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USW Negotiations with Royal Dutch Shell deadlocked

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Published: Feb 23, 2015 at 1:28 pm EST

Tensions between Royal Dutch Shell plc (ADR) (NYSE:RDS.A) and the United Steelworkers (USW) union rise as more union workers have walked out of three additional US refineries. The latest negotiations between Shell and USW took place on February 20. However, no agreement between the two parties could be reached.

The USW workers on Friday midnight decided to impose a strike at the US Motiva Port Arthur refinery in Texas .On Saturday, the USW then decided to impose strikes in the Motiva Convent, Shell Chemicals Norco plants, and the Motiva Norco Refinery. Motiva Enterprises is a joint venture between Shell and Saudi Aramco.

The Motiva Port Arthur refinery has a daily capacity of 600,250 barrels, while the Motiva Convent and Motiva Norco refinery have daily capacities of 235,000 barrels and 238,000 barrels, respectively. After the latest addition of 1,350 workers from the three aforementioned refineries, more than 6,500 USW workers are on strike. The strike has extended to 15 petrochemical facilities, which include 12 refineries. These refineries account for 19% of US refining capacity.

Ray Fisher, the spokesman for Shell, has indicated that the company is extremely disappointed with the latest development. He further said that this would hinder both the parties from reaching an agreement.

The USW International President Leo Gerard indicated that the decision came in response to the industry’s bargaining tactics. He said: “The industry’s refusal to meaningfully address safety issues through good faith bargaining gave us no other option but to expand our work stoppage.” So far, USW has rejected seven offers from Shell.

It is feared that the strike enforced could limit the supply of gasoline in the US market and could raise the gasoline price. On Wednesday last week, there was an explosion at the Exxon Mobil Corporation’s (NYSE:XOM) refinery in Torrance, California. California mainly depends on state refineries for fuel. Blast at the Exxon refinery and the strike has slightly pushed up the gas price in the state. The Martinez refinery of Tesoro Corporation (NYSE:TSO) has a capacity of 166,000 barrels of oil per day, and is among the only refineries that have been shut down due to the strike.

Many analysts and energy experts believe that despite the strike, production would not be affected significantly. Most companies have contractual workers who would replace the unionized workers and, in general, the improved plant technology that these companies possess would put slight pressure on production.

However, if more refineries are shut down because of the gas price then production can be impacted. The demand for crude oil price may also decline, putting downward pressure on the crude oil price. The crude oil price since June 2014 has crashed over 50%. The US benchmark for crude oil West Texas Intermediate during the pre-market hours on Monday was trading below $50 per barrel.

The USW represents 30,000 workers at 65 US refineries, accounting for two-thirds of the US gasoline production. The strike began on February 1 as workers had certain issues regarding the working conditions, wages, and staffing issues. The chief of all these issues as indicated by Shell was the refinery owners replacing unionized workers with contractual maintenance workers.

Shell explained that a flexible workforce helps the company to protect its workforce and has long-term economic viability for its workforce. The company indicated that the strategy in the past has served the company well, and the company in many years has never thought of conducting any layoffs.

As reported by the Wall Street Journal, one of the union representatives, Hoot Landry believes that the union workers are better trained and equipped to perform tasks that ensure that the equipment is able to run safely.

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