Tag Archives: Strategic Petroleum Reserve

California oil: Refinery profit margins rise during price spikes

Repost from The San Francisco Chronicle
[Editor:  Significant quote: “A new report from the nonprofit group Consumer Watchdog argues that refinery profit margins in the state rise during price spikes — even when a company has to buy extra wholesale gasoline to make up for refinery downtime.”  – RS]

Refinery ills push price of gasoline up sharply

Higher crude costs add to spike at pump
By David R. Baker, 4 May 2015, 7:23 pm
The ExxonMobil refinery is seen after an explosion in a gasoline processing unit at the facility, in Torrance, Calif., on Wednesday, Feb. 18, 2015. Two workers suffered minor injuries and a small fire at the unit was quickly put out. The incident triggered a safety flare to burn off flammable substances. The facility about 20 miles south of downtown Los Angeles covers 750 acres, employs over a thousand people, and processes an average of 155,000 barrels of crude oil per day, according to the company. (AP Photo/Nick Ut) Photo: Nick Ut, Associated Press
The ExxonMobil refinery is seen after an explosion in a gasoline processing unit at the facility, in Torrance, Calif., on Wednesday, Feb. 18, 2015. Two workers suffered minor injuries and a small fire at the unit was quickly put out. The incident triggered a safety flare to burn off flammable substances. The facility about 20 miles south of downtown Los Angeles covers 750 acres, employs over a thousand people, and processes an average of 155,000 barrels of crude oil per day, according to the company. (AP Photo/Nick Ut) Photo: Nick Ut, Associated Press

California’s gasoline prices jumped 31 cents in the last week, pushed higher by rising crude oil costs and problems at several state refineries.

It’s the second time this year that California drivers have faced such a steep price spike. And it has some oil company critics livid at a state gasoline market they say is designed to fail.

“This is a problem that only benefits them, to the expense of California consumers,” said Tom Steyer, the billionaire environmental activist who has pushed to raise the oil industry’s taxes in the state. “When you look at an oligopoly, is there anyone there with an incentive to solve this problem? I would say no.”

The average cost of a gallon of regular in California hit $ 3.71 on Monday, according to GasBuddy.com. Less than a month ago, in mid- April, regular was selling for less than $ 3.10.

And while gas prices have been moving higher nationwide, California has by far the nation’s priciest fuel. Even Hawaii currently pays less, with an average of $ 3.20. The national average stands at $ 2.63, according to GasBuddy.com.

Part of the problem lies in crude oil prices, which have risen 34 percent since mid-March. But California’s sudden price surge also reflects unique aspects of the state’s gasoline market that have frustrated drivers for more than a decade.

California uses its own pollution-fighting fuel blends not found in other states. As a result, most of California’s gasoline is made by 14 refineries located within the state’s borders. The state also has some of the country’s highest gasoline taxes — almost 66 cents per gallon. And starting in January, California’s cap-and-trade system for reining in greenhouse gas emissions added 10 cents to the overall cost, according to estimates.

Since only a limited number of refineries make California grade gasoline, any hiccup in production can move prices. In February, Tesoro temporarily shut down its Martinez refinery in response to a labor strike, and an explosion hobbled Exxon Mobil’s refinery in Torrance ( Los Angeles County). Prices soared for four weeks.

Analysts blame the current spike on production glitches at the Tesoro refinery in Martinez and the Chevron refinery in Richmond, which suffered a flaring incident on April 21.

In addition, the Oil Price Information Service reported last week that Chevron took down a key unit at its El Segundo ( Los Angeles County) refinery for maintenance, prompting the company to buy up extra gasoline supplies on the wholesale “spot” market to fulfill its contracts to fuel distributors. A Chevron spokesman declined to comment on the El Segundo refinery.

The price spike may be easing, with the statewide average rising just 1 cent overnight from Sunday to Monday. Wholesale prices are already started to fall.

Consumer advocates have long argued that the oil companies benefit from keeping gasoline supplies tight in California, with too little fuel held in storage for when the next refinery breakdown strikes.

A new report from the nonprofit group Consumer Watchdog argues that refinery profit margins in the state rise during price spikes — even when a company has to buy extra wholesale gasoline to make up for refinery downtime. Soaring retail prices more than make up for the added expense of buying extra supplies, said Jamie Court, the group’s president.

“The oil companies know that even if it’s their refinery that’s knocked out, the higher prices will more than compensate them,” he said.

Court wants the state to require oil companies to maintain a specific amount of fuel in storage, to prevent or at least lessen future price spikes.

The U. S. Department of Energy is studying the idea of a fuel “reserve” on the West Coast — similar to the nation’s Strategic Petroleum Reserve — but has framed it as a way to prevent supply disruptions after natural disasters, such as earthquakes or tsunamis. Tupper Hull, spokesman for the Western States Petroleum Association, said California officials have considered the idea before — and rejected it as unworkable.

“Intuitively, setting aside large volumes of fuel from the market is not going to help,” Hull said.

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    THE BASICS: Why oil trains (don’t have to) explode: Everything you need to know

    Repost from The Oregonian

    Why oil trains (don’t have to) explode: Everything you need to know

    By Rob Davis | April 02, 2015 at 1:22 PM
    Oil Train Derailment Illinois
    Smoke and flames erupt from the scene of an Illinois oil train derailment March 5, 2015. Safety experts say regulators have ignored steps that would make oil trains less likely to go off like a bomb when they derail. (AP/Jessica Reilly)

    Crude oil was never supposed to explode.

    Then a train pulling 72 cars of it derailed in a tiny town in Quebec in July 2013. The oil turned into a mushroom cloud of flame. It looked terrifying. Watch the first minute of this video:

    Forty-seven people were killed that night.

    Since then, eight more trains hauling oil have derailed and erupted in flames, drawing scrutiny to a new phenomenon: Crude oil, which once primarily moved in ships and pipelines, is being hauled around North America by rail in unprecedented volumes. More than a million barrels a day now move that way.

    The federal government, which regulates train safety, has slowly moved to make oil trains more secure. Regulators are focusing on strengthening the tank cars carrying the oil.

    But safety experts say regulators have ignored steps that would make oil trains less likely to go off like a bomb when they derail.

    Depending on where it is produced, oil can be dark and thick or light and free flowing. Different amounts of highly flammable gases like propane and butane can be dissolved in it, affecting its volatility. (These are what your backyard gas grill uses.)

    Much of the oil moving by rail comes from North Dakota. And what’s coming out of the ground there has been unusually volatile. North Dakota crude moving in Oregon contains far higher levels of propane than similar types of oil.

    Some North Dakota crude has been more volatile than gasoline. So when the trains have derailed, the flammable gases within have fueled those sky-high fireballs.

    That doesn’t have to happen.

    Michael Eyer, a retired Oregon hazardous materials train inspector, said federal regulators could impose a cap on the amount of flammable gas allowed in the oil.

    “You would have a fire,” Eyer said. “But you would not have the mushroom cloud in the sky.”

    Producers can strip out those highly flammable gases before the oil is loaded for shipment. The process is called stabilization. North Dakota oil regulators estimate it would add $2 to the cost of every barrel.

    Less volatile oil could still burn in a derailment, Eyer said. But nearby residents and firefighters responding to train accidents would be safer: Those fireballs don’t just shoot up. They spread, too.

    State regulators in North Dakota have set the first ever limit to tame the most volatile crude. It went into effect April 1. It requires a less-intense treatment process that North Dakota regulators estimate will cost 10 cents per barrel.

    But Eyer and a crude oil expert say the limit is too high to have widespread impact. The oil that exploded in Quebec in 2013, for example, wouldn’t have been affected.

    Harry Giles is a retired federal official who used to oversee crude oil quality for the country’s Strategic Petroleum Reserve. He said North Dakota’s limit should be set lower.

    “It would increase the safety and lessen the risk,” Giles said. “Fires would be less intense.”

    Compare this fire during a May 2011 derailment northwest of Portland near Scappoose. That’s ethanol — pure grain alcohol — burning. It’s far less volatile than North Dakota crude.

    The fire was still dangerous. But firefighters were able to get close enough to put water on the cars. That’s a fire hose spraying at the top of the photo.

    Now see what happened after a December 2013 derailment with crude oil in North Dakota.

    Look close. That’s a train down there at the bottom.

    Stricter limits would reduce the dangers faced by millions of people who live next to rail lines nationwide, Eyer said.

    That includes Oregonians like Jamie Maygra, a retired ironworker who lives in Deer Island, along the state’s primary oil train route. He said he worries about the oil’s volatility every time he drives near an oil train with his 2- and 3-year-old granddaughters.

    He said he’s frustrated that neither industry nor safety regulators have moved faster to keep people like his granddaughters safe.

    “I think about that all the time,” Maygra said. “The chances of that happening are slim, but it’s a lot more with this oil. They don’t care about nothing but money. That’s what’s aggravating. They put profit before people.”

    Federal safety regulators say they’re studying what makes the oil so flammable and what could be done. Tim Butters is the administrator of the Pipeline and Hazardous Materials Safety Administration, the federal agency with authority to set limits. He recently told a Congressional committee his agency, known as PHMSA, is looking at ways to remove flammable gases from crude.

    But the methods for doing that are already well known. They’re currently used in Texas oil fields, where flammable gases are separated and piped to nearby plants.

    Eyer said the agency should move faster.

    “The industry needs to figure out what the hell this stuff is and regulators need to say ‘We’re going to act now,’ ” he said. “How many rivers on fire and deaths are needed? What is the price?”

    If federal regulators forced North Dakota producers to emulate what happens in Texas, those producers would have to burn or ship the gases they stripped from the oil. Currently, though, North Dakota does not have enough pipelines to move those flammable gases nor a market for them.

    Susan Lagana, a PHMSA spokeswoman, said her agency is concerned about the volatility of oil moving by rail. But research is needed to determine exactly what makes the explosions so severe, she said, and what could be done to minimize them.

    Eyer and Giles agreed that North Dakota’s volatility limits were too high, but they didn’t agree about what the right level is.

    “That’s what we need to know,” Lagana said. “We are willing to consider all options to address making the product safer in transportation.”

    The relevant research, being done by the federal Energy Department, should be finished this summer, Butters told Congress. But he didn’t promise any next steps once it’s done.

    In the meantime, allowing producers to leave those flammable gases in the oil gives them more profit, allowing them to slightly bulk up the volumes they ship. It’s one reason the oil industry is fighting suggestions to stabilize North Dakota oil.

    Don’t blame the oil for explosions, the industry argues. Blame the derailing trains.

    “Keeping the trains on the tracks is the only way to ensure that crude… will be transported in the safest possible manner,” Charles Drevna, president of American Fuel and Petrochemical Manufacturers recently wrote.

    Solely focusing on tank cars and trains “is not enough,” Eyer said. “The starting point is always what are you putting into the car?”

    A bill introduced recently in the U.S. Senate by Democratic Sens. Patty Murray, Maria Cantwell, Dianne Feinstein and Tammy Baldwin proposes limiting the volatility of oil moving by rail. They want the rules in place within two years.

    It’s a sign that political leaders have realized the North Dakota oil poses unique risks that could be reduced. A spokeswoman for Sen. Ron Wyden, D-Oregon, said he is tracking the issue and continues talking to federal transportation officials to find ways to address it.

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