Northern/Southern California, Oil Refineries, Explosions & Vulnerabilities: At The Stage Where Oil Becomes Gasoline, Competition Dries Up (Oakland Tribune) : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Lessons? Make the Y2K connection.

Hint: Gas sortages & price increases have immediate local economic impacts on California... and beyond.

Renewable energy anyone?

(Bet it becomes a hot topic... soon).


Oakland Tribune...

Click on Headline News (search engine not working) ...

At the stage where oil becomes gasoline, competition dries up

Sunday November 28, 1999

By Andrew F. Hamm
Business Writer

[Fair Use: For Educational/Research Purposes Only]

THE EAST BAY refineries that line the Interstate 80-680 corridor are a monument to the industrial revolution. The smell of crude oil and the miles of pipelines, often lined up four in a row, are as prominent as the cars flowing along the freeways.

Their presence, like their impact on the Bay Area's economy, is anything but subtle. These four faucets fill virtually every gas station in the Bay Area. If one goes down -- even partially -- the impact is immediate. Earlier this year gas prices increased by more than 50 percent in a matter of weeks after the five-month shutdown of the Tosco Avon refinery, an unplanned shutdown of Exxon's Benicia refinery and the first of two temporary reductions in output at Chevron's Richmond refinery in March.

While the Bay Area has become identified with high technology, the fuel these refineries produce literally drives the area economy. The high cost of the gasoline they have been producing since March has been a large blemish on an otherwise booming local economy.

"The cost of gasoline in California is probably the single most important (quality of life) indicator to people besides their paycheck," said Robert Kaufman, a professor with Boston University's Center for Energy & Environmental Studies.

And while prices were rising on signs at the corner gas station, it was Big Oil -- specifically the owners of the area's big four refineries: Chevron, Tosco (Union 76 brand), Exxon and Equilon (a Shell-Texaco partnership) -- that gained the lion's share of the profits.

A fifth major player, Atlantic Richfield, has no refinery in Northern California and so "trades out" gasoline for its Northern California Arco stations with the owners of the other four. That means Arco provides gasoline made in Southern California to Chevron, Tosco, Exxon or Shell in exchange for an equal amount of gasoline from their Northern California refineries.

Not only do these four refineries produce nearly all the gasoline used north of Fresno, they also export finished gasoline to Nevada, Hawaii and even Southern California.

"There are independent gas stations in the Bay Area but there are no independent refiners, so the big four are the only ones in the business who control the taps," said Dennis DeCota, spokesman for the California Service Station & Auto Repair Association.

California's oil companies have been accused by Sen. Barbara Boxer, D-Calif., and state Attorney General Bill Lockyer of taking advantage of a number of refinery accidents and resulting fuel shortages to increase profits.

"So far there hasn't been an adequate explanation from the oil industry as to the causes of the price spike," said Lockyer, who gave a preliminary report on his office's investigation into Big Oil pricing practices last week. Californians paid $1.3 billion more for gasoline this year than if they lived in states with a competitive market for oil and gasoline, Lockyer said.

"Even when you factor in their supply problems, it doesn't add up," Boxer said in a telephone interview earlier this year. "It's obvious, as Big Oil is getting bigger and more linear, they've been better at doing this."

Boxer and others are pointing to the numbers. As retail prices rose this summer, California refineries' gross revenues -- which include operating costs that can fluctuate widely -- rose on average from 27 cents per gallon of gasoline to 70 cents per gallon, according to California Energy Commission figures.

However, Lockyer said Big Oil operates within existing laws when setting prices.

"Supply is manipulated in a way that produces the highest possible prices and that is business, that is the American Way," Lockyer said at a press conference.

Lockyer said it is puzzling that Bay Area residents pay up to 22 cents more per gallon than Los Angeles County residents despite the fact gas used here is produced locally. He also is concerned that the six major companies control 90 percent of the California gasoline market. To compare, the top six companies in Texas control 60 percent of the industry.

Oil company officials cheered Lockyer's report. Similar probes that have followed big price runups have failed to produce evidence of collusion or unfair pricing. Oil company officials have long contended it is the market, not companies, that determines the price consumers pay at the pump.

Boxer, however, said a lack of competitional lows the oil industry to set gasoline prices in California. Competition has been reduced by megamergers, the increasing ownership by big oil companies of individual gasoline stations and the loss of independent gasoline stations. The pending Exxon-Mobil and BP Amoco-Atlantic Richfield Co. (Arco) mergers could lessen competition even more.

Competition from independent gas station owners also has been hurt by tougher environmental regulations and more efficient refinery production -- which has dropped the amount of excess gasoline produced, industry followers say. The less gas available, the higher the cost of the excess.


These complex industrial sites seem to have been here forever.

Chevron's Richmond refinery, for instance, was built in 1921 and renovated in 1955 and 1991. It is the area's largest, covering 2,900 acres.

The large distillation towers that loom over the freeways and the holding tanks on the surrounding hills awe out-of-towners and disgust many environmentalists and immediate neighbors, but for most residents and governments alike they mean jobs and a steady source of income.

But the string of accidents this spring and summer has changed many people's minds.

While fires and even death are nothing new to the refinery business -- or any other venture that deals with flammable material -- the number and severity of the accidents this year at California refineries had many people casting a wary eye at their industrial neighbor.

A Feb. 23 explosion at Tosco's Avon refinery killed four people and brought charges of lax safety standards at the plant. Public outrage was so high that when the Tosco plant closed in March, many thought the refinery would never reopen. The plant resumed full production Aug. 1 after pledging a new-found respect for safety issues and paying a record $810,750 fine.

Two separate explosions at the Chevron fa cility, the first on March 25 and the second July 10, sent towering plumes of toxic smoke into the air and raised health fears in Richmond.

Meanwhile, several refineries in Southern California either closed or severely reduced production over the summer. Tosco's Wilmington refinery had to reduce production for a day after a fire there Nov. 9.

"I've never seen so many oil refinery problems as we've had this year," said Tom Glavino, an energy analyst for the California Energy Commission.

Refineries are a powerful economic tool for local and county governments. For example, Chevron employs 1,525 people at its refinery and pays $18 million in property tax, $6.9 million of which goes directly to the city of Richmond. It also pays $9 million annually as utility user fee to Richmond. Martinez, Benicia and Contra Costa County receive similar benefits.

Northern California refineries have also proven to be extremely profitable for their owners, unlike refineries located in other parts of the country.

For example, Tosco's operating margins for its Avon refinery were three times higher than its East Coast refineries in the third quarter ending Sept. 30, according to the company's quarterly earnings report. The Shell-Texaco partnership at the Equilon refinery and Exxon's Benicia refinery saw profits soar last summer when Tosco and Chevron were forced to look on the open market for gasoline, driving up the cost for everybody in the industry.

Bay Area refineries have a reputation for being extremely efficient, often producing more than a barrel of product for each barrel of oil, said Gla vino.

Additives mandated by the state of California -- including MTBE, the controversial additive that makes fuel burn cleaner -- make up 12 per cent of a gallon of gasoline when added into the mix. MTBE is being phased out of California gasoline because it is a carcinogen and contaminates water supplies.

Specific company additives such as Chevron's Techron or Tosco's ProPower designed to boost performance are added only at the very end, when it gets loaded into a tanker truck.

Most industry followers notice little variance between gasolines, despite massive advertisement dollars spent by oil companies touting the superiority of their individual brands.

"There is absolutely no difference of any note between (same octane) gasolines," said Scott Berhang, West Coast editor of Oil Price Information Service. "The only difference is what additives oil companies put into their gasoline."

Oil company officials insist their additives make all the difference. That is particularly important for Arco, which uses gasoline produced by other companies. And since all refineries sell their excess gasoline to independent stations and wholesalers, the additives do help distinguish them from these "unbranded" competitors.

However, California requires that all gasolines carry some cleaning additives, mostly to help reduce air pollution, so even independent service station gasoline has some additives.


The refineries deliver their product by two principal means -- tanker trucks and gasoline pipeline.

Of course, 8,800-gallon tanker trucks ultimately deliver all gasoline, but not all of the trucks pick it up at the refinery.

Many receive their cargo at central distribution areas in such cities as Chico, Fresno and San Jose for deliveries in their immediate areas.

Kinder Morgan Energy Partners, the nation's largest gasoline pipeline operator, delivers most of the gasoline that the four refineries don't supply to trucks directly.

Charges range from 20 cents per barrel for a shipment from Chevron's Richmond plant to San Jose to $1.10 per barrel for a Tosco shipment to Reno. A barrel contains 42 gallons of gasoline. A typical shipment to Reno via pipelines takes 24 hours, Kinder Morgan officials said.

"The pipelines mean you don't have to truck it as far ... its cheaper and more efficient for the longer distances," said Bob Gorham, who supervises more than 7,500 miles of oil and gasoline pipelines for the state Fire Marshall's Office. "You'd have a ton of trucks on the road other wise."

A Bay Area gas station that pumps 200,000 gallons a month needs to be restocked virtually every day by tanker.

Deliveries to company-owned stations are typically done by company-owned trucks, but many franchise stations that are leased or owned by in dividuals are supplied by independent contractors known as "jobbers."

Jobbers sign contracts with refinery owners to deliver a certain amount of gasoline each month to stations. Refinery owners often give financial incentives when those numbers are met and penalties, including a reduced fuel contract, if num bers aren't maintained.

"This requires jobbers to give cents off just to move gasoline and keep their contracts," said Evelyn Gibson, spokeswoman for the California Independent Oil Marketer's Association. "It puts the suppliers in the driver's seat ... they have control of the market."

The service station owner's margin is usually between 9 and 21 cents a gallon, and local, state and federal governments take their share as well. Local and state sales taxes average about 12 cents a gallon, while California adds an 18-cent excise tax and the federal government adds another 18.3-cent excise tax of their own.

So when supply gets tight like it did this summer, jobbers become the monkey in the middle, trying to make up the increased cost the refinery charges while trying to keep its share of the market.

Because California gasoline's unique blend -- which makes it the cleanest-burning fuel in the world -- is hard to find outside the state, replacing it is never easy and always expensive, Glavino said.

And with increasing demand, in-state refineries are frequently running at peak volumes 24 hours a day.

The California Energy Commission estimates the state's refineries can produce 1.3 million barrels of gasoline daily, leaving little margin for shutdowns caused by accidents. With peak demands reaching 980,000 barrels of gasoline last summer and with several refineries closing unexpectedly, shortages occurred. Last summer nearly half the state's refineries were either closed or severely reduced production.

"You've reached the limit of your capacity," Kaufman said. "Even running the refineries 24 hours a day, you are rapidly outstripping demand."

-- Diane J. Squire (, November 28, 1999


Wwwwhhhooa, awesome catch, Diane!

Even the fly on the wall can now READ THE HANDWRITING !!

-- Ashton & Leska in Cascadia (, November 28, 1999.

Excellent Post Diane!!!

Got two wheels?

-- renewableenergy (, November 28, 1999.

Unfortunately, it seems most flies don't read.



... Kinder Morgan Energy Partners, the nation's largest gasoline pipeline operator, delivers most of the gasoline that the four refineries don't supply to trucks directly.


Kinder Morgan Energy Partners, L.P. - provides natural gas liquids pipeline transport, storage, and delivery, carbon dioxide transport, as well as high-speed, rail-to-barge coal transfer. ...

Year 2000 FAQ and Information...

SEC filings... old...


-- Diane J. Squire (, November 28, 1999.

Hey, I'm gonna put up another 5 gals of hoarded gas. It'll be worth a bazillion bucks in Feb!

Seriously, I live a few miles from the depot in Chico, the "tank farm," as it's called. I didn't know it's importance in the gas line. Over a year ago, when I started investigating Y2K, I did some research and learned that the tank farm is actually owned by a railroad (Union Pacific?) and the main office is in Sacramento.

The plot thickens. Good stuff, Diane. Put me on your email list if you find anymore good bits like this. Really, I'm going to put this on my website

-- johno (, November 28, 1999.

During the recent refinery shutdown, I had a brief meeting eith the head of the oakland area post office truck maintenance. He DID NOT KNOW that most of our oil comes in by ship & not pipeline. He had NO contingency plan for a gasoline crunch...

-- IP (, November 28, 1999.

Holy shit! Does this mean we need refineries to make gasoline and other petroleum products? Does this mean that refineries are dangerous highly volatile places operating under enormous pressures and mixing highly flammable compounds? Does this mean that refiners endeavor to get "the highest possible price" for thier products in a capitalist society? Does this mean that the California market has been so twisted by the liberal and environmental ninnies that they've put themselves into a corner by requiring a custom spec gasoline, not readily available elsewhere?

Why yes dear reader it does.

Not to worry though, Cal CEC recently held a contingency planning session in which they communicated that the CARB spec would be waived if there was a need for supply in an emergency.

This is what happens when you cede your state to the liberals. Keep prepping.

-- Gordon (, November 28, 1999.

No. Grodon.

This is what happens when 4-6 main producers control the gas markets for a product that is not self-renewing.

Dumb. But profitable. (It WON'T be the corporations that "loose" to Y2K... in the short term).

And... there "are" other ways to make a buck, that don't hurt or harm.

Tranformation... will happen... eventually.


Got mountain bicycles?


(Shift Happens)

-- Diane J. Squire (, November 28, 1999.

Where (and how) do they get their crude? All the refineries I see around the Twin Cities have it come in tanker cars by railway.

-- Liz Pavek (, November 28, 1999.

Yikes! I hadn't heard about the disasters, go figure. How horrible for those employees and their families!

-- Hokie (, November 28, 1999.


You're mistaken. If you mean Twin Cities as in Minn. I'm a former Midco Marketing Manager for one of them (Koch) and it comes in by pipe from Canada.

On California gasoline, here's the deal. There aren't any refined products that go over the Rockies, so the West Coast is a segregated market by geography. In most marekts, prices spike up and product flows in from other geographic areas. This doesn't happen much in California unless these economics get 15 to 20 cents over the Gulf Coast which does justify a Houston to Calif gasoline arb through Panama.

Gasoline cuts come off the distillation column at an octane rating of only about 75 (on the scale that we're familiar with). Its even tougher to make gasoline in California because the Alaskan N Slope and most of the local California crude production they are refining is very high sulfur, low quality. In order to boost these octanes to the 88 to 92 level that our cars need, we used to add lead. We banned lead. Then we came out with tougher environmental specs that forced refining conversion units (octane enhancing) to run at higher severities and temps to hit octanes. Then Calif specs forced the reduction of aromatics like benzene. Then CARB specs came out which were unlike anything else in the world. No refineries can hit these specs except a few mega-refineries. Other than Calif, there's a few on the Texas Gulf Coast and in Venz and Hess St Croix can(but remember we're talking +15 cents a gallon freight). So legislators adopt these CARB specs, without figuring in unexpected production problems, and they figure with MTBE, they will be able to meet Calif demand with just Calif refining output . But then they figure MTBE is no good and they ban it. Now these Calif refineries have to run flat out at dangerously high temps and severities to boost octanes. The result is more operational probs and explosions. And they can't build more refineries because environmental mandates preclude it. Meanwhile, Americans decide every 16 year old ought to have their own car and those little cars we built back in the early 80s get traded in for SUVs. And what happens when there are Calif gasoline shortages? All the SUV drivers squawk about oil company price fixing....

-- Downstreamer (, November 30, 1999.

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