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Valero quietly steps on gas in state

The company's service station growth pace has been speedy since entering the California market in 2000.

January 07, 2008|Elizabeth Douglass | Times Staff Writer

Three gas stations vie for customers along Interstate 5 in Cardiff-by-the-Sea, but Cheryl Ahern-Lehmann usually bypasses the Chevron and Arco in favor of a station she once spurned as too pricey.

That station in north San Diego County, a Texaco for years, won her business after it became a Valero in 2003.

"It just appeared here . . . I didn't know what it was," Ahern-Lehmann said of the gasoline brand. She's a regular there now because, she said, "they usually compete pretty well with the Arco, at least on the cash price, and I can use a credit card when I want to."

Ahern-Lehmann, who drives 30 miles south to teach nursing at the University of San Diego, sometimes buys gas at another Valero that popped up near the school. "It's been cheaper than the other gas stations" around there, she said.

That gas-pump competition is being played out across California as, station by station, Valero Energy Corp. pushes its way into a business that's been dominated for more than half a century by well-heeled brands such as Chevron, Shell, Exxon, Mobil, 76 and Arco.

San Antonio-based Valero, which began gasoline operations in California in 2000, now owns two of the state's 14 fuel-making refineries and displays its brand on 921 service stations out of a statewide total of around 9,400. In the last three years, the company has added nearly 300 Valero locations to its California roster.

Valero's quiet expansion, which has continued apace across the country as well, represents an unusually speedy entry for a new brand. The company's push is all the more unusual because it comes as many major oil companies shed dealers, sell off stations to wholesalers and concentrate on larger, high-volume locations known as "super-pumpers."

"All the major brands have indicated that they really don't want any more gas stations . . . and they're terrified of cost cutting by companies like Costco and Wal-Mart," said Charles Langley, gasoline project manager at the Utility Consumers' Action Network, a San Diego-based watchdog group. Of Valero, he said, "they're the only brand that I see that actually seems to be growing and is aggressive about growing."

Since 2000, Valero has gone from an industry footnote to the largest refiner in North America, with 17 plants from California to Aruba in the Caribbean. The company supplies 5,800 gas stations in 38 states using the Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon brands. Most of the sites are owned and operated by individual dealers and distributors instead of by Valero.

In recent years, the company has boosted its public image through sports sponsorships and national advertising that touts its "All-American gasoline." But, Valero Vice President Eric Moeller added, "it's helpful . . . if you can put a lot of sites on the street corner, where everybody in America can see the name."

Consumer activist Langley has a beef with Valero: He says that many of its stations have adopted what he calls "run-with-the-pack pricing," putting them closer to the more expensive brands than to lower-priced stations such as Arco. If the company and its distributors sold fuel to its dealers at lower prices, the stations could offer motorists more competitive prices, Langley said.

When Ahern-Lehmann stopped by the Valero in Cardiff, for example, it was charging $3.28 for self-serve regular -- 6 cents below the Chevron across the street, but 8 cents above the nearby Arco. But that Valero, like several of its sister stations, gives customers the option of paying with cash, which saves the dealer from paying hefty credit card fees. On that day, cash customers could fill up for $3.20 a gallon -- matching the cost at Arco, which doesn't take credit cards.

Although he criticizes Valero for not allowing dealers to sell gas at prices closer to Arco's, Langley believes that the Valero incursion has been a plus for consumers because the stations generally sell fuel more cheaply than the bigger brands. In addition, Valero has provided a home for dealers who might have closed otherwise, thus keeping more competitors in the market and possibly driving prices lower, he said.

Valero got most of its heft in a series of acquisitions, snapping up refineries and service station networks at bargain prices compared with today. The company's entry into California came courtesy of Exxon Corp., which was forced to sell off its refinery in Benicia, Calif., to complete its merger with Mobil Corp. In addition to the Bay Area refinery, Valero picked up supply contracts for 350 Exxon gas stations -- and Valero made its retailing debut by renaming 80 of those stations.

A year later, Valero bought rival Ultramar Diamond Shamrock Corp., a major acquisition that included a refinery in Wilmington and a network of gas stations. Other purchases followed, including Valero's $8-billion acquisition of refiner Premcor Inc. in 2005.

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