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Effect of Chevron refinery fire on gas prices is unclear

The market is waiting for Chevron to report on the severity of damage to its refinery.

August 09, 2012|By Ronald D. White, Los Angeles Times
  • A man pumps gas at a Chevron gas station in San Francisco the day after a fire at the Chevron refinery in Richmond, Calif. The fire is expected to increase pump prices in California, although it is not yet clear how much.
A man pumps gas at a Chevron gas station in San Francisco the day after a fire… (Jeff Chiu, Associated Press )

The expected run-up in gasoline prices after a major fire at a Bay Area refinery may not come as quickly as expected, but it's coming.

What isn't known at this point, analysts said, is how bad it will get.

The market is waiting forChevron Corp.to report on the severity of the damage to its 2,900-acre refinery in Richmond, Calif., which opened in 1902.

Chevron said Wednesday that the refinery, which was shut down because of the fire at one of its units, was now partially operating. A spokesman for the company did not say how much it was producing.

At maximum capacity, the refinery produced was much as 243,000 barrels a day.

Wholesale gas prices shot up 30 cents a gallon Tuesday, one day after the fire. Analysts at first said prices at the pump could go up as much as 35 cents a gallon within days.

But a bit of calm came over the market Wednesday and wholesale prices retreated by a little more than 6 cents.

There were indications that the situation in the refinery was still unstable. On Wednesday there was a second, small fire at the facility. Chevron issued a brief statement, saying the fire "resulted in no injuries, presented no immediate threat to the public and was extinguished in minutes."

It wasn't even clear when Chevron would be allowed to inspect the tower where the fire began. The state's Division of Occupational Safety and Health said the company must first file a structural engineering report showing how it will enter the area safely.

Agency spokesman Peter Melton said, "They don't want anyone going into the area until they are sure it is safe and that no one is put at risk."

Despite the uncertainty, Tom Kloza, chief oil analyst for the Oil Price Information Service, said by Monday "you should see California gasoline prices at or near $4 a gallon again."

Motorists said a surge in pump prices would be unbearable.

"Even with two jobs I'm not making enough money," said Claudia Menendez, 30, a single mother who lives in Los Angeles who was at a Mobil station near USC. "To be honest it's gotten to the point where I think I have to get rid of my car."

The price of gasoline was already on the rise even before the effect of the fire could be felt on the consumer level.

The average price of a gallon of regular gasoline in California had climbed 6.2 cents over the last week to $3.875, according to the AAA Fuel Gauge Report. Analysts attributed this to oil prices having risen $15.66 a barrel since hitting a low for the year of $77.69 a barrel in late June.

Price spikes in oil and gasoline are not unusual because of major changes in the industry over the last few decades.

Since 1985, the nation's refineries have increased output 11% through large-scale gains in efficiency and productivity, said Rayola Dougher, a senior economic advisor with the American Petroleum Institute. But during that same period the number of refineries in the U.S. fell more than 35% to 144.

The U.S. has not opened a major new refinery since 1976.

"When you concentrate fuel production down to a much smaller number of players, prices are much more likely to spike when one of those refineries goes down," said Joe Hahn, an associate professor at Pepperdine University Graziadio School of Business and Management. "Every refinery is more important, and supplies and prices are affected very quickly."

Hahn cited several examples. In 2005, after hurricanes Rita and Katrina struck Gulf Coast refineries and other facilities, the U.S. average for gasoline climbed above $3 a gallon for the first time. The spike lasted a week.

In 2008, after two more hurricanes closed Gulf Coast refineries, gasoline prices rose as high as $5.21 a gallon in the Southeast. Prices returned to normal within two weeks.

Earlier this year, gasoline prices in the Pacific Northwest rose as much as 70 cents a gallon during the three-month period when BP's Cherry Point refinery in northwest Washington state was shut down after a fire.

Over the last week, Midwest gasoline prices climbed 25 to 30 cents a gallon after two oil pipeline ruptures and refinery outages in Illinois and Indiana.

"There are too few refineries concentrated in the hands of too few owners," said Charles Langley, gasoline project manager for the Utility Consumers Action Network in San Diego.

California has 14 refineries, but Chevron's Richmond facility supplied as much as 15% of the state's gasoline, he said.

"Fuel prices are volatile in California," Langley said, "because we don't have a robust, competitive refinery industry."

ron.white@latimes.com

Times staff writer William D'Urso contributed to this report.

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