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Not All Flows Smoothly at Bakersfield Refinery

Flying J has run into snags that are squeezing tight diesel supplies -- and the area's farmers.

October 23, 2005|Elizabeth Douglass | Times Staff Writer

With the cotton harvest in full swing, farmers around Bakersfield are watching the sky for signs of rain and the fuel gauge for signs of drought.

The diesel fuel they need for their trucks and farm equipment has been in tight supply lately because the local Flying J Inc. refinery, which makes 6% of California's diesel and 2% of its gasoline, has been hobbled by a series of snafus.

Coming at a time of record diesel prices around the country, the additional squeeze is "eating our profit," said farmer Mario Buoni, who is spending about $435 per day on fuel -- more than double last year's tab -- for the three picking machines that roam his 1,600 acres of cotton. "We try to get fuel from L.A. because you can haul it here a lot cheaper than you can get it in Bakersfield."

For Flying J, the Bakersfield plant represents a shot at big-time refining: a chance to crack California, the nation's most lucrative fuel market.

In March, the Utah truck-stop operator paid $130 million for the refinery, which previous owner Shell Oil Co. had said lacked cheap crude oil and was too decrepit to continue operation. Furious protests by politicians and consumer advocates persuaded the energy giant to look for a buyer.

Under the new management, the refinery is still pumping out fuel and making money but it has fallen short of the success story that state energy officials had hoped for.

"You always have issues ... we didn't think it would be smooth," said Fred Greener, executive vice president of Big West Oil, the Flying J subsidiary that runs the Bakersfield plant. Even so, he said, "we've been very pleased with our investment."

One of the nation's largest truck-stop operators, Flying J sells more diesel fuel than any other retailer, but had limited experience making it. The Ogden-based company already owned a tiny refinery in Salt Lake City, and the purchase of the Bakersfield plant nearly quadrupled its ability to refine oil.

But getting enough oil to turn into diesel and gasoline has been at the top of Flying J's list of woes in Bakersfield. Other difficulties have cropped up too, including a dispute with the refinery's union and the death of a key executive.

Since taking over operations, Flying J has been unable to run the refinery anywhere near its maximum processing rate of 70,000 barrels of oil per day. The plant's production peaked at about 83% of capacity in July, and plummeted to about 55% this month, according to a source at the refinery who didn't want to be identified for fear of retribution.

Supplies have been thin at the refinery's distribution "rack," where wholesalers buy tanker loads of fuel, according to refinery customers. That has added to a slew of other factors -- high oil prices, hurricanes and refinery outages -- that have kept California diesel prices well above $3 a gallon for much of the year.

This year, Bakersfield's rack price typically has been about a nickel a gallon higher than in Los Angeles, but at times that difference swelled to as much as a quarter, according to the Oil Price Information Service, an energy research company.

"The suppliers were lining up to get what they could and then trying to prioritize with customers," said potato farmer Pete Belluomini. He said his supplier, Jeffries Bros., was no exception. "They were asking me, 'How much can you get by with?' "

Don Jeffries, the owner of Jeffries Bros., said his customers have received whatever fuel they needed. But, he added, in recent months "there were a few days where we were scrambling for diesel ... you might go in to Big West and they were out."

The situation may soon get worse, because the refinery last week shut down some equipment until early November for repairs. The work will cut off diesel production entirely.

"I'm concerned," said Mark Del Papa of Fleet Card Fuels, a Bakersfield wholesaler. "The Bakersfield supply won't meet the South San Joaquin Valley demand, so you're going to have to supplement from somewhere else."

Part of the problem stems from Shell's insistence on keeping the crude oil that had been allocated to the plant for decades. The oil company, a unit of Royal Dutch Shell, has rerouted the petroleum north to its Bay Area refinery in Martinez. Although there is no shortage of oil in the southern San Joaquin Valley, much of it is already spoken for by other refiners.

Buying a refinery without a guaranteed supply of crude oil is a risk rarely taken in the industry, but Flying J went ahead anyway, betting that it could wrest away enough local oil from others to fill the refinery. Shortly before the company took over the plant, Greener said that Flying J had been "acquiring oil all over" and that he had no doubt that the company would secure what it needed.

It hasn't worked out that way. At least not yet.

"We don't like not running full, that's for sure," Greener said last week.

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