North County Times: Shell accused of shorting gas supply

North County Times: Shell accused of shorting gas supply

By: EDMOND JACOBY – Staff Writer

Posted 28 June 04

As North County’s —- indeed, California’s —- motoring public adapts to unrelenting high retail gasoline prices that some pundits say will move past the $2.50-per-gallon mark before summer’s end, one refiner has come under fire for allegedly setting refinery maintenance schedules that limit gasoline output during periods of peak demand.

The Foundation for Taxpayer & Consumer Rights of Santa Monica on Monday charged that Shell Oil Co. set maintenance schedules for California refineries during the last few weeks before the Labor Day weekend, when gasoline consumption surges.

The foundation, a consumer activist group, additionally said it possessed documents proving that the company’s plan, announced in November, to close its Bakersfield refinery because it was unprofitable was duplicitous. The Bakersfield refinery was actually Shell’s most profitable, the foundation said, citing a Shell Powerpoint slide show that apparently was for internal company use only.

The company immediately denied the charges.

The foundation said it acquired internal Shell documents demonstrating that the company acted in a way that was designed to reduce gasoline supplies at a critical time.

“Shell is decreasing utilization during the summer months by setting its schedule for planned maintenance at both Bakersfield and Martinez refineries during maximum utilization periods when California is almost certain to be short on fuel,” foundation President Jamie Court said.

The documents, he said, “provide incontrovertible evidence the company has once again misled California.”

One document supplied to the North County Times by the foundation appears to show that planned utilization at Bakersfield falls from 95.4 percent in June to 91.6 percent in July and to 87.9 percent in August. Similarly, the document appears to indicate that utilization at Martinez is scheduled to drop from 96.3 percent in June to 86 percent in July, then rise to 91.6 percent in August.

Maintenance originally planned to take place in mid-July was moved to August, and some refinery components were scheduled for July turnaround maintenance lasting as long as 25 days.

The Martinez refinery is currently undergoing emergency maintenance that could take up to two additional weeks to complete. It is unclear what the impact of the unplanned maintenance is on gasoline production.

Meanwhile, the Assembly Natural Resources Committee is set to hold a hearing Monday on a resolution proposed by San Diego Democrat Christine Kehoe calling on Shell to keep the Bakersfield facility in operation. The company said Nov. 13 that it would close it Oct. 1.

When pushed, the company said months ago that it had no objection in principal to selling the Bakersfield refinery, but some two-dozen suitors have come and gone without results, an Assembly source said Thursday. A report published by the Oil Price Information Service also said five would-be buyers have signed confidentiality agreements with Shell, which could indicate that negotiations are in progress.

Shell said in November that the closure was because the reduced output of San Joaquin Valley heavy crude oil made the refinery “no longer economically viable.”

Although the company said it couldn’t turn a profit operating the refinery to crack the locally produced crude oil, it did say that it had plans to build a pipeline from the Bakersfield oil field to its refinery in Martinez, so it clearly was not giving up on the oil field altogether.

But the slide show obtained by the foundation and provided to the North County Times appears to brag about the Bakersfield refinery’s performance, which has been consistently higher than the official business plan projection for 2004. In fact, while the company’s plan for the refinery projects a significant loss, the refinery has turned a tidy profit, the slide show reveals, with the difference between projection and performance higher than any other facility in Shell’s stable.

The documents purport to show that the Bakersfield refinery unexpectedly made more profit in May than it had during the entire preceding year.

A company statement said that it “plans to operate both the Bakersfield and Martinez refineries at normal summertime operations through the full summer driving season that closes around Labor Day,” and that the documents and slide show are preliminary planning papers that have since been revised.

While it may seem nonsensical for a company to cut production just as demand for its product peaks, in the case of a commodity such as gasoline, economic studies have shown, the price increases spurred by a tight supply more than offsets the revenue lost from reduced refinery output.

The foundation also supplied the documents to California Attorney General Bill Lockyer and to the Federal Trade Commission. The documents are likely to be introduced at Monday’s Assembly committee hearing.

Shell is expected to face questions at the hearing about the documents.

Contact staff writer Edmond Jacoby at (760) 739-6675 or [email protected].