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Shell to Shut Refinery, Tightening State Supply

November 14, 2003|Elizabeth Douglass | Times Staff Writer

Shell Oil Co. said Thursday that it would close its Bakersfield refinery late next year, a move that is bound to crimp the state's already-tight supplies of gasoline and diesel fuel.

Supplies of the heavy molasses-like San Joaquin crude that feed the 71-year-old Bakersfield plant are dwindling at nearby wells, according to the Royal Dutch/Shell Group unit. It said importing oil for refining would not be profitable.

State energy officials said the Oct. 1 closure would be felt throughout California, where 13 refineries often operate at full tilt to keep up with the demand for fuel.

Shell's Bakersfield refinery makes about 840,000 gallons of gasoline a day, or about 2% of California's consumption. The plant produces 630,000 gallons of diesel daily, equal to about 6% of statewide demand.

The refinery shutdown will stretch the state's supplies "a little thinner," said Claudia Chandler, assistant executive director at the California Energy Commission. "It increases our vulnerability and certainly the spike potential in a volatile market, especially as it relates to diesel."

Chandler and others have said the fragile balance between supply and demand in California leaves the state vulnerable to sharp price increases whenever there is a refinery outage or other disruption at a plant or pipeline.

This year, motorists suffered through two major price spikes -- in March and again in August -- when the tab for a gallon of gas topped $2.

The run-ups were caused by disruptions in supply, according to state officials, including complications as refiners began shifting from MTBE to ethanol as an antipollution additive in gasoline.

Losing a California refinery permanently, even one that provides just 2% of the state's supply, is a damaging blow in the view of David Hackett, president of industry consultant Stillwater Associates in Irvine.

"That's 2% we don't have," Hackett said.

"You've got to tip your hat to them that they're going to run it through next year's gasoline season, because we're going to need it."

Shell has two other California refineries, in Wilmington and Martinez.

It said it would try to find jobs elsewhere in the company for the 250 workers at the Bakersfield refinery.

An additional 100 people work at the facility as contractors.

Aamir Farid, general manager for Shell's refineries in Bakersfield and Martinez, gave employees the news at an early-morning meeting.

After months of deliberation, the company decided "there is simply not enough crude supply to ensure the viability of the refinery in the long term," Farid said.

After the refinery closes, a related terminal will be converted to receive fuels from outside sources and will stay open to distribute to Shell's south San Joaquin Valley service stations and other customers.

Shell spokesman Cameron Smyth said the company would "be able to meet the supply needs in the Central Valley" in part through increased fuel production at its refineries in Martinez and in Puget Sound, Wash.

"It's a sad day," said Bakersfield Mayor Harvey L. Hall. "We're going to have several hundred jobs that are going to be lost here in our community."

Bakersfield and surrounding parts of Kern County are home to the most fruitful of California's oil fields.

Once the Shell refinery is shuttered, two will remain in the region: Kern Oil & Refining Co., which makes gasoline from lighter crude, and San Joaquin Refining Co., which uses the native heavy crude to make asphalt, road oils, diesel and other products.

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