California gasoline prices to surge after Chevron refinery fire

By Ronald D. White and Maria L. La Ganga, Los Angeles Times

Aug. 8, 2012 12 AM PT

RICHMOND, Calif. — California gasoline prices could surge at least 35 cents a gallon this week as fire damage is assessed at the huge Chevron Corp. refinery here, raising fresh concerns about the toll on consumers coping with a tepid economic recovery.

“It could get very ugly, very fast,” said Patrick DeHaan, senior petroleum analyst for the price-watch websites run by GasBuddy.com.

A long-term shutdown could be extremely expensive for drivers, he said. He pointed to a February blaze at a BP refinery in Washington state that left the plant out of commission until May and caused Pacific Northwest gasoline prices to increase about 70 cents to $4.40 a gallon.

The Chevron refinery fire, which began Monday afternoon, sent up a column of odorous black smoke that could be seen for miles. Nearby residents were told to seek shelter indoors. By Tuesday evening, more than 900 people had shown up at area emergency rooms complaining about respiratory and other problems.

Chevron officials said they were still evaluating damage at the 110-year-old plant, which processes 243,000 barrels of oil a day into gasoline, diesel and jet fuel, accounting for about 15% of the state’s fuel-making capacity.

The refinery is one of 14 in California capable of making the state’s special blend of gasoline, which is the least polluting sold in the U.S. It’s also more expensive to make and is produced by few refineries outside the state.

Wholesale fuel traders reacted immediately by driving up spot prices more than 30 cents a gallon. Most gasoline stations don’t pay the spot price, instead getting their fuel under long-term contracts, but the spot price is a strong indicator of where retail prices are headed.

Economists and consumer advocates said the Chevron fire could be a big blow to California consumers who had already begun to rein in their spending.

William Yu, an economist with the UCLA Anderson Forecast, said a prolonged shutdown could knock half a percentage point off the roughly 2% growth rate in the state’s economy.

“Consumers will have to bear the burden of higher fuel costs,” Yu said. “They will have to cut back on other kinds of consumption to maintain their budgets.”

Charles Langley, gasoline project manager for the Utility Consumers Action Network in San Diego, feared that the fire would have “a horrific impact on the households who are struggling and just can’t afford another $20 to $30 to $40 a month out of their budgets.”

“In this economy, it’s the kind of thing that could be a back breaker to poorer households,” he said.

Small-business operators are preparing for the fallout.

Roberto Rubio, the 70-year-old owner of Rubio Machinery in Baldwin Park, was already factoring in the possibility that driving his 2011 GMC pickup truck could cost an additional $60 to $65 a month, an expense he could do without.

“It’s too much. This kind of thing cannot help the economy,” said Rubio, whose business repairing food-service machinery for restaurants still hasn’t fully recovered from the recession.

Moreover, he said, he can’t pass on higher prices to his customers. “If I raise my prices,” Rubio said, “my customers will just look for another repairman.”

The fire couldn’t have happened at a worse time for the state’s motorists, with supplies starting to tighten with a month left in the busy summer driving season, said Tom Kloza, chief oil analyst for the Oil Price Information Service.

Pump prices in California already had begun rising several days ago largely because of increasing oil prices, which are headed back toward $100 a barrel.

The state’s average price for a gallon of self-serve regular reached $3.859 on Tuesday, up nearly 6 cents in a week, according to AAA’s daily price survey, which the Oil Price Information Service tabulates based on credit card receipts from more than 120,000 retailers.

Refinery and pipeline problems in the Midwest pushed up average prices there more than 25 cents a gallon during the same period, putting California in the unusual position of having cheaper fuel than states such as Illinois at $4.06 a gallon and Michigan at $3.992, AAA said.

“This is creating a pretty severe situation,” said Kloza, who watched wholesale spot prices for the state’s blend rise 31 cents a gallon in L.A. and 34.4 cents in San Francisco. “For California, it’s a big refinery and very important to the market, and there just aren’t that many other places that can make the state’s blend of gasoline.”

Adding to the concerns is the reinvigorated price of oil, which traded close to $77 a barrel at the end of June. In New York futures trading Tuesday, U.S. benchmark crude rose above $94 a barrel for the first time since May, closing at $93.67, up $1.47.

The Richmond facility is particularly important for Southern California, because it supplies gasoline to the L.A. area, said Bob van der Valk, an independent fuel price specialist.

Refiners “may have to import it from places as far away as Singapore, South Korea and Australia,” Van der Valk said, “which means that prices could go sharply higher in the coming days,” especially if the refinery remains closed for more than a short period.

At the Richmond facility, Chevron said Tuesday that the main fire had been extinguished and officials were allowing “a small controlled burn … to reduce pressure.”

Chevron spokeswoman Heather Kulp said the blaze was caused by “a vapor leak of hydrocarbon, similar to diesel,” from the refinery’s No. 4 crude unit, one of the first stops that oil makes in the refining process.

The leak was discovered about 4:15 p.m. Monday. Emergency personnel responded, but by 6:30 p.m. the leak increased, a fire broke out and personnel were evacuated from the immediate area.

Orders issued by Contra Costa County health and safety officials for those in surrounding areas to stay inside were lifted before midnight. Three employees suffered minor injuries and were treated on site, Kulp said.

Officials at the Doctors Medical Center in San Pablo, Calif., said hospital personnel examined 181 people from the area around the refinery who complained of symptoms that included respiratory problems and eye irritation. Most patients were released after being seen, the hospital said.

A filing with the California Emergency Management Agency showed that the fire released sulfur dioxide, nitrogen oxide, hydrogen oxide, sulfuric acid and nitrogen dioxide into the air, according to a statement released by Richmond.

“Concerns remain about inadequacies and delays in the communication system which reportedly notified only some residents about [staying inside], and not in a timely manner,” the city said.

A health advisory remained in place while the controlled burning continued, the city said, noting that there still was “a big concern to local residents, especially the most vulnerable with respiratory conditions such as asthma and other breathing difficulties.”

Richmond Mayor Gayle McLaughlin said she would call for an investigation and analysis from both Chevron and independent sources.

Chevron issued an apology to its neighbors and set up a claims process.

“We intend to compensate our neighbors for medical and property expenses incurred as a result of the incident,” the company said Tuesday. “We will also see to it that communities will be reimbursed for the costs they face for emergency personnel who responded to last night’s incident.”

Several hundred people turned out Tuesday night for an emotional town hall meeting about the fire, filling every seat on the floor of the Richmond Memorial Auditorium and crowding the back of the cavernous room. Many carried signs, some wore protective face masks and one showed up in a full biohazard suit complete with gas mask. Several complained that the region’s emergency warning system wasn’t effective.

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White reported from Los Angeles, La Ganga from Richmond.