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Shell closes good california refinery during shortage Original Source Link: (May no longer be active)
http://quote.bloomberg.com/apps/news?pid=10000103&sid=aqCQOg0SrBF8&refer=ushttp://quote.bloomberg.com/apps/news?pid=10000103&sid=aqCQOg0SrBF8&refer=us
U.S. Probing Plan to Shut Shell California Refinery (Update3)
July 7 (Bloomberg) -- The U.S. Federal Trade Commission is investigating possible antitrust violations related to the planned closure of a Royal Dutch/Shell Group refinery in California, which has the highest gasoline prices in the continental U.S.
California has higher prices because the low-polluting gasoline blend required by state rules is made only by 13 in- state refineries, according to a May report from the University of California, Berkeley. The refinery in Bakersfield will be closed in October because it is not economically viable, according to Shell.
A U.S. General Accounting Office study released in May found that six oil industry mergers in the late 1990's lifted U.S. gasoline prices an average of 2 cents a gallon.
``The increased consolidation which we have found and the General Accounting Office has found and others have found makes it easier for these companies to engage in anti-competitive behavior,'' Tyson Slocum, research director for Public Citizen, a Washington-based consumer group, said in an interview.
California Attorney General Bill Lockyer and members of the state legislature have asked Shell to keep the facility open, saying that lack of competition in the state's refining business is lifting prices.
Gasoline pump prices touched a record $2.327 a gallon in California in May, while the nationwide average reached $2.036, also an all-time high, according to government data.
Energy prices have become part of the U.S. presidential campaign. The Democratic candidate, Senator John Kerry, 60, from Massachusetts, has said the Bush administration isn't doing enough to address U.S. energy needs.
Antitrust
``We're looking at whether there is any antitrust misconduct associated with the decision to close'' the Bakersfield refinery, William Kovacic, the Federal Trade Commission's general counsel, said today at a hearing of the energy subcommittee of the House Committee on Government Reform on gasoline prices.
Subpoenas have been issued, Kovacic said. He declined to provide further details about the information requested or the companies subpoenaed.
The agency has a range of remedies it could pursue should it find that the refinery closure violates antitrust standards, Kovacic said. Asked if the Federal Trade Commission could block closure of the facility, Kovacic said, ``in theory, yes.''
GAO Study
The GAO, the watchdog agency of Congress, found the mergers increased market concentration in the refining and sale of gasoline, leading to higher wholesale prices. The FTC said the GAO's study was flawed because it didn't account for other factors that might have contributed to higher prices.
California gasoline prices are higher than elsewhere in the U.S. because of the limited refinery capacity, according to the University of California report by Severin Borenstein, James Bushnell and Matthew Lewis. The state has ``the potential for greater premiums due to the ability of some firms to exercise market power,'' the study concluded.
The Bakersfield refinery can process 70,000 barrels of crude oil per day. It produces 2.2 percent of the state's gasoline supply and 6 percent of its diesel fuel, according to the California Energy Commission.
`Bare Minimum'
A watchdog group, The Foundation for Taxpayer and Consumer Rights, last month sent internal company documents to the FTC that undermine Shell's public explanation for closing the refinery, according to Jamie Court, the group's president. The documents show that Shell faces no shortage of crude for its California refineries, Court said.
``Why would you take 2 percent of the state's gasoline off line at a time when margins are at a record,'' Court said. ``Because you don't want a competitive market. You want to shrink inventories and keep the system running on a bare minimum.''
Shell has said it would be willing to sell the refinery should a buyer reach a different conclusion about the facility's viability.
More than 25 companies and individuals have expressed interest in purchasing the refinery, Shell spokesman Stan Mays said in an interview. Of those, six have signed confidentiality agreements that allow the exchange of more detailed information on refinery operations.
Old and Inefficient
``It's an old, very inefficient refinery,'' Mays said. ``It's been losing money for the last three years.''
Mays said the FTC contacted the company earlier this year in relation to the Bakersfield refinery. ``We've been cooperating ever since,'' he said in a telephone interview.
U.S. refiners are enjoying record profit margins as a result of above-normal demand for gasoline and diesel produced by ConocoPhillips, Exxon Mobil Corp., Valero Energy Corp. and other refiners. Margins averaged $9.79 per barrel of crude oil processed into fuel during the second quarter of this year, up $4.49, or 84 percent, from a year earlier and the highest quarterly average on record.
On the West Coast, the most profitable market for U.S. refiners, margins averaged $23.07 a barrel last quarter, double those a year ago and the highest on record, according to Bloomberg data.
Last Updated: July 7, 2004 15:30 EDT
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