Refinery owners upgrading for more reliability, profits in East Bay and Solano County

Future of oil
Refinery owners upgrading for more reliability, profits

By George Avalos
CONTRA COSTA TIMES
Contra Costa Times

Article Launched:05/10/2007 03:03:39 AM PDT

Several oil giants have plunked down a collective billion-dollar bet on East Bay refinery upgrades they believe will help consumers, bolster fuel supplies, increase reliability -- and harvest profits.
Although each project differs in scope and details, the upgrades pursue at least two prizes. Some refineries will gain more capabilities to process "heavy" crude oils and crude laced with sulfur. The plants also will become more reliable.

Drivers could benefit as well.

Oil company representatives say if the refineries gain more flexibility in the type of oil they can handle, and the factories can operate with less down time and fewer malfunctions, supplies of gasoline on the West Coast could become more predictable.

This could also mean more of California's crude oil, which is primarily of the heavy variety, could be refined for use in the state.

During the coming few years, the revamps may create thousands of jobs in the East Bay and Solano County. The jobs should pay well, said Greg Feere, executive officer of the Contra Costa County Building and Construction Trades Council.

"It's going to be a huge economic boom," Feere said.

There's a financial upside if refineries run more days and can produce gasoline from heavy and sour crude. The plants will likely create more profits for their owners.

The oil industry's efforts have irked environmental groups and some residents. Activists have fired multiple shots at a huge refinery upgrade in Rodeo being planned by ConocoPhillips. They say they fear air pollution and noise and want the refinery converted to a green factory.

ConocoPhillips expects to be able to increase refinery production by 1 million gallons a day through the project, said Mark Hughes, a ConocoPhillips spokesman. The expansion effort would allow production to jump 30 percent. Contra Costa County planners approved the project 5-0. Environmental groups may appeal the decision to the county supervisors.

The sharp increases in gas prices in California argue for projects that increase the reliability of fuel supplies, oil industry officials say.

"Over time there is a bigger gap between the supply of California clean motor fuels and the demand for that same product," Hughes said. "This project presents an opportunity to satisfy a portion of the gap between supply and demand."

The energy firms also are responding to a shift in oil markets. The type of oil that refiners covet most is what's called light sweet crude, a product with a relatively low sulfur content. Light crude is also easier to process since a refinery furnace has to separate fewer molecules to make pricey end products such as gasoline, jet fuel and diesel.

Unfortunately, light crude, industry watchers say, is getting tougher to find. And this type of oil is also frequently extracted in less politically stable regions such as the Middle East.

That's where heavy, sour grades of crude oil increasingly come into play. These kinds of crude are more readily found. But the refining process is more involved since the heavy crude oil is more dense than its light cousin. The refinery has to separate out more molecules, as well as remove the sulfur in the oil, to produce the same grade of gasoline.

In Benicia, Valero Energy Corp. plans to install a scrubber that will reduce sulfur dioxide emissions from the refinery, said Chris Howe, a spokesman for the Solano County plant. Valero also is preparing other upgrades.

"It will allow us to process heavier and more sulfurous crudes," Howe said. The refinery will also be able to increase slightly the volume of oil it processes.

The Golden Eagle Refinery near Martinez is in the middle of a project costing $400 million to $500 million to modify the facility's coker, said Mike Marcy, a spokesman for plant owner Tesoro Corp. The new facility will replace an outmoded coker complex. A coker is used to process a black powdery residue left behind by the refinery process.

The upgrade at Golden Eagle would remove several hundred tons of emissions, improve the refinery's reliability and create longer periods between maintenance, Marcy said.

Even before Tesoro launched this upgrade, Golden Eagle was already configured to handle heavy and sour crude oil. Roughly a century ago, independent oil executives built the plant to handle the thick crudes from the San Joaquin Valley, Marcy said.

The new coker will need maintenance every five years. The existing coker must be serviced every two to three years, said Alan Savage, Golden Eagle's environmental health and safety manager.

"If refineries are having difficulties, that cuts into gasoline supply," Savage said. "The fewer difficulties you have, the more opportunities you have to supply the market."

San Ramon-based Chevron Corp. plans an upgrade of its Richmond refinery. The project is undergoing final corporate review, said Stephanie Price, a Chevron spokeswoman.

"We are planning to implement a crude slates upgrade project," Price said. "That will increase the flexibility of the refinery to process a broader slate of crude oils."

No wide-ranging expansion is planned at the Shell Martinez Refinery, said spokesman Steve Lesher. Yet even in this case, Shell in the 1990s revamped the plant to handle heavy crude.

"The Martinez refinery was designed around processing heavy crude," Lesher said. "The majority of our crude comes from the Central Valley."

The costs of these current upgrades are huge:


Tesoro's revamp at Golden Eagle has a price tag of $400 million to $500 million.

ConcocoPhillips expects its project will cost "hundreds of millions" of dollars.

Valero's upgrade in Benicia is expected to cost $400 million to $500 million.

Chevron did not provide a cost figure for its project.
Yet refinery operators are poised to harvest big-time dividends from plants that can process heavy crude.

Spot prices for heavy crude in early May were about $45 a barrel in North America, the Heavy Oil Info online site reports. That's anywhere from $23 to $27 less than the prices for light crude.

The conversions mean operators can produce gasoline at today's prices, but use a raw material, heavy crude, that costs 35 percent less than light crude. And that means more profits.

"A refinery can benefit from the differential between the heavy and light crude prices," Valero's Howe said. "You can pay less for your feed stock but still get the same price for gasoline."

Some community leaders fear the revamps will degrade their neighborhoods. Those concerns have surfaced in Rodeo, which adjoins ConocoPhillips' refinery.

"The community raised concerns that the project would increase air pollution," said Jim Gray, chairman of the Rodeo Municipal Advisory Council. Noise is also a worry.

Environmentalists argue ConcocoPhillips should convert its refinery to a green factory rather than undertake the upgrade. Green businesses are the future and fossil fuels are a resource that can only dwindle, said Carla Perez, Northern California program director with Citizens for a Better Environment.

"Expansion of a plant that depends on an energy source that is going to be used up is really bad for the long-term future of that community, socially and economically," Perez said. "Green clean production of fuel and energy is up and coming."

Perez did not specify what kind of fuel source would replace crude oil in Rodeo.

Rodeo and Crockett could be left out of that green boom should the refinery upgrade.

"ConocoPhillips should install equipment and infrastructure that would make it possible to convert the refinery to a facility that would produce energy in line with green and sustainable protocols," Perez said.

Asked if such conversions might imperil thousands of East Bay refinery jobs, Perez pointed to proposals from the Just Transition Alliance, a coalition of community and environmental groups.

"Workers in the fossil fuel industries will lose jobs from any policy that lowers carbon emissions," according to a position paper on the alliance's Web site. "To soften the blow for the most affected workers, compensation and training must be provided."

Feere estimated that the Chevron project could employ 1,100 to 1,200 for up to five years, based on an agreement between union leaders and Chevron that was reached Tuesday night. Chevron spokeswoman Price put the number at "more than 300" during a two-year stretch.

ConocoPhillips expects to hire 700 for its upgrade, which will also lead to 27 permanent positions at the refinery. Valero said it plans to hire 150 to 300 people in Benicia. Tesoro estimated that 400 people work on the coker project.

"It's really a positive development and these jobs will last for the next several years," Feere said. "And all the new money from paying these people will go back into the community."

Refinery outages continue to haunt gasoline supplies in the United States. The problems are especially acute in California, whose drivers must consistently endure some of the nation's highest prices at the pump.

An August 2006 California Energy Commission report said price spikes last year were due to a slew of refinery outages. And in March, five California refineries, including Chevron's Richmond plant, were suffering outages.

Oil industry executives insist that the various refinery upgrades are poised to produce plenty of benefits for the East Bay. Savage points to the Tesoro coker project as an example of that.

"We get to win environmentally, we get to create jobs, building trades jobs, and we have a coker that is more reliable," Savage said. "We can have a steadier supply of fuel to the marketplace."

George Avalos covers the job market, insurance, banks and petroleum. Reach him at 925-977-8477 or gavalos@cctimes.com.