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Diesel retailer to buy Shell's Bakersfield, Calif., refinery

The Orange County Register (California)

Shell Oil Co. said Monday that it will sell its Bakersfield refinery to Flying J. Inc., which plans to boost production of gasoline for California.

Terms of the deal, expected to close by the end of March, were not disclosed.

The sale of the refinery, however, means that California consumers won't have to worry about the higher fuel prices that might have followed had Shell shut down the plant.

"Flying J is a new competitor in the California refining market, and that may shake the market up to the benefit of consumers," said Dave Hackett, a consultant with Stillwater Associates in Irvine.

Flying J, the nation's largest retailer for diesel, said it believes there is enough crude supply to "more than double" the refinery's present output of gasoline for California, said Virginia Parker, a spokeswoman for the privately held company in Ogden, Utah.

She did not know the company's plans for diesel production, and noted that Flying J still needs approvals from various agencies to double gasoline output.

Shell has been the target of several investigations since it announced its plan to close the 73-year-old refinery by October 2004. Critics said by shutting the plant, Shell was trying to tighten supplies of a scarce commodity and boost profits at its two other refineries in Martinez and Wilmington.

Last year, gasoline and diesel prices jumped above $ 2 early in the year, partly because demand outstripped supply. The statewide average for a gallon of gasoline recently dipped below $ 2, but diesel remains just above $ 2.

The Bakersfield refinery makes about 2 percent of the state's gasoline and 6 percent of its diesel.

"California drivers cannot afford the loss of this facility, and they would be the biggest beneficiaries if Bakersfield remains open," Attorney General Bill Lockyer said in a statement.

If the sale with Flying J gets the various approvals from the government, it would make about 4 percent of the state's gasoline.

Experts say that could help ease the state's supply-and-demand pinch.

"Flying J will have all kind of incentives to make more diesel and gasoline," said Bob van der Valk, a fuel-pricing specialist in Southern California. "They are a good, viable, independent company in a competitive market. They are known in the industry for doing what they say they will."

Shell said it will buy fuel from Flying J to supply its customers. The Bakersfield refinery, said Shell spokesman Stan Mays, will be the primary source of supply. The rest will come from Shell refineries.

Shell had said it wanted to close the refinery because it did not meet its criteria for continued investment, citing sagging profits and depleted crude oil supplies.

In August, Shell acknowledged the refinery had been very profitable.

Shell records obtained by the Foundation for Taxpayer and Consumer Rights showed the refinery estimated its net earnings at $ 11.4 million at the end of May -- a higher margin per barrel than at its larger Martinez refinery.

But those figures were not enough for Shell to reconsider closing the plant, Mays told the Register in August.

A consultant hired by state determined that the refinery was profitable.

In mid-August, Shell told the state it would keep the refinery open until at least the end of the year or longer if it could obtain a waiver of clean-air rules. At the time, Shell said it had received more than 30 inquiries from interested parties.

"This is a landmark case where public pressure clearly created action," said Tom Kloza, chief oil analyst at the Oil Price Information Service, a trade publication that tracks prices. "This means that regulators will take companies to task if they plan to shut down antiquated equipment that might not fit into their business plan," but affect the market.