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A Refinery's Fever Pitch

One of California's 13 gasoline plants strains to keep up output, but a variety of problems can lead to an outage and higher prices.

July 28, 2003|Elizabeth Douglass | Times Staff Writer

BENICIA, Calif. — On a sweltering morning here in the Bay Area late last month, employees at Valero Energy Corp.'s refinery geared up for another tough day of making gasoline.

Inside the hulking complex, cold water cascaded over mustard-colored tanks in a makeshift effort to bolster the cooling system. At their morning meeting, managers discussed a pump outage the previous day that nearly triggered a major shutdown, and employees gave progress reports on repair projects. One noted that there was a nettlesome beehive that could make it difficult to access a nearby safety valve in an emergency.

Keeping a refinery running all day, every day, demands attention to such details. But in the oil refining business, the most meticulous supervision can't prevent production glitches, especially in California, where the state's 13 gasoline-producing refineries are straining to make enough cleaner-burning fuel to satisfy drivers and appease clean-air regulators.

The Benicia refinery -- at 36 years old the youngest in California -- has suffered at least five serious breakdowns since January, limiting production and several times tipping the region's brittle supply-and-demand balance.

Benicia hasn't been alone: There has been an unusually high number of so-called production-reducing refinery failures this year, twice the historical average cited in a recent California Energy Commission report.

Just last month, problems at California refineries owned by Valero, Royal Dutch/Shell Group and Tesoro Petroleum Corp. cut statewide gasoline output by more than 8%, which experts say caused the average pump price for regular unleaded gasoline in California to jump more than 9 cents a gallon in one week. On Wednesday, a steam boiler explosion at ConocoPhillips' Carson refinery caused no injuries but paralyzed the plant, one of California's largest, and caused an immediate jump in wholesale gasoline prices.

The Benicia refinery has had more than its share of outages this year. "It's not a track record that anybody would be proud of," said Bill Buckalew, Valero's general manager at Benicia. At the same time, he said, "there's a misunderstanding about how really complicated these things are. Everything in those pipes is highly flammable, and a lot of it is at high temperature and high pressure. There are thousands of pieces of equipment, and all of them have a finite lifetime and need maintenance."

When all the parts are running well, Buckalew and his Benicia crews make 10% of California's gasoline, or about 4.2 million gallons a day. Every year, Benicia and the state's other major refineries, located near the ports around Los Angeles and San Francisco, produce 16.2 billion gallons of fuel for consumption by motorists in California, Arizona and Nevada.

That's not enough to meet demand, though, so imports fill the shortfall. But it takes as long as two weeks for delivery of shipments from overseas. And with oil companies keeping only small reserves for emergencies, they can't immediately make up for an unexpected drop in production.

"The California refineries run pretty much at capacity, especially in the summer months, so if you lose one you know that you're short of supply," said Joanne Shore, a senior analyst at the federal Energy Information Administration, an arm of the Energy Department. "That means that prices are going to keep going up until some more supplies can get there."

That point was underscored during the June uptick, as well as in March, when a combination of events pushed up the price for regular gasoline to a record statewide average of $2.145 a gallon. Unanticipated refinery outages were part of the problem, according to regulators.

Such price hikes have led some to cast refineries as villains, not that they've ever been popular. Outside the oil industry, people tend to look on refineries with disdain -- or worse. Despite improvements in safety and pollution control in recent decades, refineries are still viewed as ugly, dangerous beasts that can belch noxious pollutants when they misfire. They are often clustered along coastlines and sometimes sit near neighborhoods.

Critics of the industry agree that, given their complexity and harsh environment, refineries are bound to break down occasionally. But they say it's a different story when the glitches happen in bunches.

"When you see a system that is riddled with outages just at a time when people use it most, like the summer drive time, it reminds me of the California electricity crisis," said Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights in Santa Monica. "It's very similar to how all of the electric plants went off-line once the price of electricity went up."

During the 2000-01 energy meltdown, power plant owners were accused of intentionally squelching electricity production with timely outages to drive up profits on the remaining supply, which they could then sell at inflated prices.

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