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Fuel maker refines plan to hike output, cut emissions

Alon USA seeks the go-ahead to expand a local plant. Upgrades would help clear the air and ease a supply bottleneck, it says.

December 26, 2007|Elizabeth Douglass | Times Staff Writer

Can an oil refiner double fuel production and cut greenhouse gas emissions at the same time?

The task is so daunting that no U.S. refiner has even attempted it. But Jeff Morris is proposing to do exactly that with the two Southern California refineries his company bought last year.

Morris is chief executive of Alon USA Energy Inc., which purchased Paramount Petroleum Corp. and Edgington Oil Co. for a combined $460 million. The twin deals included small refineries in Paramount and Long Beach, which make mostly asphalt and have been combined to operate as one plant.

"We may . . . become the lowest-emission refinery in California, and if we are, logic would say probably the lowest in the United States," Morris said in an interview. A preliminary engineering review indicates that the refinery's overhaul could double fuel output while reducing by at least 7% the production of carbon dioxide and other greenhouse gases, which contribute to global warming.

Alon's project is one of just a handful of proposals aimed at boosting gasoline and diesel output in California, where fuel production falls short of demand and the environmental standards are the toughest in the nation.

The state's supply gap has widened steadily in recent years because, despite rising fuel consumption, most California refiners have limited their investments to satisfying environmental mandates or projects that increase profit but not production.

With supply so strained, even moderate production gains can help ease prices -- either by reducing the need for expensive imports or diluting the effect when production falters at another refinery. For that reason, state energy officials generally look favorably on expansion projects like the one proposed by Alon.

Such expansions, however, almost always yield more greenhouse gases and more pollution for the surrounding communities. So environmentalists are skeptical about Alon's emission-reduction claims.

"We're being met with a mixture of intrigue and incredulousness," said Morris, who has outlined the company's plans in meetings with the mayors of Long Beach and Paramount, the refinery's immediate neighbors, and others.

But Alon's proposal isn't just unusual; it's also highly pragmatic, given the intense scrutiny of any refinery project by regulators, politicians, environmentalists and community groups. Dallas-based Alon needs permits and agency approvals to proceed. And speed is important, too -- every month the expansion project is delayed means lost profit in California's lucrative fuel market.

"I believe with this approach we have a higher probability of getting the project permitted, and maybe a higher probability of getting it permitted earlier," Morris said. At a minimum, "it should be easier than the other approach" of pushing a project that boosts overall emissions.

Since the 2006 passage of AB 32, California's aggressive greenhouse gas reduction initiative, the state is more focused than ever on slashing emissions, which puts greater pressure on refineries and other polluters with new projects.

As part of the climate change initiative, the California Air Resources Board recently ordered refineries and other big plants to track their greenhouse gas emissions in 2008 and begin filing annual reports with the state the following year. Previous reporting requirements covered many pollutants, but not greenhouse gases.

"It's great to hear that the refineries are finally getting worried about greenhouse gases," said Julia May, a senior scientist with Communities for a Better Environment, a California group that pushes to cut industrial pollution. Alon's proposal, May said, has "a good goal. But let's see the numbers."

Barry Wallerstein, executive officer of the South Coast Air Quality Management District, underscored the point. Given the state's mandate to cut greenhouse gases and the urgent need to reduce smog in Southern California, he said, "all the existing refineries are going to have to continue to reduce pollutant emissions."

Wallerstein, whose agency must sign off on Alon's project, met with Morris for an initial briefing and came away hopeful, but not necessarily convinced.

Morris "sees a good business case for investing in these two independent refineries and providing fuel and asphalt for the California market, and recognizes that that also entails significant environmental improvements," Wallerstein said.

"He walked us through some of the ideas they have for revamping the facilities . . . and he seemed to be very sincere in what he was saying. The proof will be in the follow-through and what's contained in their application."

The two refineries now owned by Alon operated independently until they were sold last year. The Paramount plant made asphalt as well as relatively small amounts of gasoline and diesel. The Edgington facility, three miles away in Long Beach, made only asphalt.

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