San Antonio-based Tesoro Corp.'s purchase of a local oil refinery and 390 gas stations last week brings a new player into the market, but it will have a minimal impact on gas prices.
Tesoro bought the Wilmington refinery from Shell Oil Co. for $1.6 billion, plus the value of oil inventory estimated at $180 million to $200 million. The deal also included 250 Shell stations in Southern California. In a separate deal, Tesoro got 140 USA branded stations for $277 million.
The acquisitions give Tesoro about 4.2 percent of the state's retail gas market. But for consumers hoping that new competition will lower gas prices, the deal has little upside.
"Contrary to most people's belief, this is a very competitive business," said Gregory Wright, chief financial officer at Tesoro. "We'll have few sites compared to others, and you can go across the street if you don't like the price at our station. That's what drives the business."
Richard Little, director of the Keston Infrastructure Institute at USC, notes that Tesoro markets gas through company-owned stations. Because of the lack of middlemen, "the pump price may actually be a little lower with their new refining capacity," he said.
No station in California will actually wear Tesoro signage. Wright estimates his company bought about half the Shell stations in Southern California, but a licensing agreement will keep them all with the Shell brand. The USA purchase included the company's intellectual property, so Tesoro won't scrap the asset it just bought, he confirmed.
The Wilmington plant can process about 100,000 barrels of oil a day, but hopes to increase that to 120,000 barrels by investing in new equipment. Tesoro also expects to achieve economies of scale in conjunction with its Northern California plant, which processes 166,000 barrels per day. California's annual consumption is 16 billion barrels, according to California Energy Commission data.
"In California, overall gasoline refinery production is not keeping pace with demand," according to the commission, but building a new refinery is virtually impossible, Little said. "One of the reasons fuel prices have stayed up nationally is no new (refining) capacity coming on line and no one wants to subject themselves to an approval process that would be long, costly, and most likely unsuccessful," he explained.
Tesoro owns six refineries in Alaska, California, Hawaii, North Dakota, Utah and Washington, with a combined capacity of 563,000 barrels per day. Tesoro markets fuel to 478 branded gas stations, including more than 210 company-operated stations in the western United States.
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