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FTC examines Shell’s shutdown of California plant

Houston Chronicle: Refinery closing questioned: FTC examines Shell’s shutdown of California plant

“formal antitrust investigation by the Federal Trade Commission”


July 7, 2004, 11:02PM

Posted 8 July 04

Controversy over Shell Oil’s decision to close a refinery in California has escalated into a formal antitrust investigation by the Federal Trade Commission.

A senior official of the agency made the disclosure at a House subcommittee hearing on gasoline prices in Washington on Wednesday, although he provided few details.

Shutting the refinery in Bakersfield could be blocked if the agency finds antitrust violations, William Kovacic, the agency’s general counsel, told reporters after the hearing.

Because of chronically tight gasoline supplies and high prices on the West Coast, the FTC has been under pressure from California Attorney General Bill Lockyer; U.S. Sen. Barbara Boxer, D-Calif.; and U.S. Sen. Ron Wyden, D-Ore.

Shell announced in November 2003 that it would close the Bakersfield facility by Oct. 1 for economic reasons. The relatively small refinery handles 70,000 barrels of oil a day, providing 20,000 barrels of gasoline that amounts to 2 percent of California’s needs.

It provides a larger percentage of diesel fuel, 15,000 barrels a day, which is the equivalent of 6 percent.

“This state’s market is extremely fragile,” Tom Dresslar, a spokesman for Lockyer told Bloomberg News. “Any disruption, any lowering of supply, substantially bumps up the pump prices.”

Shell plans to ship the crude that Bakersfield is currently handling to a larger refinery it owns at Martinez, in the San Francisco Bay area, where about half the reduction in diesel fuel will be made up, Shell spokesman Stan Mays said in Houston. But Martinez is already making all of the gasoline that it can physically produce.

The supply of heavy crude the Bakersfield refinery is configured to run on is in long-term decline, he said.

The refinery lost more than $50 million over the past three years and is facing between $30 million and $50 million in turnaround and environmental costs, Mays said. And it is old, with the original portion built in 1932.

One of the earlier complaints was that Shell planned to shutter the refinery without offering it for sale. The company said later it was for sale.

Mays said Shell has received inquiries from more than 25 potential buyers, with several going as far as signing confidentiality agreements.

“A couple of parties are seriously looking, but no agreements to date,” he said.

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