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Shell keeps the gas flowing in Bakersfield REFINERY REPRIEVE: “Under pressure from political leaders and activists, Shell keeps the gas flowing in Bakersfield”: “Their brand has been severely damaged from day one.”

By Dennis Romero

19 August 04

Under pressure from political leaders and activists, Shell keeps the gas flowing in Bakersfield

What do you do when the Federal Trade Commission, Sen. Barbara Boxer, and California Attorney General Bill Lockyer are dogging you like Michael Moore dogs the president? You buy time.

After feeling the heat from Washington and Sacramento, Shell Oil Co. announced last week that it’s keeping its Bakersfield refinery alive at least until December so that a suitable buyer can be found. The move spells relief for Golden State motorists, who surely would have paid even higher prices for gas if Shell closed the crucial plant October 1, as planned, in the name of profits.

“Everything they said from day one about shutting down this place has been wrong,” Boxer tells CityBeat. “They said they couldn’t get enough crude, that there were no buyers, that there weren’t enough profits. They said everything in the book. Their brand has been severely damaged from day one. I think they would have suffered tremendously bad public relations had they not done this.”

The Houston-based oil concern’s concession came after Lockyer had a “conversation” with Shell President Lynn Laverty Elsenhans about the results of a study for the attorney general’s office by Dallas-based Turner, Mason & Company. The refinery appraiser concluded that the Bakersfield plant was indeed profitable and desirable.

Next thing, Shell is announcing that it is in discussions with prospective buyers and will keep the refinery running until at least December 31. Shell now says the old plant makes money after all.

“Year to date, it has turned an unexpected profit due to the unexpected rise in margins this year,” says Shell spokesman Stan Mays. “Long-term, from Shell’s perspective, the refinery is still not viable for Shell’s portfolio … . We just felt like it was better all the way around to continue to operate it and give the interested parties a chance to review the operations, even as they run, as opposed to trying to buy a facility that’s cold.”

Critics had accused Shell of planning to shut down its Bakersfield operations in a move to cut supply and thus boost its market share and prices further. The FTC and the state attorney general are looking into the plans to shutter Bakersfield. Shell ended up with the refinery in 2001 after the FTC forced Texaco to sell it in the face of that oil giant’s merger with Chevron, which had its own area plant. To close it would work against the competitive, anti-monopolistic intent of putting it in Shell’s hands.

“This doesn’t smell right,” says Boxer. “To close that refinery down is a slap to the FTC.”

The refinery is actually a rag-tag collection of three smaller plants that are in need of as much as $50 million in upgrades, partly to meet federal low-sulfur-diesel standards coming in June of 2006. Shell might have to spend as much as $10 million more, according to the estimates of oil industry analyst David Hackett, to deal with other pollution rules that take effect January 1. If that upgrade isn’t made, then it’s curtains for the plant December 31. Otherwise, Shell has vowed to keep it alive until March 31. Still, it’s money that Shell clearly didn’t want to spend.

Jamie Court, president of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, has been the most vocal critic of Shell’s game, and calls the Bakersfield reprieve “a huge public victory.”

“The artificial reduction of refining capacity in the United States by oil companies is the major driver of price spikes at the pump and this victory shows regulators, legislators, and consumer groups working together can fight Big Oil,” he said in a statement.

Analyst Hackett, who runs oil-consulting firm Stillwater Associates in Irvine, buys Shell’s story, however. The Bakersfield operation is a “dog,” he says, with some 60-year-old facilities cooking up gas. “Shell is saying they got to spend a ton of dough on a place we don’t like anyway … throwing good money after bad for these environmental upgrades,” he says.

The plant could be a better fit, Hackett says, for one of several smaller refinery chains. “It’s likely the place will be profitable in the next few years because of the imbalance of supply and demand,” Hackett says. “With gas prices as high as they have been, anybody can boil oil and make money.”

Meanwhile, the watchdogs are relieved, if only temporarily. The Bakersfield refinery produces 2 percent of the state’s gas and 6 percent of its diesel, and a fall shut-down would have particularly stung Central Valley agri-business, which relies on diesel-fueled trucks to get its massive fall harvest to market.

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