Outages Take Their Toll

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When fire forced the shutdown of Chevron Corp.’s El Segundo refinery last month, the impact was quick and blunt: Local diesel supplies fell by 12 percent, sending prices above $3 a gallon.


The resulting howls from truckers and others underscored just how vulnerable the L.A. region and the nation remains to events as mundane and mysterious as the inner workings of a petroleum refinery.


Across the U.S., outages at 14 different crude oil refineries in the past month have caused gas prices to skyrocket. Units at refineries run by Chevron, BP PLC, Valero Energy Corp., ConocoPhillips and Sunoco Inc. have had unplanned shutdowns, taking roughly 4 million barrels of gasoline off the market, said Dave Kolk, president of Complete Energy Services, an energy trading firm in Corona.


Meanwhile, the average gallon of self-serve regular in the Los Angeles area jumped more than 11 cents to $2.736 last week, sending gas prices 68.5 cents higher than they were a year ago. Statewide, prices rose to $2.716 , 66.1 cents higher than a year-ago, giving California the highest gas prices in the nation. By comparison, the average nationwide price for regular gasoline rose to $2.55 per gallon in the government’s latest survey, up 18 cents in a week.


L.A.’s seven refineries closely guard information about their operations, presumably because any hiccup can play havoc with spot fuel prices. Traders traffic in rumors about which plants may suffer unscheduled shutdowns.


All of which leaves no clear answer as to whether refinery issues will continue to exacerbate fuel prices in coming months other than the fact that the refineries themselves are old and subject to breaking down. The last oil refinery in California went up in 1970.


Last year, supplies were strained when Exxon Mobil’s refinery in Torrance, the third largest in the state with the capacity to refine 150,000 barrels of crude per day, saw slightly lower production levels while undergoing a major round of planned maintenance and upgrades.


Carolin Keith, a spokeswoman for the refinery, said she doesn’t expect any more problems because last year’s maintenance improved production at the plant. “Quite often, after a major turnaround, you have record rates because things after that run much better,” she said.


What hasn’t changed is ever-rising demand, especially for diesel fuel, as the economy grows and the ports of Los Angeles and Long Beach entertain record business.


Despite the tight supply, some refiners are continuing to ship out of state to Arizona and Nevada another vestige of the state’s long history as a net petroleum exporter.


Joe Sparano, a spokesman for the Western States Petroleum Association, said some of the refiners own service stations in those states that they must continue to supply.



By the barrel


“Contractual arrangements between states and the refiners are longstanding. Many have been doing it for years. Arizona and Nevada can’t supply themselves, because they’re not otherwise connected to refining centers,” he said.


L.A. County’s refiners are currently estimated to handle 900,000 to 1 million barrels of crude per day, operating at 95 to 98 percent of capacity.


The refineries, all in the South Bay, range from the West Coast Products LLC refinery in Carson, owned by BP, and Chevron’s refinery in El Segundo, both of which process 260,000 barrels of crude per day, to the Paramount refinery that can process 50,000 barrels a day. In between, there are refineries owned by big players such as Exxon Mobil Corp. and others that process intermediate amounts.


With refineries operating at capacity, the primary problem is any unexpected outage, called “unscheduled maintenance.” This is especially tricky during peak demand times, between about March and September.


Another crucial, but often overlooked element affecting the price and availability of gasoline and diesel is the inadequate supply of oil coming into the refineries by pipelines, trucks and ships.


About 22 percent of the crude processed by California refiners comes from Alaska by freighter. Another 36 percent comes from foreign sources by freighter and the remainder is pumped from the ground in the state.


Any slowdown in that supply can cause problems. That was made clear this winter when a landslide knocked out a pipeline at Pyramid Lake that Pacific Energy Partners L.P. uses to bring 40,000 barrels of crude from San Joaquin Valley wells to L.A. area refineries.


The closure squeezed refinery supplies, but it was during a time of the year when demand for gasoline is not high.


Mark Reese, a spokesman for the Long Beach-based fuel transporter, believes that the bottleneck of crude supplies to L.A.-area refiners is the crucial part of high gas prices. Higher supplies would allow a slightly higher production level, even though refineries already run above 95 percent capacity.


“California has such high gas prices because demand is just so high and we’re a gas island; we’re not connected to any of the country’s other refining centers,” Reese said. “With the absence of new crude importation infrastructure, we’ll see shortages in crude for refineries and that will lead to higher prices.”


Pacific Energy is trying to increase import capacity by building its planned Pier 440 facility that would allow the importation of an additional 250,000 barrels per day into the Port of Los Angeles. But even that would only compensate for declining California and Alaskan oil field production.


“Our target is to bring that facility on line in 2007, but it doesn’t increase the crude coming into the L.A. Basin, it really only allows us to keep our supply from decreasing,” Reese said.


In the near term, things will likely ease.


Gas and diesel prices traditionally go down when demand drops after Labor Day, the last big vacation weekend of the summer. They drop even further after Nov. 1, when refiners, shippers and sellers of fuel switch to the winter blend. One reason: Adding the oxygenating chemicals increases the volume of gasoline and diesel by 5 percent.


By spring, refiners switch back to a summer blend. This puts pressure on gasoline supplies because the summer additives add less volume to the gasoline than the winter additives do. Next spring, however, the impact will be larger. Under the new energy bill passed in Washington, the requirement to put additives in gasoline will be eliminated altogether.


The impact will be the equivalent of shutting two large refineries, and the ripple effects will be felt across the nation, said Dave Hackett, president of energy consultants Stillwater Associates LLC in Irvine.


A new pipeline being installed from Texas to Arizona should relieve some of the pressure on California refineries to supply Arizona, Hackett said. That pipeline is scheduled to open in the second quarter of 2006.



*Staff reporter Kate Berry contributed to this story.

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