Deja Vu for a Troubled Refinery
Somehow the trouble brewing at Big West refinery seems very familiar.
Let’s see: Shell Oil Co. faces mounting criticism from consumer
advocates and union officials. A powerful politician says the state may
need to step in to save the plant and keep gasoline prices from
skyrocketing.
Haven’t we been here before?
Oh yeah — this all happened in 2004-05. Same refinery (the one on
Rosedale Highway), same corporations (Shell and Flying J Inc.), same
politicians (Sen. Barbara Boxer and the state attorney general).
Until last week, the refinery’s problems were playing out privately,
between the refinery’s owner, Flying J, and its suppliers and
creditors. But a series of public actions last week serves as a
reminder that the bitter controversy of a few years ago still echoes at
the plant.
The latest twist is that public pressure has begun to rise against
Shell, which late last month shut a pipeline that carried about 20
percent of the crude that normally flows to Big West.
Shell has said it closed its pipeline — which carries its own as well
as other companies’ oil — because it is owed millions of dollars by
Flying J, which is headquartered in Ogden, Utah.
Flying J filed for Chapter 11 bankruptcy protection Dec. 22, and has
since had trouble persuading oil suppliers that it has money to pay for
new shipments.
A Santa Monica consumer advocacy group and a union at the refinery want Shell to reopen the pipeline.
In a memo Thursday to union members at Big West, an official of United
Steelworkers of America accused Shell of withholding the oil in order
to close down the refinery, as it attempted to do in 2004 until it was
finally persuaded to sell to Flying J in January 2005.
“To the best of (Shell’s) efforts, they were not able to demolish our
refinery in 2005, and in my opinion, they will not be able to in 2009,”
the official, Kevin Cable, wrote Thursday in a letter to the union’s
membership at Big West.
The consumer group, Consumer Watchdog, could not be reached for comment.
Shell insists it is not holding up refining work at Big West. It points
out that there is a second major pipeline to the plant, and that its
payment proposal, which it would not discuss publicly, is reasonable.
A company spokeswoman said Friday that the company is now waiting for
Flying J to respond to its offer of new payment terms that could
potentially get more oil flowing to the refinery.
Flying J has been tight-lipped about the situation, but on Friday
spokesman Peter Hill released a statement saying that Big West’s
inability to buy sufficient oil was “not deliberately caused by our
suppliers” — an apparent reference to Shell’s decision to withhold
shipments.
“We value our relationship with suppliers, whose support we appreciate,
and hope that ongoing discussions will lead to a mutually beneficial
resolution in the near future,” Hill wrote in an e-mail.
Sen. Boxer, who in 2004 and 2005 worked with former state Attorney
General Bill Lockyer to keep the plant open, wrote a letter Thursday
reminding state Attorney General Edmund Brown Jr. of Shell’s efforts to
close the refinery. She asked Brown to “take appropriate action if
warranted.”
On Friday, a Brown spokesman said the attorney general would be vigilant.
“We won’t let Shell do indirectly what we would not allow them to do
directly four years ago,” spokesman Scott Gerber said. Big West is not
now refining oil, having taken time off during the supply shortage to
do more than a week of maintenance work.
Plant managers have told union officials that they expect to resume
refining, albeit at a reduced level, as soon as this week, though the
facility’s long-term viability has been questioned.
Unresolved issues
The latest drama at Big West resembles the one there in 2004-05 largely
because some of the issues that were problematic back then were never
really resolved, industry observers say.
They say the move that ended the earlier controversy — Shell Oil Co.
selling the refinery to Flying J Inc. — may have created new problems
that contributed to the more recent trouble.
Under the sale, the plant was essentially separated from the oil
production that sustains it. Shell pumps oil in Kern County; Flying J
does not.
Oil industry consultant Bob van der Valk said that separation spelled trouble from the start.
“They (Flying J) didn’t get the crude,” van der Valk said. “The refinery and the crude go together.”
But there are other reasons the arrangement hasn’t worked out as
planned, said industry consultant Malcolm Turner, who was hired at the
time to look into the refinery’s operations under Shell.
Former state Attorney General Bill Lockyer’s success in getting Shell
to sell the refinery did not take the company out of the picture. It
still operates a refinery in the Bay Area, which Turner said makes it a
competitor of Flying J.
As a refiner, Shell could benefit if the Bakersfield plant closes,
Turner said, though he stopped well short of accusing the company of
trying to run Big West out of business. Shell denies any such
intentions.
But with 65,000 or so barrels of oil a day not being converted to fuel
in Bakersfield, Shell could see lower prices for crude up north, where
it needs them.
“If I’m Shell in (the Bay Area), it does not hurt me if you fail, (Big West) — it helps me,” he said.
In addition, Turner suggested that Flying J might not have been the
best of all possible buyers for the refinery. He said Flying J is not
known for being especially friendly with others in the industry.
“Why would you bend over backward to help somebody who’s not
necessarily your trusted friend and not done any favors for you?” he
asked. “You wouldn’t.”
For its part, Shell does not appreciate the comparison of what’s happening now to what took place four years ago.
“It’s very different now,” company spokeswoman Alison Chassin said,
“because we’re not now the owner and operator of the refinery.”
A question of profits
In 2004, when Shell tried to close the plant, it said the operation was unprofitable.
But amid a campaign by union leaders and consumer advocates to pressure
Shell to keep the plant open, Lockyer, who is now the state treasurer,
ordered an investigation into the claim that the plant was losing money.
The investigation concluded that the refinery could make money, and Lockyer successfully persuaded Shell to sell to Flying J.
— John Cox, The Californian
Refinery at a glance
1932: Refinery opens as Mohawk Oil Refinery.
1975: It’s purchased by Reserve Oil & Gas.
1980: Getty Oil takes over.
1984: Texaco buys it.
1998: Texaco and Shell agree to operate it as Equilon Enterprises LLC.
2001: The Federal Trade Commission requires Texaco to divest its
interest following its merger with Chevron. Shell continues to operate
it.
2003: Shell announces plans to shut it down.
2004: California attorney general urges Shell to sell, not close, it.
2005: It’s purchased by Flying J Inc. and operates under subsidiary Big West of California.
April 2007: Controversy breaks out over plans to expand the refinery
and use a dangerous chemical. Big West later says it will use a safer
form of the chemical. The county fines the facility for venting gases
into the air that made people sick.
May 2007: County cancels public hearings on the expansion until the environmental report is reviewed by refinery experts.
October 2008: County approves the expansion, allowing work to begin as soon as January 2009.
December 2008: Flying J runs into financial trouble and files for
Chapter 11 bankruptcy protection. Some oil producers, upset that they
won’t be paid immediately for past deliveries to Big West, withhold
their oil.
January 2009: Flying J says refining activity at Big West has been put
on hold pending 10 days of maintenance work. Industry executives say
the temporary halt to refining was forced by the plant’s inability to
purchase enough oil to operate normally. Sen. Barbara Boxer, D-Calif.,
sends a letter to state Attorney General Edmund Brown Jr. airing
allegations that Shell Oil Co. has withheld in order to shut the plant.
Sources: Big West of California, news archives
Contact the author at: [email protected]