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Controversy boils at idled refinery: Accusation against Shell Oil by union and consumer activists

Big West

Los Angeles Times
Soon after its parent company filed for bankruptcy protection Dec. 22, Big West closed its refinery in Bakersfield for what was to be 10 days of routine maintenance, but it has yet to come back online.

Some say Shell Oil is trying to use its leverage to put the plant it sold to Big West in 2005 out of business.

By Marla Dickerson 
January 9, 2009
Shell Oil Co. is putting the squeeze on a financially troubled Bakersfield refinery it sold in 2005 to Big West Oil, which could lead to the closing of the operation and potentially higher gasoline prices for California motorists, according to consumer activists and a union representing plant workers.

Concern about the facility’s fate has been growing since Big West’s parent — Flying J Inc. of Ogden, Utah — filed for Chapter 11 bankruptcy protection Dec. 22. The company shut down the Bakersfield refinery soon afterward for what it said would be 10 days of routine maintenance. But the plant has yet to come back on line, fueling speculation that Flying J was having trouble securing credit from its suppliers, including Shell, to keep the refinery running.

On Thursday, Kevin Cable, committee chairman for the United Steelworkers, singled out Shell as one of the main obstacles to the reopening of the plant. In a memo to refinery workers, he said Shell was demanding onerous payment terms from Big West to resume crude deliveries and that it had closed pipelines to the facility, preventing shipments from other suppliers.

“It appears that Shell is . . . trying to shut our plant down,” the memo said. 

Tim Kollatschny, a supply manager for Shell, confirmed that Shell had closed a single pipeline to the Bakersfield refinery and suspended crude deliveries while it negotiated with Big West. But he denied that Shell was seeking unreasonable terms or that it had the power to shut down the facility. Kollatschny said Big West had other means to get the crude it needed and that Shell supplied “less than 20%” of the 50,000 to 60,000 barrels of crude processed there daily.

“That is only a small portion of their needs, so it’s hard to understand how that would be the culprit in having the refinery not run,” he said. 

Kollatschny said Shell was owed “tens of millions” of dollars by Big West as part of the bankruptcy proceeding. He said talks were ongoing and that Shell wanted to work out a deal to get the crude flowing again. Consumer activists are skeptical. Shell is the former owner of the Bakersfield refinery. The Houston-based company touched a nerve in 2003 when it announced it was going to close the facility, which supplies about 2% of California’s gasoline and 6% of its diesel.

Although that doesn’t sound like much, it can still affect prices because supplies in the state are perpetually tight. State officials pressured Shell hard to sell the refinery to independent Big West as a way to boost competition and protect consumers.

The Santa Monica activist group Consumer Watchdog on Thursday sent letters to Sen. Barbara Boxer (D-San Francisco), California Atty. Gen. Jerry Brown and Treasurer Bill Lockyer asking them to investigate whether Shell or any other major oil companies were using their financial leverage over Big West to keep the firm from reopening the plant.

Boxer responded late Thursday with her own letter to Brown, urging him to look into the allegations.

“Shell Oil may be deliberately manipulating the supply in order to force the refinery to shut down,” the letter said. “Californians can’t afford high gas prices stemming from refinery closures.”

Flying J spokesman Peter Hill declined to comment on Big West’s relationship with Shell. “Routine maintenance at the Bakersfield refinery is ongoing, and there are limited operations taking place,” he said.

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