Shell, Tesoro instantly became the state’s second-largest refiner (though far behind Chevron, which controls 25% of the refining market). Tesoro’s only business is refining—it’s not even among the Big Oil cadre. But its announcement tells volumes about the neglect and excuses of Chevron, BP, Shell, Exxon and Conoco, the other major refiners in California.
Some sharp points that were made in the story by energy expert Elizabeth Douglass:
“Tesoro said it would increase production of California-grade gasoline almost immediately by halting Shell’s practice of making fuel for Arizona and Nevada at the Wilmington plant. The company would not quantify the gain for California, but production manager Jerry Forstell said about 25% of the refinery’s gasoline output was earmarked for out-of-state consumption.”
Translation: Big oil’s gaming of the export market has kept California gasoline supplies at about half the level of the rest of the nation, which drives up prices. When supplies start to expand a little in California, Shell and others would mysteriously boost their exports to other states. Tesoro alone can’t end this market manipulation, but its decision will put other companies’ exports—and the timing of them—under greater scrutiny.
“The company said fuel production would also get a boost from a series of electrical and other upgrades aimed at reducing downtime. Those projects are expected to cost as much as $350 million, and Tesoro plans to spend an additional $80 million a year on maintenance.
“’Reliability’s a huge issue,” [Tesoro] CEO [Bruce] Smith said. ‘If the refinery goes down, that does take product out of the market. You have to invest some money to make some changes and fix those bad actors that cause the refinery to go down.’”
Translation: This says volumes about Shell’s operation of the Wilmington refinery. It neglected basic maintenance, much less upgrades, to squeeze maximum profit out of old equipment, no matter the consequence. Chevron plays the same game, using excuses including the price of steel and the “threat” of ethanol, to avoid significantly upgrading its California refineries.
As with any manufacturing operation, neglect increases downtime, and refinery downtime drives up prices. Big Oil ends up making more money producing less gasoline, and harm to drivers and the economy be damned. Tesoro alone can’t change this, but again it puts out a dare to the other refiners.
May Tesoro profit handsomely.