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Los Angeles Times: Shell Oil's Decision to Shut Refinery Warrants Inquiry, U.S. Senator Says

 

By Elizabeth Douglass, Times Staff Writer

19 Feb 04

 

Ron Wyden wants to know whether the plan to close a plant in Bakersfield will tighten the supply of gasoline.

 

A U.S. senator from Oregon called Wednesday for an investigation into Shell Oil Co.'s plan to close its Bakersfield refinery, saying the move would benefit oil companies and worsen the tight gasoline market that is already causing pump prices to surge in California and the West.

 

In a letter to the chairman of the Federal Trade Commission, Democrat Ron Wyden asked the agency to determine whether Shell's plan to close the refinery Oct. 1 "will create further anti-competitive problems in West Coast gasoline markets, such as raising prices or restricting supply."

 

FTC spokesman Mitch Katz said the commission had received Wyden's letter. "We'll take a look at it, and determine what our response should be," he said.

 

Even with the Bakersfield refinery in operation, the price of regular gasoline in California has jumped more than 27 cents in the last seven weeks to an average of $1.868 a gallon, according to a U.S. survey released Monday.

 

Market watchers said worries about production problems at two Los Angeles-area refineries have greatly accelerated the rise in gasoline prices, pushing wholesale prices in Los Angeles up 15 cents a gallon Wednesday from Tuesday's highs. Some worry that California retail prices could soon surpass last year's record average of $2.145 per gallon, hit on March 17.

 

Mergers and refinery closures have left California with a precarious gasoline market, in which supply and demand are barely balanced, price spikes are frequent and four companies control 70% of the state's gasoline production.

 

Wyden, a frequent oil industry critic, urged the commission to consider Shell's decision to shutter its refinery in the context of the recent FTC-approved mergers. Critics say those mergers have given a handful of players the power to boost prices and profits through their control of gasoline supplies on the West Coast and elsewhere.

 

Because West Coast refineries are largely interdependent, when a price increase hits California, Washington state refineries often divert gasoline supplies to San Francisco or Los Angeles. That reduces supplies for the Pacific Northwest including for Wyden's constituents in Oregon and triggers higher pump prices there.

 

Shell, which also owns large refineries in Wilmington and the Bay Area, gained full ownership of the Bakersfield refinery as part of divestitures by ChevronTexaco Corp. that followed the late-2001 merger of Chevron Corp. and Texaco Inc.

 

The refinery, one of 13 fuel-producing plants in the state, makes about 840,000 gallons of gasoline a day, equal to about 2% of California's consumption. The plant also makes about 630,000 gallons of diesel a day, or about 6% of statewide demand.

 

Three months ago, Shell announced plans to close the Bakersfield plant because nearby oil fields are producing less of the molasses-like crude that feeds the refinery.

 

Wyden questions that explanation, citing increased oil drilling in the same area by ChevronTexaco. Given the recent flurry of refinery purchases in the U.S., Wyden has asked why Shell never tried to sell the plant before opting to shutter it.

 

"We haven't changed our position," Shell spokesman Cameron Smyth said. "Ultimately the decision to close the refinery is based on the continuing decline in San Joaquin heavy crude."


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