Crisis seen hitting Calif. gasoline prices : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Wednesday March 28, 11:48 am Eastern Time

US POWER-Crisis seen hitting Calif. gasoline prices By Andrew Kelly

HOUSTON, March 28 (Reuters) - Cruising the palm-lined boulevards of Beverly Hills in a convertible this summer could prove costly, with experts predicting that California's power crisis could cripple oil refineries and jack up gasoline prices.

``If we have the sequence of blackouts that people are projecting this summer, we could be looking at something really terrible,'' said West Coast energy consultant Philip Verleger.

In a recent newsletter to clients, Verleger said a series of power disruptions to West Coast refineries could cause wholesale gasoline prices to spike as high as $3 per gallon from current levels of around $1.20.

Rolling blackouts rippled across the Golden State last week, bringing to four the number of days this year such an event occurred and sending an ominous warning of what is likely to happen this summer when temperatures rise and air-conditioning systems are running at full blast.

``The electricity bogeyman is certainly out there,'' said Dave Hackett, a California-based oil industry consultant.

Refinery power outages and surging gasoline prices are a ``likely scenario'', Hacked said, noting that power failures can bring down refineries from time to time, even in less extreme circumstances than those expected in California this summer.


Exxon Mobil Corp's (NYSE:XOM - news) 148,500 barrel-per-day (bpd) refinery at Torrance, near Los Angeles, was warned twice last week that its power could be cut off, but was spared each time.

``We are very concerned about the possibility of having to bring the refinery down at short notice,'' said spokeswoman Caroline Keith.

Refineries are a complex mass of equipment that turn crude oil into gasoline, diesel and jet fuel. Closing them down or starting them up again usually takes several days.

Keith said a surprise power interruption, even one as short as an hour, would make the operation a lot riskier and dirtier.

``At a minimum we would be down a few days. We would have to go through all of the units and make sure that none of the equipment was damaged,'' she said.

Unlike many other big California refineries who make their own electricity and steam in cogeneration units, the Torrance facility relies on financially troubled utility Southern California Edison, a unit of Edison International (NYSE:EIX - news), to provide most of its power.

Valero Energy Corp. (NYSE:VLO - news), which operates a 135,000 bpd refinery at Benicia, near San Francisco, has said it plans to free itself from dependency on California's strained electricity grid by building its own power plant, but it won't be ready until April 2002 at the earliest.


The potential for disruption of West Coast fuel supplies was underscored in January when several lengthy power outages hit a major pipeline system, cutting off the flow of refined oil products to regional distribution terminals and causing a severe shortage of jet fuel at San Francisco International Airport.

Pipeline operator Kinder Morgan (NYSE:KMP - news) was eventually granted an exemption from the lengthy interruptions allowed under its contracts with California utilities and says shorter outages caused by blackouts should not disrupt pipeline deliveries.

``We can be down for 4 to 5 hours a day and still meet delivery schedules,'' said spokesman Larry Pierce.

Unplanned refinery outages on the U.S. West Coast often lead to sharp increases in wholesale gasoline prices because of the region's isolation from the rest of the nation and the absence of a pipeline connection to the refineries of the U.S. Gulf Coast.

Furthermore, to fight smog California uses cleaner-burning types of gasoline and diesel fuel than the rest of the country, known as CARB after the California Air Resources Board.

As a result of these logistic factors and the tougher environmental specifications, Californians typically pay higher retail prices for gasoline, currently an average of about $1.73 per gallon for regular grade versus $1.42 for the nation as a whole, according to the American Automobile Association.

Hacked, the consultant, said that while refinery power outages would drive up gasoline prices, demand would taper off at higher levels as people cut back on their mileage.

``People will quit driving,'' he said. ``Somewhere around $2 a gallon people will say: To hell with it. I'm not going to let those damned oil guys rip me off.''

Oil products trader Chris Mennis said he believed beleaguered California Gov. Gray Davis would do everything he could to keep electricity flowing to oil refineries.

``Believe me, Davis doesn't want to have a run on gasoline prices along with the run on electricity. Refineries are the last place they will shut the power off,'' he said.

-- Martin Thompson (, March 28, 2001

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