10-21-08 by dugan
With oil prices going through the roof again (near $82 a barrel today), the economy is deeply at risk. But oil refineries are looking like better investments, because gasoline prices will follow. A business publication in India is reporting that the largest Indian oil refiner is thinking of buying several refineries, including the bankrupt Big West refinery in Bakersfield, CA. Who cares, you ask?
It matters that the refinery be kept intact, even though it’s far from the largest in the state, because California depends almost entirely on its own refineries. The state uses a unique clean-air gasoline formula, and it lacks fuel pipelines to other regions. Any loss of capacity makes its gasoline prices even higher–and they’re already 40 cents a gallon above the national average.
The refinery also has a history.
In 2004, it was owned by Shell Oil, which tried to close and demolish the mid-sized refinery, which would have boosted profits for its other, larger, refineries. State attorney general Bill Lockyer and U.S. Sen. Barbara Boxer helped force Shell to sell it instead, and to continue providing it with crude oil. Now, five years later, the buyer of the refinery, Flying J, is bankrupt and has shut down Big West again, in part because former owner Shell was making it impossible to get crude oil. There were rumors it would be permanently closed, the land put to other use.
So even rumors of a buyer don’t fall on deaf ears. If the Indian company, Reliance Industries, does buy the Bakersfield refinery, it will be (again) up to the current attorney general, Jerry Brown and Sen. Boxer to get some guarantees that it will reopen, and stay open.
Refineries are not the giant profit engines that they were a couple of years ago and major oil companies are shutting them or curbing production, trying to boost prices. They’re canceling long-planned new refineries.
Refining has always been a cyclical business, but owners of refineries no longer have a long-term outlook. It’s up to government to make sure the nation has capacity for a decade from now, not just for today–and that means saving refineries like Big West in order to curb future price spikes at the pump.